Stephen Major 1.9 9 ideas

Steven Major states stagflation is becoming the "base case," leading central banks to prepare for rate hikes, with the initial move being a "bear flattening" of the yield curve. Central banks, scarred from 2022, are likely to prioritize fighting inflation over supporting growth, leading to higher policy rates and bond yields. The shift to a hawkish central bank narrative in a stagflationary environment is bearish for bond prices. The conflict resolves swiftly, causing inflation fears to recede and growth concerns to dominate.

"The real yield is high enough now to be covering what we think the longer run equity policy rate probably is... To an investor entering into real yield close to two, that seems like a great opportunity and I think that the people will be purchasing TIPS here because they like the real yield and are thinking that inflation could rise." The oil shock is shifting the macro narrative from disinflation to stagflation. Treasury Inflation-Protected Securities (TIPS) offer a dual benefit right now: locking in historically attractive absolute real yields (~2%) while providing a direct hedge against the headline CPI spikes that will inevitably follow $100+ crude oil. LONG. TIPS provide a mathematically sound safe haven that compensates investors for both duration risk and upward inflation surprises. If the geopolitical conflict resolves quickly, oil prices will crash, dragging down inflation expectations and the principal value of TIPS.

"There's a block in the flow of oil, and you can see it's gonna take some time to to ease that block... The US is a big oil producer." When global oil flows are constrained by geopolitical or logistical blocks, global energy prices rise. Because the US is now a massive domestic producer, US-based energy companies can capture these elevated global premiums without suffering from the localized supply disruptions affecting other nations. LONG US energy producers as they directly monetize the supply constraints driving the stagflation narrative. The block in oil flow is resolved faster than anticipated, causing oil prices to revert to the previously expected $50-$60 supply glut range.

"It's interesting to look at inflation breakevens, for example... the market wants to price in that stagflation scenario." As the market shifts its probability of stagflation from 10% to 50%, investors demand more compensation for future inflation. Treasury Inflation-Protected Securities (TIPS) have their principal value adjusted based on the Consumer Price Index. If inflation remains structurally elevated due to energy shocks, TIPS will outperform nominal Treasuries by capturing the rising inflation breakeven premium. LONG TIPS to hedge against the sticky inflation component of the stagflation scenario while avoiding the pure duration risk of nominal bonds. The energy shock proves transitory and inflation data cools rapidly, causing inflation breakevens to collapse and TIPS to underperform standard nominal Treasuries.

"The market wants to price in that stagflation scenario. And let's just say it looks like a 50% probability weighting today, whereas it may have been less than 10% at the start of this year." Stagflation is the combination of slowing economic growth and sticky, high inflation. In this environment, central banks are paralyzed; they cannot cut interest rates to save growth because doing so would worsen inflation. This dynamic forces long-end bond yields to stay higher for longer, which mathematically crushes the price of long-duration bonds. SHORT long-duration Treasuries as the market continues to aggressively price in a higher probability of stagflation. Economic growth collapses so severely that it triggers a deflationary recession, forcing central banks to aggressively cut rates regardless of energy prices, which would cause long-duration bonds to rally.

"Uncertainty means deferral of decisions... and that tends to favor bonds... over risk assets." The removal of tariffs is theoretically disinflationary, but the current chaos increases uncertainty. The combination of trade wars (EU freezing deals), kinetic war risks (Iran), and legal chaos (SCOTUS vs. Trump) creates a textbook "Flight to Quality." Investors will park capital in Treasuries and Gold while waiting for clarity. Long XAU (Gold) and TLT (Treasuries). A sudden diplomatic breakthrough with Iran or a quick resolution to the trade spat would trigger a "risk-on" rotation out of safety.