I’ve spilled enough ink on the Substack chat and Twitter/X about a trapdoor in the bonds ahead of the CPI… nice to have an actionable win, but it’s time to look forward and “zoom out” a little bit, get a way from some of the short-termism that always risks overtaking us. Before we do though:
I am seeing the “oh God, the Tax Day capital gains payments” risk being cited everywhere. I discussed why this risk was overblown a few weeks ago in Liquidity Drains. The $250-400bn capital gains tax estimates for this Monday are overstated in my opinion. I think people are missing that the narrow breadth in 2023 market performance actually works against tax receipts. The key isn’t to look at the SPX making new highs last year, but rather the SPW and R2K not making new highs last year. Also remember bitcoin was still in the low $40k area, with far less turnover in 2023 than in the big 2021 year that produced fat tax receipts in April 2022 (remember how nasty 2Q22 was for risk?). In any case, I maintain that capital gains payments are likely to come in light vs the wide range of estimates out there. Also keep in mind wages grew 4.5% in 2021, 6% in 2022, but fell back to 5% in 2023 per Atlanta Fed, while CPI YoY ran 7% 2021, 6.5% 2022, and 3.5% in 2023, with impacts on COLAs. I think Yellen knows all of this, and if I’m wrong about shortfall, she will draw down TGA in the next few weeks anyway, and the hot inflation prints which are re-racking TBill yields higher are perversely helping to keep the lid on RRP balances: