Central Bank Control Is Breaking

4/3/2026 10:00:00 AM	medium term cautious up	21 days later	-14.27%	-7.13%

Speaker2

There's really no path to the Fed cutting in 26 without a crisis.

Inflation from the Iran war will persist for at least a year, and the effects on commodities will only start to roll off in March/April of next year.

Speaker3

See oil taking off like this? It's generally a sign that this is the end of the cycle, and oil and the rate of inflation change really breaks the back of everything.

Hiking expectations go up, credit spreads blow out, and the AI boom gets cut off because credit constricts.

Speaker2

I am basically in the camp that a 1970s second inflation wave is effectively baked in the cake.

The wartime economy is not ending, geopolitical tensions are increasing spending, and the economy is being run hot.

Speaker2

I think the next risk here is an export restriction control or ban of some sort.

Gasoline prices are up over 33% to start the year, and letting them go to the moon is textbook for how to lose an election. An export ban would suppress US prices but disincentivize new production.

Speaker3

When you get interest rate volatility across countries, that's when you get funky stuff. Global carry trade unwinds, etc.

UK, German, and Japanese 10-year yields are breaking out higher, while US junk bond yield spreads are still low. This is a global macro signal.

The shift from globalism to protecting natural resource sectors in this new deglobalized world is going to be secularly inflationary and can be very positive for growth.

Speaker1

Speaker2

2022 is a great analog. Main Street did well, corporate credit outperformed sovereign debt because the economy was fine, and it was the sovereign that had to reprice the base rate.

We are seeing that again with accelerating manufacturing and industrial numbers. A reversal where Main Street does well would see asset prices suffer and be inflationary.

Speaker2

The yen at 160 has to break to the upside. They're throwing good money after bad trying to defend this level, especially with an inflation crisis.

Japan imports 60% of its food and 90% of its oil and gas. The commodity supply shock is hitting them much worse than the US. The dollar needs to strengthen, and US yields are bumping against 5%.

Speaker2

If 160 goes, Japan yields rise, US yields rise. If they defend it, they weaken the dollar, which is inflationary in the US, and yields rise. It's a lose-lose.

A weaker dollar supports growth and inflation, making US bond yields worse off down the road. The last thing Bessent wants is for the carry trade to unwind and the Nasdaq to get smoked.

Speaker2

I think eventually 160 breaks, 5% on the 30-year breaks, and the Nasdaq rolls over.

The volatility profile is at two-year lows, which is insane given the circumstances. It's asymmetric to be short bonds, short the yen, and short the Nasdaq.

Speaker2

The yield curve has to steepen. They will do anything to not raise rates, so the long end has to go.

The more they suppress yields and the dollar in the short term, the more they make the problems worse on the long end, creating a more compressed rubber band.

Speaker2

Wage growth from reduced immigration and labor force decline is starting to bottom out and probably increase with this manufacturing uptick. That was a huge source of disinflation, and now it's reverting up.

Speaker2

I actually think escalation is in the Trump cards. He might want to suppress global economic activity and create actual physical shortages of commodities to suppress the economy and demand to keep a lid on yields.

They need demand destruction because they're not allowing prices to get to levels where producers put more drills in the ground.

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