Um on the geopolitical front it seemed like we're having some kind of breakthrough last weekend where the president moved away from kinetic action and towards some kind of peace agreement some kind of ceasefire memorandum of understanding. But on Friday, after a two-hour cabinet meeting, the president walked out without signing anything. So, we're basically right back to where we've been the past few weeks. No one knows what's going on. The straightup harm is still closed and we still draw down on global oil stocks. That puts a timer as to how long this couldn't go because once stocks are to reach some kind of minimal low level, we'll see the price of oil begin to spike uh maybe uncontrollably.

Now something people have been worrying about though is the very notable drop in the personal savings rate. Savings is basically just you have your income and how what fraction of it do you save. Now you can see that the saving rate has been trending down notably low. There's a couple stories that could explain this. One of course is the tremendous tremendous wealth effect. Let's say that you're making $100,000 a year, but your Nvidia stock went up, say millions, then of course you'll be comfortable spending much more than you usually are would uh simply because you have a lot more wealth. So, you sell your Nvidia stock and you consume that instead of um just financing your purchases out of your income. So, that could naturally lead to a lower savings rate for those who benefited from the wealth boom. On the lower part of the K, you can also have a story where because there's a sudden rise in gas prices in order to maintain the same standard of living, you're going to have to spend more money on gas. And that naturally means that you're going to save less money.

The last data point that I thought was meaningful was of course the allimportant PCE. PCE of course is the is the Fed's preferred measure of inflation. So PC right now is basically 4%. As a reminder, the Fed targets 4% up sorry 2% headline PC and 4% is double that. And if you look at the trend over the past few months, it's been ticking higher and higher. Now, Fed speak over the past week has shown that there is a broader audience of Fed officials who are open to having a more hawkish stance. So, that doesn't mean that they're openly advocating for rate hikes, but it does mean that they are comfortable holding rates where they are for an extended period of time.

So supply and demand becomes a much bigger factor in determining longerterm assets like um like the 30-year bond. So on the supply side, it's it's very clear, but because the US fiscal deficit is 6% of GDP and maybe uh will be that way for the foreseeable future, you're going to have an ongoing supply of 30-year bonds. On the demand side though, you can also see that there's going to be less demand for long-dated uh treasuries going into the future. One thing that's happening demographically is that the global population is both aging and shrinking. So, you have this very large boomer cohort, but they're already advanced in age. They're not going to live another 20 or 30 years, right? And the cohort beneath them is smaller, right? Smaller. So if you have a smaller cohort, say in their 20s or 30s uh than compared to in the past, then that means that these insurance companies, these uh pension funds, they're not going to have as much longerdated liabilities. They need to hedge with longerdated assets. And that suggests lower demand for longdated um assets like the 30-year Treasury.

Now looking forward though how do we think about the future trajectory of inflation? Now on the one hand professor goodart again tells you in a very compelling way that aging demographics is inflationary. Now there was some debate among economists about this mostly because some people misunderstood the difference between the real and the financial. The thinking is that their thinking was that uh aging populations would actually be deflationary pointing to Japan which had an old population consistent deflation because when you are an aging population you don't consume as much and also you save more right so but that misunderstands that when you save you save in financial assets bank deposits and you need to convert those to actually real goods and services right because that's what you consume. If you were saving in bags of rice, then yes, higher savings would imply uh deflation later on because well, you're just going to consume the bags of rice that you saved. But what you actually save is just numbers in a computer screen and you have to go out and buy rice and other services. And in the future, as that demand is persistent, you continue to have demand from your savings, but there are fewer people working because people mostly people are um more people are retired. That creates a mismatch between demand and supply of goods and services and pushes up inflation.

What I do think though would happen is that you can also think about the 30-year bond as basically a trading instrument as to the stance of monetary policy. So at 5% 30-year yield, you'd be collecting 5%. And should the bubble burst and you have just a rate cutting cycle, it doesn't mean that we're going down to zero. It could just mean a few cuts, say to below neutral, which commonly people think of as below 3%. You would have significant capital appreciation on something that is of such long duration. In this aspect, when you're just thinking of it as a trading instrument, you don't really have to think about the future of growth and inflation.