YouSaid · the spoken record

Felix Jauvin

lines on the record: 72
first: 2023-01-05
most recent: 2023-01-05
sittings or episodes: 1
sources: podcast

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“That we're playing in, and we just aim to provide the best research we can on a weekly basis. So we provide at least three reports every week, weekly analyst calls where we all break down our reports with members and have open Q&A with them. But it's really just about creating as professional as possible of a research firm to get more people onboarded into that digital asset landscape.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so reflexivity research is a digital asset first research firm that we founded that on a weekly basis we cover basically a holistic approach to different subjects. So I cover on a weekly basis the macro side of things. But I'm just as crypto native as anybody else out there and definitely passionate about that side as well. We also have a team of other analysts that are specialized in DeFi, you know, an on-chain activity dynamics and on-chain analysis. NFTs, we basically cover the gambit. And really our value proposition is bringing that crypto native knowledge overlaid with some of the dynamics and insights that I bring from the macro side of things to deliver this holistic package to effectively other traditional firms that are coming from the traditional finance landscape and starting to move into the digital asset landscape. So that's really the section.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“100%. Just be honest with yourself and your intentions. You could go around some discounted cost flows on some value stocks, but also admit to the fact of yourself that you're buying these hypergrowth assets for different reasons.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, yeah. And I, you know, for me, they're just speculative vehicles on liquidity. I'm not bothered as much with the fundamental technological thesis behind Kathy Wood's stocks. It's a speculative vehicle, and I think that's what a lot of market participants have basically adopted those tickers as they just, you know, nobody wants to actually admit that fact, but that's a lot of what has happened.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“If we go out into this all out liquidity inflection point to buy some crypto, but also go buy some tech stocks and some Kathy Wood stocks, that probably also makes a lot of sense as well just to diversify away from those sort of idiosyncratic microstructure risks”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Sorry for FTX. Binance, we assume they have seen largely speaking that they own Bitcoin and Ethereum. Definitely not saying about that side of. And, you know, I don't really have an opinion on the Binance thing. I think it's too early to tell and there's too many rumors swirling. So not even going to unpack that kind of worms. But when I look at the facts of what has been unfolded To me, those say more has been sold than actually is left to sell, generally speaking. But of course, like you said, if we start to unpack those cans of worms and see that there's all these other dynamics, well, yeah, I'm causing myself a lot of headaches when I could just go buy calls, long-dated calls on Nasdaq, and ride the same wave. So, you know, there's an argument to be made there that”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Reasons to actually be a buyer of Bitcoin and Ethereum because when you really dig into the weeds, a lot of that selling has actually already occurred. You know, the biggest tail risk for me for crypto is actually what we've been talking about is just this correlation to one type of market crash and how that affects the majors. But in terms of the microstructure, you could argue assuming if we pretend that grayscale will not crash, that's probably the only one Taylor risk. But other side of that, I think a lot of the selling has already occurred there. And, you know, there's a There's a lot of people that are going to want to own Ethereum and Bitcoin eventually once we see the sea change. And there's tons of opportunity there.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Know, invalidate my thesis, you know, just to quickly explain that is that they would effectively have to liquidate their fund. And depending on how that actually occurs, that could lead to a huge selling moment of Bitcoin on the market. So obviously that would create very idiosyncratic issues. But putting aside that tailor risk and just assuming, okay, Genesis goes bankrupt, but they can save grayscale, all these other CFI landing platforms and FTX, none of them actually own the majors anymore. They all are just like locked up, you know, Solana and FTT and that sort of thing. Well, then there actually starts to be an interesting argument that we've actually seen a lot of that self-pressure already in Bitcoin and Ethereum. And those could be a buy. So, you know, I definitely don't think it's the time to go out and buy esoteric altcoins and, you know, just like max out your risk curve there. I think there's both fundamental and liquidity.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Bal Yeah Totally. Well, you know, when FDX's balance sheet got leaked and it turned out to just be a lot of altcoins, ones that they had created on themselves, like FTT, there was no Bitcoin and there was no Ethereum on their balance sheet. They had already sold it. They didn't own any of it. So a lot of these problem companies that are blowing up, they have a lot of effect on some of these more esoteric altcoins. But you can make an argument in terms of pure supply dynamics that a lot of the actual supply of, you know, if we assume, say, FDX had gone bankrupt and we need to liquidate the entire portfolio of crypto assets, well, they would have no Bitcoin or Ethereum to actually liquidate because they didn't own any when that happened. So from that peer perspective, and obviously there's the argument of what could happen with Genesis and Grayscale. And, you know, if they have to unwind grayscale, that's a whole other issue. And that would totally.