Hello my friends. Today is March 21st

and this is Markets Weekly. All right,

before we begin, I have a very special

announcement to make. Today I am

officially launching the second edition

to central banking 101. As many of you

know, the first edition was published in

early 2021 and between then and now a

lot of things have happened. So the

second edition updates the data on the

charts but also talks a lot about the

things that happened between then and

now. for example, the transition from

library to sofur run on Silicon Valley

Bank, um, Treasury buybacks, learning

how to read the Treasury refunding

announcement and so forth. So overall,

it's about 15% more content. But you

also notice that the book the dimensions

are physically larger and it looks more

professionally done. Actually, I think

if I dropped this at Barnes & Noble,

people would not think that this is

something that was self-published. Now,

my first book I wrote myself and I I

self-published. Um, and it was a

success. So, you may not know this, but

it's actually very rare for books to

become successes, even those picked up

by publishers with their marketing

network. Now, I know I owe my success to

all of you guys, especially the

financial Twitter community. So, as a

token of my gratitude, I'm launching

this at a 50% discount. Normally CB101

is $20, but now it's going to be on sale

for $10 for, let's say, the next week or

two. And I will send out an email to my

newsletter subscribers about this soon.

So, thanks so much for your support and

hopefully you will enjoy this edition as

well. All right, now back to our regular

programming. So again, this past week

was a very exciting week. We had huge,

huge moves in markets. Again, everything

is driven by the war in the Middle East.

Now the biggest news of course is the

massive massive repricing in central

bank expectations across the world.

There was tremendous carnage in the

front end. So first off let's talk about

what's happening in the rates market

and secondly we are seeing some contours

as to how this work can end. So let's

talk about the latest developments as

well.

All right starting with interest rates.

So, if you look at the 2-year yield in

the US and the UK, you can see that this

past week has been extraordinary. Now,

looking at the UK, you can see that uh

from the high from the highs to lows,

the 2-year yield basically went up 100

basis points. The market is now pricing

in a few rate hikes from the Bank of

England. Now, the Bank of England did

meet last week, decided to stand pat and

monitor the situation, but the market is

becoming increasingly convinced that due

to high oil prices, the Bank of England

is going to have to do something. Now,

the Federal Reserve, you also see the

market doing something similar, but not

as extreme. The market is pricing in

basically not just no cuts this year.

Again, heading into the Middle Eastern

war, the market was pricing in a cut or

two. Now, the market is pricing in some

probability of a rate hike this year.

And so, you see the two-year yield also

surge. Again, this is something that is

seen throughout the world in the

European Union, in Japan as well, where

the market is widely expecting the Bank

of Japan to hike rates the next month.

So, according to central banking dogma,

what you would do when you have these

energy shocks is that you look through

them. So the reasoning being, and this

is from their experience back in the

1970s and 80s, is that oil prices go up

and down, up and down, um, a lot of this

Middle Eastern geopolitical stuff is

difficult to anticipate. And so if you

hike rates now, monetary policy acts

with a lag. So maybe when finally the

monetary policy is having some kind of

impact on the real economy, maybe this

is all over. This was a successful way

of looking at the world in uh the Iraq

war in 2003 and also operation desert

storm war. Oil prices spiked

tremendously and totally totally

imploded uh in a matter of uh of weeks

afterwards.

So that's how a central bank would

normally look at this. And again there's

some there's some nuance to this because

for the US for example the Fed is a

dualmandate central bank. It's full

employment and price stability. they

can't really focus totally on inflation

to begin with. For other central banks,

Bank of England, the ECB, it's a

different case. They are only thinking

about inflation. And sure, I think you

can more make a make a more forceful

case about uh adjusting policy depending

on how you perceive the energy shock.

Now, the leading uh dove on the FOMC has

been Governor Waller. He's has a very

good track record. he's been right about

a lot of things during the past few

years and so many people look to him as

to u what monetary policy could be. So I

think it surprised me and a lot of

people that he did not desent at the

last FOMC meeting. The reason being that

in January he desented citing notable

weakness in the labor market, anecdotal

reports that maybe we'll have a lot of

job loss and subsequently the most

recent jobs report showed a big loss in

jobs. So I was thinking that maybe

Governor Waller would descend. He did

not. And in his latest public remarks,

he tells you why. He is coming along to

the view that because labor force

projection is projected to not grow this

year that maybe the break even rate for

for the unemployment rate be is zero.

