by @JaredDillian

You know I like sentiment indicators. Let me ask you a question: when you go out in the city, are you seeing a lot of these? 

There is no better bull market indicator than the seafood tower. 

Wine is also a pretty good indicator—the quantity and the quality, but the seafood tower is much more conspicuous. 

I have memories of 2006. Notice I didn’t say “good” memories. I was starting to wonder if Veblen was right, at the time. At any restaurant, the seafood tower provides the least value per dollar. The whole point of the seafood tower is to have this 2-foot testament to trading commissions in the middle of your table that everyone can gape at when they walk by. 

I remember in 2006 Drudge posted a link to an article about a $100 hamburger. “GILDED AGE” was the title. 

Well, most of the funny money out there these days is tech, and the tech guys really don’t go for the seafood tower, but they will drink a $15 juice in the morning or spend $8 on Blue Bottle coffee. They also spend a lot of money on jeans and T-shirts designed to not look like they spent a lot of money on jeans and T-shirts. And Teslas. 

Takeaway here: it’s seafood tower time. Of course, that isn’t really news, but it’s worth saying out loud so we get it out in the open. Funny—I am susceptible to it, too. I am going to be in New York in a few weeks and I found myself looking up reservations for Bond St. Bring your wallet when you go to that place. And my business sucks! 

I tell this story over and over again, but I will tell it again. I used to take my wife to Sparks in 2009. Tumbleweeds. We would literally be the only people in there. Fast forward to today. Loud noises. 

In bull markets, people don’t shut up. Loud talking on the streets, in restaurants, BLAH BLAH BLAH. In bear markets, people are more taciturn. I dare you. Next time you are out, get the seafood tower. Nothing quite like the feeling of top-ticking yourself. 

Inflation Inflation is coming. 

Here is why that is funny, the top ten list: 

  1. Years ago lots of people thought inflation was coming, because of printing money 
  2. That turned out to be wrong 
  3. But it was reasonable! MV = PQ! 
  4. There are people out there who think it is not reasonable, who think that was the worst investment error in the world. 
  5. I don’t know, it wasn’t so worked pretty well until 2011. 
  6. As I was fond of saying at the time, you didn’t need actual inflation, you just needed the fear of inflation. 
  7. So here we are, and inflation is starting to ramp. 
  8. But nobody is really talking about it. 
  9. We should be talking about it. If you knew inflation is coming, what would you do? 
  10. Would you: a. Buy gold b. Buy metals c. Buy commodities d. Buy EM? 

We bought X a few weeks ago, and again last week. Inflation plus potential steel tariffs. Great trade. 

Let me ask you a question: what if printing money causes inflation with a very long lag? 

What if it took 10 years for the output gap to close to really start causing inflation? I mean, as I mentioned recently, the LFPR is going up. 

Jan 2016 was the bottom for inflation. And the top for deflation. 

Remember when? The world was limit long deflation. And wrong.

People are just waking up to being long inflation. 

My guess is that we will get our wage inflation soon enough. 

But for the time being—this new Trump Fed is going to have to contend with CPI and/or core PCE that is going to float above 2% sometime soon. 

1) Trump doesn’t like raising rates 

2) Mnuchin wants a Fed Chair he can “control” This is going to be interesting. And it makes me want to get even longer letter

I can’t cover this whole idea right now, but suffice it to say, you are going to be hearing a lot more out of me about inflation, inflation, inflation. Another takeaway from DirtCon 1. Lots of talk about inflation. And we didn’t even have an economist there! 

We will next time. 


Deficits are getting bigger. 

Nobody is really talking about this. They talked about it under Obama. And to be fair, they are smaller under Trump than they were under 1st term Obama. But they are still getting bigger. 

I am struggling to find a chart of deficit projections. But you can download the spreadsheet on 

  • 2017: -693B 
  • 2018: -563B 
  • 2019: -689B 
  • 2020: -775B 
  • 2021: -879B 
  • 2022: -1027B 
  • 2023: -1057B 
  • 2024: -1083B 

That is exclusive of tax reform, and exclusive of President Bill de Blasio. People always hate it when I say that. 

Bigger deficits, more supply. 

Someone sent me an article on the Bloomtubes about how there is going to be a lot of supply of bills, in the front end. 

Quote: “Despite the uncertainty surrounding U.S. fiscal policy, one thing is clear: Treasury is going to unleash a flood of supply in 2018. BNP Paribas SA and Citigroup Inc. analysts estimate Treasury will issue $400 billion to $550 billion of bills, up from $50 billion in 2017, pushing outstanding net supply above $2 trillion, a level last seen during the global financial crisis. The expected jump is a result of the eventual resolution of the debt ceiling, the acceleration of the Federal Reserve’s balance-sheet normalization and the government’s potential overhaul of the tax system.” 

Bills at negative yields make no sense. Bills at 1.5-2% make lots of sense. 

All of my really good trade ideas in the future might be accessible on Treasury Direct. 

The Daily Dirtnap ("TDD) is an economic newsletter by @JaredDillian, the former head of ETF trading at Lehman Brothers. Click here to subscribe. 

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