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Specific microeconomic fundamental problems within the CFI centralized finance ecosystem of crypto. So for example, just because the Fed is printing a ton of money, if every crypto lender within crypto has hidden losses on their balance sheet that will take months and perhaps years to realize how bullish can you be on crypto. So I guess that's a sort of long-winded way of asking you about the fall of FTX, the fate of Genesis, crypto lender that now hangs in the balance, Binance, where rumors are spreading around. It used to be called FUD fear, uncertainty now. Hasty to use that term. Yeah, just what do you think about the microeconomic structure of crypto?”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“It would. So, you know, just to clarify, I think Core CPI, especially because of goods and services, I think and shelter, those three components will add to a significant component of month of a moment deflation. But we've already seen a lot of that month of event deflation attributed from energy. So I think that has largely already occurred. So again, to your point, it could make sense. And you are right that energy has had a lot of a shorter lead time in terms of how it affects inflation. Again, that would, so, you know, my argument would be that that would be the first one to buy and it would be sooner than later. But again, yeah, moving out on the curve, some of those other commodities like say copy or something like that, that is one that you could buy with a little bit of a slightly longer lag time to CPI. But well said that oil does track it a lot closer. And a lot of that action has already been attributed into the CPI on a headline basis.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Right. I get that for a lot of commodities, there is a significant lag between when the commodity price goes up and when consumers feel it in their pocketbook, like the price of copper, aluminum, many months delay, maybe even a year delay, who knows? But for Natural gas, oil, and specifically gasoline that's felt almost immediately. So I feel like to have a core, to have headline CPI deflation. I feel like the price of gasoline and oil and natural gas still has to continue to decline. No?”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“To rise again higher and actually reach the previous highs, potentially sometime in 2024. So they would be a great year to year and a half hold on that basis.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Do but you know, they've commodities have led this pivot towards a change in CPI on a month-run basis. Markets, again, are always forward-looking. So if I assume the fact that copper and everything started to come down a lot, very quickly months before CPI started to roll over, well, then the same is going to be said for moving forward is that as we see CPI bottom out, commodities might already start to rise. So for me, again, that's where I could see. And, you know, obviously we get into the argument of we could see like an idiosyncratic, you know, correlation to one's sort of market crash. That's always a possibility. But putting that aside, I see it as being a great time to buy those commodities in, you know, January to February and holding those effectively until we repeat the cycle where we start to get that upswing and then CPI starts.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Again, it's an if then statement. If some sort of tailor risk event occurs worldwide fixed income markets, sovereign fixed income markets, and I see the actions start to happen where central banks start to ease on the margin, well, then I'm going to be a big buyer of crypto. But if that is not happening, I'm not a huge buyer. And I'm going to wait for that to happen. So I can't predict the future entirely. These are obviously pretty large tail risk events. So for me, it's an if-then statement. I'm sitting on the sidelines and if that happens, then I know exactly what I'm buying.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“To rethink that argument because of the fact that we could see this dynamic where US dollars coming down while yields are still going up higher. So I'm starting to have a little bit more trouble thinking that the owning long duration bonds make sense, but I think the short end is still a great buy here, especially as we start to approach that terminal rate. If we call it that it's either one more hike of 25 bits or maybe 50 or so, it makes a ton of sense to buy the short end here and basically weather out the storm there. Again, as I explained at the onset, for myself, I have fundamental bullish views on crypto and Bitcoin and everything in terms of the technological potential. But those are my philosophical views. They're not my trading or capital allocation views. My capital allocation views are purely as a speculative engine for liquidity dynamics. moving forward.