And so

if that's the case, we should not be

surprised if there's basically no job

growth. Of course, losing jobs is a

whole another matter, but that kind of

makes the recent job losses a little bit

less concerning. So again, that's

hawkish. And let's hear what he said

about the energy shock.

I always want to point out that

something where the oil goes up and then

it comes down is very different than oil

goes up and then stays there for a long

time. That's where you get back to this

issue where it bleeds through back into

core inflation and then you do have to

kind of respond. You can't just look

through it.

So, what he's saying is that sure, we

can look past these temporary spikes,

but if this is a structural long-term

thing, like the energy prices go up and

just stay up, it's eventually going to

bleed into everything, and he doesn't

think that he could look through that.

Now, that doesn't mean the Fed is going

to hike. Again, that full employment

mandate is going to be a constraint, but

he is strongly suggesting, but at least

for now, he's not projecting any cuts.

Although he did also note that should

the labor market, you know, weaken

further and then later on we have more

clarity, he could be open to be

advocating rate cuts later in the year.

But at the moment, uh that's uh that

he's uh going to just watch and see. And

so when you have a leading dove kind of

shift like that, the market is now

pricing in a much more hogish policy

path. And again, when you have this huge

shift, huge sea change in the stance of

central bank policy, it's going to bleed

into a ton of assets. And we see that uh

this this past week as well. The S&P 500

did not do very well. Broke the 100 day

moving average and even dipped briefly

below 6,500.

Now, you other assets like gold also

took a pretty big beating. Again, I

think gold is kind of a I think it's a

little bit surprising to many people.

You'd expect that geopolitical risk to

support gold, but at the same time, the

dollar is strengthening, rates are going

higher, and you do see gold losing some

key momentum signals. The 50-day moving

average, for example, and historically,

the 100 day moving average has also been

of support. Looks like it lost that as

well. So, you could have some technical

moves over there. So, there was

basically no place to hide in the market

the past week. Bonds selling off, uh,

equity selling off, gold selling off. It

was it was a terrible week in financial

assets

and looking across the world it looks

like this is going to continue unless we

get some finally get some good news from

the war in the Middle East uh which is

what we'll talk about now. So just

looking at the oil price you can see

that the oil price just kind of is is

quite elevated. So, it is volatile with

Brent crude around $110, but basically

it's uh it's kind of doesn't look like

it's it's going down now. It's really

hard to get news, accurate news of the

war. We are of course at a time where

everyone is in full propaganda mode. Uh

you hear over and over again that the US

has destroyed all Iran's capabilities,

its navies, it launches, its missiles

and so forth. But at the same time, Iran

keeps launching missiles, right? So

something's not adding up.

Now, many people of course are looking

to President Trump to kind of back down.

That's what everyone is expects him to

do. That's seems to be what happened in

um liberation day. And on Friday after

the market closed, we had a truth social

post from President Trump suggesting

that he's thinking about winding down

the war. and aftermarket the markets

took that to be some kind of taco and

and traded very positively.

Now I would be cautious about that

because as we all know Trump has been

saying a lot of things and a lot of

things haven't been adding up. I think

this just a week ago he was telling

everyone that the war was very complete

uh but uh but since then the war did

escalate. The biggest escalation last

week of course has to do with attacks on

energy production facilities. Now the

straight of harmon remains largely

closed and so energy is not going

through but the capacity of of the Gulf

states to produce hasn't been impacted

until last week, when we had an Iranian

missile attack on major Qatari gas

fields. Now Qatar is one of the largest

gas producers in the world, and according

to reports, that attack took down their

capacity and they may not be able to

produce gas at the same capacity for

another few years. So that's a

structural decline in the capacity of

the world to produce gas. So even if the

straight of Hammoose were to reopen,

fewer gas would flow through. That

suggests structurally higher prices and

of course less economic growth, fewer

inputs, fewer outputs.

Now the strike by Iran was in response

to Israel strike on Iranian gas fields.

