Navigator: The Heart of Each Matter
This piece looks at each of our major themes and highlights the critical investment variable that will make then succeed or fail.
Middle East Oil Disruption - why the broadening, deepening conflict leaves Iran feeling stronger and the US looking weaker. Expect Crude Oil inventories to continue to decline to critical levels in the US and OECD. And why refinery runs are an even bigger casualty making Diesel is the best long position. But Brent is good too.
Moluchkha maritime war in the Black Sea, the Sea of Azov and the Caspian will add 1-2 million bpd of Russian and Kazakh oil and refined products to the global deficit. But the big story is it will create a food deficit of 5% of global grain supply. Adding in the impact of the ME on fertilizer and fuel for farmers plus a Super El Nino could add 3-4 percentage points to Global Inflation over the next 12 months. Government interventions to protect local populations from rising food prices could make this much worse. Dust off your inflation hedges: short both long maturity and short maturity sovereign debt; long grains, coffee and cacao; short food processors; gold will become an inflation hedge again and long inflation linked bonds (if you can find them).
Japan and the US have joined hands to try and save the Yen from a fate created by a supine BoJ and a crazy fiscal policy. Nothing changed for the root causes of the issue. So, it’s a waste of money. Interestingly and in violation of all protocols the US Treasury didn't use its own currency to intervene. It used the Euro when the ECB refused to join the party. How to win friends!!!
My belief is that Chair Warsh is a closet dove. On inflation he will talk the talk but balk at the walk. The reasons to believe this are twofold: the prominence of crypto assets in his personal wealth and the five themes he referred to committees packed with supporters of his own established views.
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