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“If they dealt, yeah. So again, it's an if then statement for myself for equities. And if they don't do that, then there's a lot of arguments to be made that equities don't make sense here, especially when you could go to the short end and get a pretty decent 4% yield on your cash there. That makes a ton more sense to sit there and write out the storm than go into buy equity. So if that does not occur, those terror risk events that again, I totally admit that's pretty A lot of things have to occur for that to happen. If they don't happen, then I don't see myself buying equities. I see myself, you know, either parking in commodities. Again, because of the fundamental supply reasons that I had explained that we haven't fixed. I think those are a great buy. Up until basically last night when we saw the announcement from the Bank of Japan, I've been super bullish on long-duration bonds because of this faster than expected growth slowdown. But I'm starting.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I do, because, you know, again, for me, the biggest framework for me is just liquidity dynamics or expectations of it. So if we assume that something occurs on the long hand that brings the Federal Reserve in, that's going to ease liquidity conditions. So with that happening, then it makes sense to be a buyer of equity just to basically chase those tailwinds of further upside derived by liquidity.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Just skipping a little bit forward. If the long end US treasury market starts to go unhinge and start to explode higher, that's going to cause a downside to equities and risk assets as well. So I'm generally quite bearish on equities for the next six months. But I do think that somewhere around February and March, they're a really great buy. Commodities, again, like I had just explained, you know, that's the first.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Sure. Yeah, let's go through the full gambit. So equities, you know, again, like I explained at the onset of this discussion has been so much tracking liquidity dynamics or at least expectations of liquidity dynamics paired with these idiosyncratic events like CPRF WNC meetings, generally speaking, as well, obviously there's a third portion of that, which is the valuation framework of, you know, if we have a one-year bond trading at with a yield above 4%, that's going to make the opportunity cost of equities the hurdle rate to decide to actually own equities quite a lot harder than it was a year ago. So there's fundamental bearish tailwinds towards equities that make it difficult to rationalize on that valuation basis, as well as the fact that liquidity is still deteriorating. Both of those reasons, plus the fact that if we”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“And the fact is, you know, we're not talking about it anymore, but Nord Stream is still down. Like, there's not even an option potentially to open those up. So there's going to be some big headaches in terms of getting those commodities that these countries need. And that just reiterates my thesis that, you know, if I think that Q1 2023 is going to be the bottom and it's going to be triggered by some sort of event on the long end of the yield curve or potentially on the short end, the first thing I'm buying is energy and I'm buying it hand over fist because again, we haven't fixed anything in the supply dynamics. We've just barely suppressed it. And the second that we pivot there, while over here in China with the man coming online, well, you know, inflation is just going to get worse. And we're living in this world of scarcity of commodities now. And, you know, all these countries are going to have to fend for themselves somewhat as we see globalization start to peak out. So those are all fundamentally bullish factors.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. Yeah, you know, these are great points. And again, these get to the Know fundamentally, I'm still incredibly bullish on energy and commodities. And these are also more further contributing reasons why I see that even though for the next six months, I see surprises of the downside in inflation because of aspects that you've just mentioned, like the fact that China is generally speaking, and especially paired with the fact that we're seeing this reopening from them, they're a bit further along in this business cycle than we are in the West. So that paired with what's happening with the demand coming online of if they reopen their economy, again, like you just said, that's a huge bid for commodities and energy. So that paired with the fact that as we start to go through the winter in Europe, obviously we just barely got, you know, through having enough energy for this winter, just barely. But they're going to have to start to refill their energy reserves thinking for next winter. And that's going to also provide a bit regardless.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“And it's not looking good. So that would be a very bearish picture for commodities. However, Europe is in a bad way and they still need commodities. And China is also in an extremely bad way. But remember, if something's in a recession that's actually bullish for if they're at the bottom of the cycle, their demand will only go up. Whereas now America is, quote, doing okay, but it's only going to get worse from here. Whereas in China, things are so bad and they might get better. I've had some recent guess on who disagree with that. Yeah, China is a big, it devours coal, natural gas, oil. So what's your outlook on that? Oh, and also, you know, China has, it appears they have left behind their policy of shutting down the economy to Restrict the spread of you know what.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Right. I just want to explain a point you made about month over month consumer price inflation versus year over year. I'm just going to make this number up. But let's say in January 2023, the CPI index, and it is a real number, is at 106. And then in February, it's at 105.8. That is a month over month decline, but that you have to compare February 2023 to January February 2022. And again, made up numbers, let's say February 2022 is at 100. So that's still a 5.8 year over year increase, even though you have month over month deflation. Okay, Felix, what about China? Because the US is, in my opinion, Clearly going to go into a recession.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“And if you start to continue to play this game of extrapolation out, you could see how, oh, look, we're just tracking the 1970s again, where we're going into having high inflation. Oh, we hike kai kai kai kaik. Oh, something's breaking. Oh, we're going back up and then CPI rises again. And that's exactly what happened in the 70s. So despite the fact that Powell doesn't want to be in Arthur Burns and be the one who, you know, has apparently pivoted into inflation and made it worse. And he wants to be his hero, Paul Volcker. The fact is that these are the dynamics that play. And, you know, we're all just participants in this game theory of markets. And that's how I see it all playing out.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Could easily see energy, you know, it's at $75 right now. We could easily see it back above $100. And that's going to have a cascading effect across all these other different components of inflation as well. So for all those reasons is why I believe that on a short to medium term basis, we're going to continue to see growth slowdown surprises as this recession starts to unfold. That's going to have an effect on surprisingly, you know, we might see all out a couple months of all out month over month deflation on an annualized basis, my shorthand framework is around 3% to 4% headline inflation for on a year-over-year basis. But having some month over month deflationary aspects. But that moving forward on that longer-term basis, again, we haven't fixed anything. We've just suppressed demand. So that could easily shift that if we started to ease on the margin and be forced to, that's why I could see CPI rebound back further.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Started talk about actually purchasing back. So there's starting to be this shift in terms of the demand dynamics mattering a bit less than the supply dynamics, which again, we haven't fixed anything there. There's still all those issues in terms of peak cheap energy and the arguments there. So there's plenty of reason to believe that, again, leading to what I had just mentioned, that if the Federal Reserve started to ease on the margin in 2023,”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Releasing oil from the Strategic Petroleum Reserve has brought a ton of oil online. At the same time that the market has started to price in a recession and a decrease in demand. So we've seen, you know, not many people have clued into this fact that U.S. oil is effectively, I believe it's either flat or slightly negative year to date, despite everything that's happened with the Russia, Ukraine war, all of that, we're effectively at flat. So that has provided a huge tailwind for headline CPI to come lower on a month-room basis. Now we're at this point where you could argue this upcoming recession is nearly priced in, just roughly speaking, my internal framework is that we price in, say, 80% or 70 to 80% of a recession within commodities, that plus the fact that the SPR is starting to flatten out in terms of how much the Biden administration is releasing.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“And that's starting to peak and come down as well. And if we just think about, you know, just as a shorthand of where U.S., you know, say pending home sales is at, you know, we're down 37% in pending home sales. That's the biggest decrease in history. So if we just assume and extrapolate that trend to shelter inflation, well, it's safe to assume that fairly soon we will actually see month-over month deflation there. So all those dynamics are shifting lower. We've seen some of them start to provide us this tailwind of lower inflation than expected. And some of those others are going to start to actually take off the mantle of providing that for us, like shelter inflation. Taylor risk to this idea of lower inflation than expected is oil and energy. So from a headline basis, what we've seen over the past few months, notably because of what's been happening with the Biden administration and”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“In services, but we're actually starting to see that now start to top out. So these aspects are all starting to shift lower. So we're seeing goods deflation. We've seen services inflation start to peak out and start to head lower on a month-or-month basis. The two other aspects that are affecting a lot of things is thirdly shelter inflation, which we all know and have discussed about just how lagged it is. And that's by roughly design. And that has a lot to do with owner's equivalent rent and how that's basically tracked and managed. But effectively what we're seeing now is that this lagging inflation where last month we were at 0.8% on the month-or-month basis inflation for shelter. This month we're at 0.6. So we're finally peaking out there. And this has been the biggest contributor to top line, the biggest top line contributor to inflation.