Now Iran had told everyone that if you

strike our energy facilities, we will

escalate and we will attack neighboring

Gulf facilities. they were attacked and

that's exactly what they did and

President Trump seems to have panicly

panicked in a sense, and immediately said

that you know this is not going to

happen anymore. So we do have some

degree of dant mutually excured

destruction over there.

Um but as long as the street of Hermoose

remains closed, it does it seems like

this is just not a solution and oil

prices will continue to drift higher.

Now, although the president said that

he's thinking about winding down

the war, at the same time, we also have

reports that he's sending in the

Marines. So, it looks like Marines are

being deployed and in a week or two,

there's going to be a few thousand

Marines uh in in around Iran potentially

as an option to take Kar Island. Now,

there's some reports suggesting that the

president thinks that if he were to take

Car Island, which he perceives to be a

major part of Iranian oil

infrastructure, and there are oil

analysts who disagree with this, maybe

it will have more negotiating leverage

to try to demand a better deal. That

seems to be how he's thinking about it.

So, uh, in that sense, maybe he's right

in saying that the war is winding down.

If in his in his mind he is able to

successfully take Car Island and then

demand a resolution then yeah, maybe the

war is is almost over. Again, there are

three people at this table from from

Israel's perspective

doesn't seem like they they want to wind

down. I mean, Prime Minister Netanyahu is

on the record saying that you know, maybe

there might be a ground component that

might need and the ground component

could be many things. It could be the

Iranian people rising up. It could be

Marines on the ground and so forth, but

it seems unlikely that he would just

call it quits when from this perspective

hasn't really completed the mission,

right? Hasn't really taken hold of the

uranium or destroyed the Iran's missile

capabilities and so forth. So, it

doesn't seem to to me that it's time for

him to quit. Now, from Iran's

perspective, we're getting kind of an

interesting picture of how the world war

could end. Now this morning we have news

that Iran and Japan are negotiating for

passage through the straight of Harmuz.

We also have anecdotal reports that some

countries are paying a toll to Iran for

passage through uh the strait. So what

could happen for them as a potential

endgame is that they retain control of

the straight of Humuz and everyone can

pass but in order to pass, you got to pay

up. Now there are reports suggesting

that the payment is actually settled in

R&B, so it would be held in the bank in

China safe from US sanctions. If that

were the case, if Iran were to be able to

retain control of the trade of a moves

so it's better scenario for the global

economy than it is now, because oil and

gas will be flowing, gas and oil prices

will come down. um, that is great for for

the global economy and great for many

people who otherwise I think we would

have severe threat of actually

starvation in poor countries. Um, but at

the end of the day, oil and gas prices

will be structurally higher to account

for that toll and Iran will be making

money. Iran has been sanctioned heavily

uh throughout by basically everyone

except China and then Iran's friends.

Um, so it will be able to get some more

income and that will help him

economically and maybe they can paint

this as reparations for the damage done

and be willing to to settle that.

However, of course, it seems unlikely

that the United States and um, everyone

else well and Israel would accept an

Iran not just intact, but also collecting

toll, making money.

Now, Treasury Secretary Scott Besson on

Friday actually uh lifted sanctions on

Iranian oil that is at sea and allowed

Iran to sell that. That hasn't happened

for a very long time. And so, so far at

least, uh, seems like Iran has been able

to make money off this conflict. Again,

we are in the fog of war. No one knows

what's going to happen. Uh, but that's

just a possible way that this war can

end in the coming weeks. Again, every

day that this conflict goes on, that's

energy that's not being uh, not being

produced, not being sent. And that

raises the risk of a global recession. I

personally think that the global economy

has already been nuked. We are all just

bathing in radiation. And as radiation

sickness goes, first you feel fine, then

you don't feel fine, and then you die.

So, I think things are are not good. And

I wouldn't look solely to the stock

market as a barometer because again

markets the stock market and the real

economy uh, they are related, but they're

not the same thing. All right, so that's

how I prepare for today. Thanks so much

for tuning in, and I think next week will

be also very exciting.

