Michael McKee 4.6 52 ideas

Oil prices are likely to stay elevated for a longer period because a cease-fire alone won't bring them down; it requires a full end to the war and the reopening of the Strait of Hormuz for price relief.

Oil prices are expected to stay elevated for a prolonged period because the Iran war has disrupted supply, and even a ceasefire won't bring prices down; it requires a full end to the war and the resumption of traffic through the Strait of Hormuz.

"The president could totally remake the Fed in his own image with people who would cut rates." Politically forced rate cuts at the short end of the curve will reignite structural inflation. Bond vigilantes will refuse to hold long-duration government debt without a significantly higher term premium to compensate for the loss of Fed credibility. This dynamic will cause a massive steepening of the yield curve, where short rates fall but long-dated Treasury yields spike (causing long-bond prices to plummet). SHORT TLT to play the potential unmooring of inflation expectations and the return of the bond vigilante. A severe deflationary recession occurs, forcing the Fed to cut rates organically. In a true flight-to-safety panic, long-duration Treasuries (TLT) would catch a massive bid.

"If the court decides that the president has unlimited power to fire people for really no cause, then the president could totally remake the Fed in his own image with people who would cut rates." If the Supreme Court strips the Federal Reserve of its independence, the market will immediately price in a politically captured central bank. A Fed mandated by the executive branch to aggressively cut interest rates—regardless of underlying economic data—will drive real yields negative and unmoor inflation expectations. Gold is the ultimate beneficiary of fiat debasement fears and negative real rates. LONG GLD as a macro hedge against the Supreme Court ruling in favor of executive power over central bank independence. The Supreme Court rules to protect Fed independence, maintaining the hawkish status quo and keeping real rates elevated, which acts as a headwind for non-yielding assets like gold.

"It takes time to get production back online... You have to have the refineries available to process it and they will be overwhelmed. It could take a couple months before prices start to come down significantly." The geopolitical closure of the Strait of Hormuz has created a severe supply bottleneck that cannot be quickly resolved by policy or immediate production hikes. This structural supply deficit will keep crude prices elevated well above $100, driving massive free cash flow for domestic oil producers and energy sector equities. LONG. Sustained high oil prices directly translate to earnings beats and margin expansion for unhedged exploration and production companies. A sudden geopolitical ceasefire or an accelerated demand destruction scenario (recession) that causes oil prices to crash.

We also had a durable goods orders for January report that showed defense military aircraft orders were down 23.7%... all of this is before the war. So we don't have any impact of that in this data. The massive 23.7% drop in defense orders is a backward-looking anomaly from January, before the outbreak of the current war. Given the new geopolitical reality and ongoing conflicts, defense spending will inevitably surge. The market may misprice these defense contractors based on stale January data, creating an entry point before the wartime order flow is reflected in upcoming earnings. LONG major US defense contractors to capitalize on the inevitable rebound in military procurement driven by global conflicts. Supply chain bottlenecks could prevent defense contractors from fulfilling new orders quickly, or geopolitical tensions could unexpectedly de-escalate.

The rest of the world in a kind of a different position because they don't have all the oil that we have. So the impact on them is going to be much worse with inflation. Global energy shocks are disproportionately hurting foreign economies (Europe, Japan, Australia) because they rely heavily on imported energy. The US, possessing massive domestic oil reserves and production capabilities, is insulated. US energy producers will benefit from elevated global oil prices while facing less domestic economic devastation than their international peers. LONG US domestic energy producers who benefit from high global energy prices and geopolitical supply constraints. A severe global recession could destroy aggregate demand for oil, causing commodity prices to crash despite supply constraints.

The yield curve has flattened. And the reason it's flattened, even though we're expecting more inflation, is that bond traders are beginning to price in the idea of a real economic slowdown. So that's why the long end has been coming down. The market is realizing that the Fed's inability to cut short-term rates (due to sticky 3.1% core inflation) will ultimately choke off economic growth. When growth slows significantly, investors flee to the safety of long-duration US Treasuries, driving their prices up and yields down. LONG long-duration US Treasuries as a safe-haven play against a hard landing and a slowing macro economy. If inflation accelerates further, the Fed may be forced to hike rates aggressively, which could cause a sell-off across the entire yield curve, including the long end.