How it started vs How it's going

25 thg 2, 2023

I started following the USDJPY pair when Japan announced a surprise rate increase on Dec 20th.

I had only seen the market react like that to US rate hikes.

Yields went up while equities and the dollar went down.

Since then, the USDJPY started clawing back higher over the last 2 months with a strong up thrust on Friday.

A strong DXY indicates to me that the FED and other CBs are expecting inflation to be sticky for the rest of 2023 and longer (higher longer).

Higher inflation or inflation hitting a plateau for longer could spell trouble for the FEDS story about being able to control the economy.

The Stick Inflation / Second Leg Down

I changed my view when I noticed the dealer flows were not aligned for a second leg down and made this call instead.

Now looking back over the past 4-5 months, very little fed liquidity has been sold (QT).

Seems to me like everyone wants a second leg down.

• Value Investors are waiting on the sidelines for the real bottom.
  
• Private Hedged Equity funds are accepting new investors.
  
• 0DTE crowd is funding Kenny Gs Nth most expensive apartment.
  
• Cracks in private debt sector may be the bubble everyone is looking for.
  
• Housing Markets are far from out of the woods with higher rates for longer.
  

Meanwhile China, Russia, US and the rest of the world play high stakes balloon warfare.

My personal perspective is a feeling that everyone is waiting for a shoe to drop.

I'm convinced there will be some event or catalyst that sends equities and bonds into a tail spin.

Could be a war, major bank, higher inflation for longer or it could be something hiding right in front of everyone, but we are too blind and complacent to notice it.