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“They start to order in a bunch of inventory to match that demand. And as supply chains start to ease, that's what inventory started to come online just at the same time that the economy was reopening. We all decided, all right, I'm going to, I'm done using my Xbox. I'm going to go travel. So what we've seen is that suddenly inventory levels have increased quite significantly. And we're starting to actually see goods deflation on a month or month basis. So this has been happening, you know, for the second month in a row now. We've seen transportation goods, month- or month inflation, medical have deflation within it. But what's being offset by that and why we're not seeing month-of-month deflation on an aggregate basis quite yet is that we're still all busy traveling and living up on the services post-pandemic. So we're still seeing inflation.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Totally. So we've had the second month now of surprises to CPI to the downside from market expectations. You know, this past month, we saw course CPI on a month-orient basis, be it 0.2%, where it was forecasted for 0.3%. So this is the second month in a row where this has occurred. And yeah, I think that that fact is going to continue. There's a number of reasons. The first dynamic that's occurring here is that as we've come out of the pandemic and we've shifted away from, you know, during the pandemic, we were all about buying goods.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Moments where the Fed funds rate is still going to 5%, but they're also doing some operations on the long end. And again, this is stuff that unless you're a huge financial plumbing nerd like yourself and myself, we're the ones paying attention on that. But as long as that Fed funds rate isn't coming down, a lot of the masses won't pay as much attention to it. It's the same thing that happened back in September 2019, where they came in to supply liquidity to the repo market and they said, oh, it's not quantitative easing. It's just, you know, helping ensure ample liquidity and, you know, normal processes within that market. But we all knew it was effectively providing liquidity. So we could certainly see this dynamic where rates on the short end are still rising or flat at the same time that they're doing operations on the long end. And I could totally see that happening.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, you know, perfectly said. And that really gets to my issue with both the word pivot and its focus on the federal funds rate. And so much of the focus is there on the price of money. When as we've been talking about this entire time, the big changes are happening with the quantity of money and how that's going in and out of the financial system. So, you know, I wouldn't be surprised if, you know, historically, they've never, for example, they never stopped quantitative, they never hiked rates before they stopped quantitative easing. There's always one before the other. And they never started to do quantitative tightening until they started to hike as well. So these have been these holy processes that they've never wanted to mess with. But as you just mentioned, the Bank of England has already broken that tradition. They went in and started to effectively do quantitative easing on the long end. At the same time, that they're hiking the short end. So I could definitely see some idiosyncratic.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Right. So this pivot that you imagine would be the Federal Reserve trying to cap long-term yields or at least stemming the explosion higher of long-term yields. I can imagine a world, Felix, in which this nightmare scenario you envision goes higher, the 10-year treasury goes to 5%. And the Fed says, okay, above 5%, we're going to be a buyer and we're going to have a 10 basis points range. So basically the 10-year Treasury is stuck at 5.10%. I can also imagine in that world the Federal Reserve is still getting to 5.25%. And I feel like when people talk about pivot, the focus is really on short-term interest rates. In that world, even though the Federal Reserve did a drastic action to inject liquidity and restore stability to the funding markets globally,”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“You know, despite the fact that Powell does not want to be in Arthur Burns and he wants to be a Volker, you know, the fact is Game Theory is game theory. And when you think about all the aspects we've just described, we could see them have to intervene in some form or another. And that will be at a time where CPI is just starting to bottom out. And, you know, I think we're going to bottom out somewhere between three or four percent. And because they're coming back in and we've never fixed any of these supply issues, all we've done is suppress demand. We've actually not fixed anything on the supply side. We can see CPI explode in 2024 to potentially double digits quite easily. We haven't fixed anything in terms of the energy markets. That's still as big an issue as ever. We've just suppressed demand.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“If this is continuing and we're starting to see, you know, depending on the tailor risk, of course, is that the head of the BOJ will be retiring, I believe, roughly February or March. And depending on who comes on and continues from there, if they take the mantle of turning towards Moore Hawkesh, well, that's going to bring DXY even further down and yields potentially higher. And that could actually see the Fed pivot and enter the market to fix liquidity issues at the same time that we're still seeing some form of hawkishness from other foreign central banks. And that will have a pretty interesting effect on liquidity, on CPI, and of course recessions. So, you know, moving from there into my two-year view, roughly speaking, is that comparing all these aspects I just mentioned, as well as the fact that we're starting to see CPI come down quite significantly.