So that's how a central bank would

normally look at this. And again there's

some there's some nuance to this because

for the US for example the Fed is a

dualmandate central bank. It's full

employment and price stability. they

can't really focus totally on inflation

to begin with. For other central banks,

Bank of England, the ECB, it's a

different case. They are only thinking

about inflation. And sure, I think you

can more make a make a more forceful

case about uh adjusting policy depending

on how you perceive the energy shock.

Now, the leading uh dove on the FOMC has

been Governor Waller. He's has a very

good track record. he's been right about

a lot of things during the past few

years and so many people look to him as

to u what monetary policy could be. So I

think it surprised me and a lot of

people that he did not desent at the

last FOMC meeting. The reason being that

in January he desented citing notable

weakness in the labor market, anecdotal

reports that maybe we'll have a lot of

job loss and subsequently the most

recent jobs report showed a big loss in

jobs. So I was thinking that maybe

Governor Waller would descend. He did

not. And in his latest public remarks,

he tells you why. He is coming along to

the view that because labor force

projection is projected to not grow this

year that maybe the break even rate for

for the unemployment rate be is zero.

And so

if that's the case, we should not be

surprised if there's basically no job

growth. Of course, losing jobs is a

whole another matter, but that kind of

makes the recent job losses a little bit

less concerning. So again, that's

hawkish. And let's hear what he said

about the energy shock.

I always want to point out that

something where the oil goes up and then

it comes down is very different than oil

goes up and then stays there for a long

time. That's where you get back to this

issue where it bleeds through back into

core inflation and then you do have to

kind of respond. You can't just look

through it.

So, what he's saying is that sure, we

can look past these temporary spikes,

but if this is a structural long-term

thing, like the energy prices go up and

just stay up, it's eventually going to

bleed into everything, and he doesn't

think that he could look through that.

Now, that doesn't mean the Fed is going

to hike. Again, that full employment

mandate is going to be a constraint, but

he is strongly suggesting, but at least

for now, he's not projecting any cuts.

Although he did also note that should

the labor market, you know, weaken

further and then later on we have more

clarity, he could be open to be

advocating rate cuts later in the year.

But at the moment, uh that's uh that

he's uh going to just watch and see. And

so when you have a leading dove kind of

shift like that, the market is now

pricing in a much more hogish policy

path. And again, when you have this huge

shift, huge sea change in the stance of

central bank policy, it's going to bleed

into a ton of assets. And we see that uh

this this past week as well. The S&P 500

did not do very well. Broke the 100 day

moving average and even dipped briefly

below 6,500.

Now, you other assets like gold also

took a pretty big beating. Again, I

think gold is kind of a I think it's a

little bit surprising to many people.

You'd expect that geopolitical risk to

support gold, but at the same time, the

dollar is strengthening, rates are going

higher, and you do see gold losing some

key momentum signals. The 50-day moving

average, for example, and historically,

the 100 day moving average has also been

of support. Looks like it lost that as

well. So, you could have some technical

moves over there. So, there was

basically no place to hide in the market

the past week. Bonds selling off, uh,

equity selling off, gold selling off. It

was it was a terrible week in financial

assets

and looking across the world it looks

like this is going to continue unless we

get some finally get some good news from

the war in the Middle East uh which is

what we'll talk about now. So just

looking at the oil price you can see

that the oil price just kind of is is

quite elevated. So, it is volatile with

Brent crude around $110, but basically

it's uh it's kind of doesn't look like

it's it's going down now. It's really

hard to get news, accurate news of the

war. We are of course at a time where

everyone is in full propaganda mode. Uh

you hear over and over again that the US

has destroyed all Iran's capabilities,

its navies, it launches, its missiles

and so forth. But at the same time, Iran

keeps launching missiles, right? So

something's not adding up.

Now, many people of course are looking

to President Trump to kind of back down.

That's what everyone is expects him to

do. That's seems to be what happened in

um liberation day. And on Friday after

the market closed, we had a truth social

post from President Trump suggesting

that he's thinking about winding down

the war. and aftermarket the markets

took that to be some kind of taco and

and traded very positively.

