Matein Khalid
Any macro crystal-ball gazer must learn to swallow crushed glass – this is a lesson I learned the hard way on Wall Street.
My strongest prediction is that the diesel shock I outlined in my previous AGBI column will reshape the political and economic destiny of our world this winter. Diesel has now risen to $6.50 a gallon, and the crack spread is a lethal $113 a barrel.
In my calculus, this means US President Donald Trump has already lost the New England states, the Alaska Senate seat (heating oil) and the Farm Belt states (fertiliser, tractor costs and shipping).
At the same time, US consumer-price growth is likely to reach 4 percent, as trucking costs are woven into American inflation much as onion prices are in India – the reason Indira Gandhi so often wore an onion necklace over her saree at election rallies.
My diesel view means shorting trucking stocks this winter and well into 2027 could be profitable. JB Hunt, the freight company, has already warned that diesel costs will hit its truck fleet cost curve, an admission that sent its shares down 10 percent on the New York Stock Exchange.
Trucking stocks could lose as much as half their value by the time the diesel shock peaks next autumn, potentially tipping the world into recession. US refiners and supertanker (VLCC) operators should remain the NYSE’s strongest subsectors.
The polls and the Parisian Left Bank cognoscenti suggest Marine Le Pen will move into the Élysée Palace when French President Emmanuel Macron vacates it. A compelling argument to short long-duration OATs against German Bunds, as well as the euro against the safe-haven Swiss franc and the petrocurrency Norwegian krone.
The unanimous 9-0 vote at the September FOMC and a rise in the “dot plot” to a 4 percent overnight borrowing rate by December make it evident that we have not seen a “one-and-done” moment in Federal Reserve policy but rather the dawn of a tightening cycle.
Significantly, Fed chair Kevin Warsh declined to join his FOMC’s dot plot forecast since he knows that the bond markets may well respond to any forward guidance on interest rates with a global panic spasm transmitted across the planet’s electronic arteries at the speed of light.
This could force the Warsh Fed to act as the lender of last resort at a time when injecting liquidity into financial markets will only amplify inflation risk rather than ease the surge in bond yields.
Leveraged metrics on Wall Street are now surreal thanks to the AI capex tsunami and rising cost of credit risk. It does not surprise me that the Chicago debt futures pits are far more hawkish on interest rates than the FOMC dot plot projection.
Chicago fed funds futures point to a 4.5 percent overnight rate by April. My diesel thesis, however, suggests the fed funds rate could reach 5 percent by next June, with the benchmark 10-year US Treasury yield carrying at least a 100-basis-point term premium.
At such an inflection point, US treasury secretary Scott Bessent will be forced to intervene in the $32 trillion American government debt market with massive daily bond buybacks.
Shakespeare said a rose by any other name smells just as sweet, and I say financial repression by any other name is just as bearish for King Dollar, which is now surfing the rate hike wave.
By next June, Operation Twist will become a trillion-dollar bond-buyback lifeline for Wall Street and a Plaza Accord-style turning point in 2027’s unavoidable global currency wars.
Eight hundred years of financial history since King Edward I (Longshanks) defaulted on debts to his Italian bankers have demonstrated that any period of accelerating sovereign debt accumulation has only one endgame: devaluation, default, or both.
Dollar debasement and 4 percent consumer-price growth amount to stealth devaluation. It is Bessent’s only remaining way to finance a $40 trillion national debt and a $2 trillion budget deficit that a polarised Congress cannot resolve.
The American Republic must now brace for the endgame of the biggest public-debt black hole in its 250-year history. The synchronised global bond bear market will not end in 2027.
Also published on Medium.
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