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“If US rates are staying flat and the ECB and BOJ are hiking upwards, well, that's going to bring DXY roughly speaking down. But at the same time, as we've been talking about, we could still see, and this is what we're seeing in the price action today, is we're seeing DXY down, but yields up. And that's quite a change in regime from what we've seen so far this year. So what I see happening is that we're going to see the DXY come down, but it's not necessarily going to be bullish because we're going to have this upward pressure in long end yields. That's going to affect, of course, just through opportunity costs of comparing the risk-free rate against risk assets like equities. What we're going to see yields go up, risk assets come down, while at the same time DXY comes down. So I think that's very different from what we've seen so far this year. And that's largely just caused by those interest rate differentials. And of course, the fact that if we fast forward six months from now,”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Happens next is potentially a nightmare scenario for Powell and the Fed. You know, my view is, and I've had this view for even before this happened with the BOJ, is that the US dollar has peaked, the DXY has peaked, but not for any sort of good reasons, and certainly not any bullish reasons. I think it's simply because of interest rate differentials and how ahead of the curve,”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Right. Central banks are, even though they're global, they are in effect joined at the hip. Like if you and I were neighbors and my house is flooding, you can't just be like, oh, Jack, screw you. Likely, my flood is going to become your flood. And global bond markets are fungible if you own a Japanese government bond, a 10-year, let's say. That's the same as owning a 10-year treasury except it has currency risk. And you can hedge that out with a FX swap. So if someone was happy owning a treasury yield because, oh, the Japanese government bond yields is at 25 basis points. It's at 50 basis points now on the margin more attractive. Still not attractive, but on the margin it gets more attractive. And yeah, so that news you said the Bank of Japan's yield curve control, their target rate is still zero, but they've moved the acceptable”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Entirely a possibility where we could see some sort of tail risk event that affects the long end and that could be the trigger that actually has to see the Fed come in and effectively pivot. And I hate to use the word pivot, but I could see that being something that happens in early 2023. At the same time that we're starting to see some encouraging signs from inflation slowing down at a faster pace than most expected.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Wall of inflation now even in Japan where there's an argument to be made that this 50 basis point cap on yield curve control has nothing to do with inflation starting to arise in Japan. But I think it's starting to lay the groundwork for a shift to a more hawkish policy moving forward. And when you have such an indebted central bank that has traditionally been so dovish, that's going to cause some significant changes. And these are things that are a lot harder for countries to coordinate, especially in an inflationary world where central banks have to start to think a lot more domestically than internationally. So, you know, the Bank of Japan, the Bank of England, the ECB, they have to at the end of the day look out for their own currencies and their own funding markets as a secondary aspect to what the Federal Reserve is doing and how that's affecting the long end of the yield curve. So I think there's”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“A really great job in terms of patching those issues up. But again, this is a world that is so nuanced in this area of the market that it's very hard to predict. There's these idiosyncrasies like the one that Joseph Feng has mentioned where the fact that because the fees on money market funds, this is effectively siloing a certain portion of liquidity. And we just don't know how that could affect things on a medium-term late basis. So, you know, I think there's a decent chance of something breaking in the funding markets, but I would put it as quite a bit lower as what could occur on the other side of the equation, which is how foreign sovereigns are affecting things. Because the fact is we're shifting in this world where all these central banks have hit a ton of debt. We have debt-to-GDP ratios above 100% in a ton of countries. And generally speaking, when we get above that number, things get a lot harder for monetary policy. And as we're seeing that being shifted and budding into the”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, it's almost like they play a game of whack-a-mole each cycle. So, of course, like he had mentioned, they had fixed the repo. They came in and now there's a standing repo facility. You know, back in 2020, we saw that as the world was shutting down foreign central banks were basically scrambling for US dollar liquidity and the Federal Reserve had to come in with very aggressive swap lines. And now we effectively have a standing swap line facility. So those are there. Those are things that they have patched over. And to your point, they've done a really good job of setting those up. And oftentimes you'll see investors start to look at previous cycles and say, oh, here's the next thing that's going to break. What happens when the repo facility breaks again or something like that? Or, you know, people started to look at everything that was occurring with Europe and the world there and saying, oh, well, you know, there's going to be a huge demand for swap lines and they're going to have to come in with swap lines and that'll provide liquidity. But again, these have been patched over and fixed. So to their point, they've done.