Now I would be cautious about that

because as we all know Trump has been

saying a lot of things and a lot of

things haven't been adding up. I think

this just a week ago he was telling

everyone that the war was very complete

uh but uh but since then the war did

escalate. The biggest escalation last

week of course has to do with attacks on

energy production facilities. Now the

straight of harmon remains largely

closed and so energy is not going

through but the capacity of of the Gulf

states to produce hasn't been impacted

until last week, when we had an Iranian

missile attack on major Qatari gas

fields. Now Qatar is one of the largest

gas producers in the world, and according

to reports, that attack took down their

capacity and they may not be able to

produce gas at the same capacity for

another few years. So that's a

structural decline in the capacity of

the world to produce gas. So even if the

straight of Hammoose were to reopen,

fewer gas would flow through. That

suggests structurally higher prices and

of course less economic growth, fewer

inputs, fewer outputs.

Now the strike by Iran was in response

to Israel strike on Iranian gas fields.

Now Iran had told everyone that if you

strike our energy facilities, we will

escalate and we will attack neighboring

Gulf facilities. they were attacked and

that's exactly what they did and

President Trump seems to have panicly

panicked in a sense, and immediately said

that you know this is not going to

happen anymore. So we do have some

degree of dant mutually excured

destruction over there.

Um but as long as the street of Hermoose

remains closed, it does it seems like

this is just not a solution and oil

prices will continue to drift higher.

Now, although the president said that

he's thinking about winding down

the war, at the same time, we also have

reports that he's sending in the

Marines. So, it looks like Marines are

being deployed and in a week or two,

there's going to be a few thousand

Marines uh in in around Iran potentially

as an option to take Kar Island. Now,

there's some reports suggesting that the

president thinks that if he were to take

Car Island, which he perceives to be a

major part of Iranian oil

infrastructure, and there are oil

analysts who disagree with this, maybe

it will have more negotiating leverage

to try to demand a better deal. That

seems to be how he's thinking about it.

So, uh, in that sense, maybe he's right

in saying that the war is winding down.

If in his in his mind he is able to

successfully take Car Island and then

demand a resolution then yeah, maybe the

war is is almost over. Again, there are

three people at this table from from

Israel's perspective

doesn't seem like they they want to wind

down. I mean, Prime Minister Netanyahu is

on the record saying that you know, maybe

there might be a ground component that

might need and the ground component

could be many things. It could be the

Iranian people rising up. It could be

Marines on the ground and so forth, but

it seems unlikely that he would just

call it quits when from this perspective

hasn't really completed the mission,

right? Hasn't really taken hold of the

uranium or destroyed the Iran's missile

capabilities and so forth. So, it

doesn't seem to to me that it's time for

him to quit. Now, from Iran's

perspective, we're getting kind of an

interesting picture of how the world war

could end. Now this morning we have news

that Iran and Japan are negotiating for

passage through the straight of Harmuz.

We also have anecdotal reports that some

countries are paying a toll to Iran for

passage through uh the strait. So what

could happen for them as a potential

endgame is that they retain control of

the straight of Humuz and everyone can

pass but in order to pass, you got to pay

up. Now there are reports suggesting

that the payment is actually settled in

R&B, so it would be held in the bank in

China safe from US sanctions. If that

were the case, if Iran were to be able to

retain control of the trade of a moves

so it's better scenario for the global

economy than it is now, because oil and

gas will be flowing, gas and oil prices

will come down. um, that is great for for

the global economy and great for many

people who otherwise I think we would

have severe threat of actually

starvation in poor countries. Um, but at

the end of the day, oil and gas prices

will be structurally higher to account

for that toll and Iran will be making

money. Iran has been sanctioned heavily

uh throughout by basically everyone

except China and then Iran's friends.

Um, so it will be able to get some more

income and that will help him

economically and maybe they can paint

this as reparations for the damage done

and be willing to to settle that.

However, of course, it seems unlikely

that the United States and um, everyone

else well and Israel would accept an

Iran not just intact, but also collecting

toll, making money.

Now, Treasury Secretary Scott Besson on

Friday actually uh lifted sanctions on

Iranian oil that is at sea and allowed

Iran to sell that. That hasn't happened

for a very long time. And so, so far at

least, uh, seems like Iran has been able

to make money off this conflict. Again,

we are in the fog of war. No one knows

what's going to happen. Uh, but that's

just a possible way that this war can

end in the coming weeks. Again, every

day that this conflict goes on, that's

energy that's not being uh, not being

produced, not being sent. And that

raises the risk of a global recession. I

personally think that the global economy

has already been nuked. We are all just

bathing in radiation. And as radiation

sickness goes, first you feel fine, then

you don't feel fine, and then you die.

