Below is the ‘Opening Notes’ segment excerpted from the February 21 edition of Notes From the Rabbit Hole, NFTRH 643. The point of this segment was primarily to illustrate how hard it was to adopt the inflation view in Q4 2008 and in spring of 2020. It was secondarily to point out that as of last week I was growing concerned about the the shear weight huddled on the inflationary side of the boat.
The regime is inflationary still, but last week we saw that enthusiasm tamped down in markets far and wide. On Thursday I could not take it anymore and made a now public subscriber update featuring the most contrarian trade of all, in the long (Treasury) bond. I bought – and took a quick and heavy profit on large positions in – TLT entirely due to the rampant inflation-driven speculation, inflationary hysterics and in the impulsive rise in long-term yields, which came too quickly toward our ultimate caution zone.
We have come a long way from last spring and a contrary mindset is never a bad thing to have at extremes, whether short or longer-term.
“It’s Inflation all the way, baby!”
The title is just one of those things that has stuck with me. Older timers can think back with me to Q4 2008 and the sheer terror and panic of that period as the previous inflation had halted and then liquidated into an extreme deflationary episode that, absent the Fed’s inflationary actions would have liquidated the macro, and the system as we knew it.
What that inflation had in common with this one is that the Fed had been given the extreme cover of deflation against which to promote its inflationary operations. It was one of the blueprints we used in 2020 when long-term yields got absolutely bombed by the pandemic after already having been in decline in the face of the global trade war and flattening US economy in 2019.
The title quote was from NFTRH’s very first subscriber, the late Jon Auerbach, then the founding and managing partner of an Emerging [and Frontier] Markets focused boutique brokerage called Auerbach Grayson in New York City. Jon and I had been email (and phone, and once to my pleasure, in person) pals for a while before I launched NFTRH. He implored me not to do it (I had a normal job and a normal life at the time, after all) but if I decided to go ahead with it he would be my charter subscriber. Well, chalk up subscriber #1, who I feel provides good spiritual karma for NFTRH to this day, 12+ years later.
I had just launched (September 28th) into the impending deflationary collapse and as we compared notes came the classic line “it’s inflation all the way, baby!” from this one-man quote factory (he was an interesting man, driving vintage autos across the country, involved in the 1970s independent film scene in NYC, a friend of Iggy Pop for crying out loud!, etc.).
With hindsight, that inflation call sounds like an easy one, but in the moment it was anything but. In the moment all you see and hear refutes what you think you know, and that includes experts coming out of the woodwork schooling the herds about why the current situation is what it is and why it will remain as it is. Well, then as in the spring of 2020 the answer was ‘ah, no’.
It is hard to be contrarian at the right times because intellectuals, media and the herds that thunder behind them are all singing the same tune. You are alone, you question your sanity and then you use your best tools to try to be true to yourself or in my case, true to myself and NFTRH subscribers.
While I don’t call every twist and turn to perfection (or anything close to it), we have clearly been on the right side of events in dealing with 2020’s deflationary episode and more importantly decoding and acting upon the policy responses happening in real time, and the forward implications thereof.
Fast forward to today. Everyone is bullish. Everyone is touting inflation. Everyone is making coin (Bit and otherwise). We have been too. But, just sayin’…