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“A strenuous job, a lot of effort to plug that hole. And I wouldn't be shocked if we had another short-term repo crisis for risk-free assets like treasuries, but I would be pretty surprised. I'm curious about what you think about that, as well as what do you think is more likely to break long-term sovereigns or credit risk? CLOs, high yield, investment grade credit, stuff like that.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Right. So basically two risks credit risk and interest rate risk, shorter end yields low interest rate, a small amount of interest rate risk, but you can see still that can blow up as we saw in September of 2019. But that's the reason why we now have a repo facility where we've kind of got a ceiling and a floor where the floor is the reverse repo rate and the ceiling is the repo rate. If interest rates burst higher than that, that's when you have a problem, which is what happens in September 2019. But the Federal Reserve has, in effect, unlimited firepower to stop that. I think now the standing offer is $500 billion a day. No one takes it up because you'd never borrow at the rate. And they said that the chairman can extend that if he needs to. So it's like $500 billion. Oh, and by the way, if it's $502 billion, we got you. If it's $600 billion, we got you. So to me, it seems like the Federal Reserve has done a”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Cascading effects on the long end of the yield back in the US because they own a trillion dollars. Japan owns a trillion dollars of US treasuries. They're by far the biggest owner and holder in the world. If a certain percentage of that ownership starts to flow back into domestic bonds in Japan, that's going to lead to further increases in the yield. And we could see something potentially break there on the long end and have to see the Federal Reserve, even though the last thing that they want to do is actually intervene in the markets. The same thing, you know, with the Bank of England. It was the last thing they wanted to do was intervene in the markets, but they had to intervene in the markets. So that's the other side of the equation. So, you know, to really sum that up is there's something on the short end plumbing side that could break based off something we've created this cycle, or there's something that could occur from effectively foreign sovereigns and their effect on the long end of the treasury market.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Of reverse repo that's one option the very short term funding markets the second possibility of something that breaks is these more long-term issues of both refinancing and just long end yields. So as we saw what happened with the Bank of England recently where everything that was going on there with the trussonomics fiscal stimulus that obviously led to her demise as the prime minister quite quickly What happened there is that the long ends started to effectively go no bid to the point where pension funds were on the brink of collapse and that was something that broke and led to them having to intervene you know when we compare to what had just recently came out just last night in terms of the Bank of Japan announcing that they've moved their their cap on yield curve control on the 10-year JGB from you know 25 basis points to 50 basis points that's going to have huge”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so historically, the things that have broken have been things within this granular and sometimes ambiguous short-term funding market. So, you know, back in 2019, we saw the repo rate skyrocket. And that was one of those things that broke quote unquote. You know, oftentimes I think every cycle as we go through here, we patch this one over here and then we move over here and then we create something like a $2 trillion reverse repo operation over there. And, you know, it's hard to predict completely within those mechanics where something could break. I think there's basically to sum it up is that I see there's something within something that we've created within this cycle that will have a secondary cascading effect that could break something over here. That's one option. If something could occur there that would break something that is related indirectly possibly to something we've created recently like this $2 trillion.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT
“Repo. So, you know, I think Powell has plenty of levers he can pull to really drain that if he really needed to. But there is, of course, it gets complicated. And I totally see the other side of the argument that that's not something that they want to do, especially because of how it's anchored to those other, you know, short-end rates that you had mentioned, like federal funds rate, is that they all move in tandem. So that would really start to, you know, possibly break something else elsewhere. So it gets complicated.”
2023-01-05 · Forward Guidance · “Nightmare Scenario” For The Fed | Felix Jauvin · IDENTIFIED FROM THE TRANSCRIPT