So, I think things are are not good. And

I wouldn't look solely to the stock

market as a barometer because again

markets the stock market and the real

economy uh, they are related, but they're

not the same thing. All right, so that's

how I prepare for today. Thanks so much

for tuning in, and I think next week will

be also very exciting.

Now, although the president said that

he's thinking about winding down

the war, at the same time, we also have

reports that he's sending in the

Marines. So, it looks like Marines are

being deployed, and in a week or two,

there's going to be a few thousand

Marines uh in in around Iran potentially

as an option to take Kar Island. Now,

there's some reports suggesting that the

president thinks that if he were to take

Car Island, which he perceives to be a

major part of Iranian oil

infrastructure, and there are oil

analysts who disagree with this, maybe

it will have more negotiating leverage

to try to demand a better deal. That

seems to be how he's thinking about it.

So, uh, in that sense, maybe he's right

in saying that the war is winding down.

If in his in his mind, he is able to

successfully take Car Island and then

demand a resolution, then yeah, maybe the

war is is almost over. Again, there are

three people at this table from from

Israel's perspective

doesn't seem like they they want to wind

down. I mean, Prime Minister Netanyahu is

on the record saying that you know, maybe

there might be a ground component that

might need and the ground component

could be many things. It could be the

Iranian people rising up. It could be

Marines on the ground and so forth, but

it seems unlikely that he would just

call it quits when from this perspective

hasn't really completed the mission,

right? Hasn't really taken hold of the

uranium or destroyed the Iran's missile

capabilities and so forth. So, it

doesn't seem to to me that it's time for

him to quit. Now, from Iran's

perspective, we're getting kind of an

interesting picture of how the world war

could end. Now this morning we have news

that Iran and Japan are negotiating for

passage through the straight of Harmuz.

We also have anecdotal reports that some

countries are paying a toll to Iran for

passage through uh the strait. So what

could happen for them as a potential

endgame is that they retain control of

the straight of Humuz and everyone can

pass but in order to pass, you got to pay

up. Now there are reports suggesting

that the payment is actually settled in

R&B, so it would be held in the bank in

China safe from US sanctions. If that

were the case, if Iran were to be able to

retain control of the trade of a moves

so it's better scenario for the global

economy than it is now, because oil and

gas will be flowing, gas and oil prices

will come down. um, that is great for for

the global economy and great for many

people who otherwise I think we would

have severe threat of actually

starvation in poor countries. Um, but at

the end of the day, oil and gas prices

will be structurally higher to account

for that toll and Iran will be making

money. Iran has been sanctioned heavily

uh throughout by basically everyone

except China and then Iran's friends.

Um, so it will be able to get some more

income and that will help him

economically and maybe they can paint

this as reparations for the damage done

and be willing to to settle that.

However, of course, it seems unlikely

that the United States and um, everyone

else well and Israel would accept an

Iran not just intact, but also collecting

toll, making money.

Now, Treasury Secretary Scott Besson on

Friday actually uh lifted sanctions on

Iranian oil that is at sea and allowed

Iran to sell that. That hasn't happened

for a very long time. And so, so far at

least, uh, seems like Iran has been able

to make money off this conflict. Again,

we are in the fog of war. No one knows

what's going to happen. Uh, but that's

just a possible way that this war can

end in the coming weeks. Again, every

day that this conflict goes on, that's

energy that's not being uh, not being

produced, not being sent. And that

raises the risk of a global recession. I

personally think that the global economy

has already been nuked. We are all just

bathing in radiation. And as radiation

sickness goes, first you feel fine, then

you don't feel fine, and then you die.

So, I think things are are not good. And

I wouldn't look solely to the stock

market as a barometer because again

markets the stock market and the real

economy uh, they are related, but they're

not the same thing. All right, so that's

how I prepare for today. Thanks so much

for tuning in, and I think next week will

be also very exciting.