JD Straight Up - 12Oct26 - French Fry
French Fry
Drulard Family Capital Fund
Fortnightly Macro View
JD Straight Up:
S&P 500 at 7799 – up 2% from 7674 two weeks ago
VIX at 15 – down 13% from 17 two weeks ago
10yr Treasury yielding 5.26% (flat from 5.26% two weeks ago)
Agg (US Aggregate Bond Index) at 94.61 – flat from 94.57 two weeks ago
Gold at 4193 per oz (up 1% from 4146 two weeks ago)
Silver at 60.44 per ounce (up 2% from 61.38 two weeks ago)
Crude Oil (WTI) at 94 per barrel (down 2% from 95 two weeks ago)
Bitcoin at 83k (flat from 83k two weeks ago)
JPM shares at 334 (down 2% from 339 two weeks ago)
Deutsche Bank shares at 33.69 (down 7% from 35.93 two weeks ago)
Truist shares at 46.60 (down 1% from 47.21 two weeks ago)
Blackstone shares at 114.22 (down 1% from 115.11 two weeks ago)
Magnificent 7 Index at 477.06 (up 3% from 462.38 two weeks ago)
US unemployment: at 197,000 in latest claims – flat from 197,000 two weeks ago
EUR at 1.12 USD (down 2% from 1.14 two weeks ago)
GBP at 1.32 USD (flat from 2% from 1.33 two weeks ago)
Macro Environment
US inflation continues at 3.4% with a print that might reach 3.7% this week. US GDP revisions show 2.2% growth. Frequency and scale of revisions in the last year continues at the highest rate since the GFC. It is hard to know if this is a result of changes to management and funding at BLS and other organizations or it is an early signal of a business cycle change. EU inflation was up to 3.8%, driven by energy being up 18.8%. EU GDP growth is 1.2% YoY. The conflict over Hormuz persists with no resolution in sight. War in Ukraine continues. UST yields continue to climb. USD strengthens. US equities hit all time highs. US housing market stalls.
Macro View
France provides an illuminating microcosm of world economics and politics. Students and now unions protest lack of funding and support from a government that is already stretched thin and materially underfunded. Elections are coming. The country clearly needs to enact austerity measures and lower its debt load, but citizens are demanding more. Central banks are notching rates higher to fend off further inflation and this is increasing the cost of funding and the cost of servicing the sizable debt even more. The inflation is impacting both the government and the citizens, so the citizens demand more support from their socialist government while the government looks for ways to lower expenditure. It is a gordian knot that will not be solved without extreme and painful measures. The same can be seen in the US though there is arguably less socialism and less complexity given the USD reserve currency status and lack of EU membership. Regardless, it is the age-old conundrum of needing to cut spending while citizens that are under pressure from inflation demand more government support.
Relevance
It is hard to see either France or the US or any of the many other countries that will suffer the same conundrum take actions like Millei to drag their countries back from the brink and set them on a viable path. The growing inequality in developed countries pushes this issue to one where more violent outcomes are likely.
Head Scratchers
1 - What is really behind the USD rally? Is it merely because UST at 5% is a good risk relative to other alternatives? Or is it that as scary as the US debt to GDP ratio is and its climbing through ongoing deficits and increasing debt service costs, it is still less scary than alternative credits in the EU or other markets? Or is it because there is a race to deploy capital in USD into the AI bet, the Mag7 and the S&P 500 that all keep notching further all-time highs?
Drulard Family Capital Fund
Drulard Family Charitable Fund
#53 - 12Oct26
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