Friday 📸: Portfolio Review & Analysis

Good Morning. Anyone watch the new Fed Chair Kevin ‘Kevbo’ Warsh? Intolerable. I’d rather listen to a wooden stick.

But somehow a good number of market participants thought Kevbo was going to hike rates. You know what he’s actually doing? Changing the way inflation rates are calculated so that they come in lower.

According to analysis by the FT: “The methodology update, which takes effect from September, will affect data on portfolio management fees, computer software and accessories, and legal services going back to 2021.”1

This means that the Bureau of Economic Analysis will lower the weighting of the above in their calculation of inflation. Good time to be a portfolio manager, computer everything maker or a lawyer - the Fed just gave you cover to charge what you want.

You see, to be able to tell if inflation is ‘entrenched’ and create price stability — first you gotta strip away food and energy, and every meaningful price series that affects us, call that ‘Core’ inflation — then talk in a hawkish way to get bond markets to do your work for you all the while setting up a ‘task force’ smokescreen to ‘modernize the Fed’ which really means cooking the books so that the data confirms the narrative you want to spin.

In my view, these charlatans are more likely to cut rates into an already easy money environment than to hike them. Pump the money supply and pretend - that’s the playbook.

Dollar and bond markets seem to be smelling this horse hockey - the dollar’s breakout got stuffed and it’s back into the choppy range from hell:

10-year treasury bond yields continue to grind higher:

Markets smell inflation and all the while - financial conditions remain loose. You can see that on both the aggregate Chicago Fed National Financial Conditions index and the ‘Credit Subindex’ below. All you need to know is that when these lines on these charts are near zero or below, credit and therefore broad market liquidity is flowing:

Liquidity is flowing into an equity market rotation - and no matter what anyone tells you this is a bull market for the S&P until this chart says otherwise:

Yes, that’s yet another all-time high weekly close for the equal weight S&P ETF $RSP.

So then, why do we continue to look at commodities? Why is the portfolio weighted toward energy, grains and now softs? Because this:

It’s summertime chop out there dear readers - and I’m constantly reminding myself that doing nothing is doing something. That patience is a position.2

That, and I bought some micro futures in oil last week when price was taking a shit. And re-entered the rubber trade.

Swing Portfolio Year-to Date Performance: +12.50%