Inflation is coming ? or rather inflation expectations...and MMT is the new black in economics...

With all the talk of MMT – and concept of "no price for infinite debt"….. the risk here is a BIG move in US interest rates, as for 2019 10YR yield is WAY BEHIND the move in inflation!

 

Look at below charts on how 5y5y swaps – proxy for inflation expectations is rising fast……

 

Here two important links:

 

FT – An MMT response on what causes inflation

 

Stephanie Kelton – advisor to Bernie Sanders "explains" MMT

 

ACTION:

 

 

Sell 10 YR US Futures @ spot  @ 121 19.5/32 with a close @  122-29 (on close of day)

 

 

 

 

5y5y US and EUR swaps (dashed greenish US and red EUR.. and 10 YR US yield

 

 

 

 

Inflation expectations is now same level as when the US was forcing tax cuts and MAGA agenda fully in January 2019

 

 

 

 

The MMT – Modern Money Theory talk is getting out of control …. This is my internal comment yesterday to my team:

 

Internal note - start

 

Rarely have I seen such a 'turn around' in narrative in such a short time....impressive (not MMT!)

Seems we need to adjust our policy response book with:

Another leg of pretend and extend now that QE and low rates is being - finally- seen as inadequate ...

 

Remarkably no one discuss' the that fact that we have socialism or statism already

 

• No market trade freely
• Zero price discovery
• No marginal cost of capital allocation

 

But monopolies and state buying everywhere. Hence without trying/ testing the premise we are doomed to make further mistakes

 

My conclusion

 

The MMT – Modern Money Theory talk is getting out of control …. This is my internal comment yesterday to my team:

 

Rarely have I seen such a 'turn around' in narrative in such a short time....impressive (not MMT!)

Seems we need to adjust our policy response book with:

Another leg of pretend and extend now that QE and low rates is being - finally- seen as inadequate ...

 

Remarkably no one discuss' the fact that we have socialism or statism already!!!!

 

• No market trades freely
• Zero price discovery
• No marginal cost of capital allocation

 

But monopolies and government/central banks buying everywhere. Hence without trying/ testing the premise we are doomed to make further mistakes

 

My conclusion

 

Be long - very long inflation...especially after growth low in Q4/ Q1 this and next year !!

 

AND…

 

For those you who wants to learn from history I implore you to read Paul A Volker book: Keeping at it and the chapters on how he and Treasury Sec. Connally took the US out of the Bretton Woods agreement with policy at the time being… control, tariffs (on Germany) and devaluing the Dollar….and trying to ditch trade deal with Canada!..... READ!

 

Safe travels,

 

Steen

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
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