MacroVoices #361 Alex Gurevich: Jay Powell says, “Effects of tightening not yet felt.” Alex says, “No shit, Jay.”

Episode Summary

Executive Summary: Macro Voices 361 centers on the post-FOMC macro setup: Alex Gurevich argues tightening is still working through the system and likely leads to disinflation/deflation, while hosts emphasize energy scarcity and liquidity. The discussion links oil, bonds, gold, equities, and the dollar to a slowing economy, with Gurevich favoring deferred long oil, long bonds, and bullish gold as the Fed ultimately reverses.

Main Topics: Fed policy, inflation, and deflation risk (Priority: 5/5): Gurevich says the Fed is late to recognize that inflation is already decelerating and that tightening works with a lag. He argues the bigger risk is deflationary shock, not renewed inflation, because real rates are rising, money supply is tightening, and economic pain will emerge later. Crude oil as a macro signal and trade (Priority: 5/5): Both sides discuss oil as the key market expression of energy scarcity. Gurevich argues the best risk/reward is deferred long oil because long-term supply is constrained, while immediate price action may still be weak if deflationary pressure dominates. The hosts stress that energy scarcity can cap growth. Bond market and interest rates (Priority: 4/5): Gurevich sees the bond market as positioned for a major rally, arguing inverted curves and past easing patterns have tended to over-deliver on subsequent rate cuts. He prefers five-year or longer-duration exposure, expecting rates to move toward zero within the next couple of years. Gold and hard assets (Priority: 4/5): Gurevich is bullish gold, seeing it as anticipating future Fed liquidity rather than current conditions. He expects a move toward $3,000 in the cycle and views central bank buying, future easing, and fiat debasement as key drivers. The hosts note miners are lagging the metal. Equity market rally and liquidity (Priority: 4/5): The post-FOMC rally in stocks is viewed as liquidity-driven and possibly temporary. The hosts and Gurevich see improving conditions in the short run, but remain cautious, especially given quantitative tightening, rising real rates, and the possibility that the move is only a bear market rally. US dollar weakness and cross-asset impacts (Priority: 3/5): The dollar’s break to new lows is framed as supportive for risk assets and commodities, though participants caution that FOMC days can create head fakes. Persistently weak dollar conditions are tied to stronger gold and broader reflationary asset moves.

Key Arguments: Gurevich argues the full consequences of Fed tightening have not yet been felt, so the market should worry more about deflation than inflation. He believes real rates have already turned meaningfully higher from deeply negative levels, which should suppress future prices and eventually economic activity. He says deglobalization, reshoring, and green energy policy create a secular inflation backdrop, but the more immediate force is cyclical deflation from monetary tightening. On oil, he argues that current forward prices in the 60s imply a scenario that is only plausible in a recession or deflationary depression, making deferred long oil attractive. He views energy scarcity as a binding constraint on global growth; without more supply, the world cannot sustain pre-pandemic growth trajectories. He expects the Fed to reverse course, move toward zero rates, and eventually consider QE again, which supports bonds and gold. He believes gold is rising because it anticipates future liquidity, not just current real-rate dynamics. The hosts argue oil could spike first in a supply shock, then become deflationary only after the economy collapses. The stock rally is considered vulnerable because liquidity technicals and QT may reassert pressure after the FOMC-driven bounce.

Data Points: Fed rate hike: 25 basis points - Fed announcement on the February 2023 FOMC day EIA crude inventory build: 4.1 million barrels - Weekly EIA report discussed at the start of the episode Cushing inventory change: 2.3 million barrels build - EIA inventory details Gasoline inventory change: 2.6 million barrels build - EIA inventory details Distillates inventory change: 2.3 million barrels build - EIA inventory details U.S. crude production: 12.2 million barrels per day - EIA report, unchanged week over week Consecutive EIA builds: 6 in a row - Hosts note persistent inventory builds before crude sold off SP 500 spot level: around 4,150-4,160 - Post-FOMC chart discussion SP 500 resistance broken: 4,000 and 4,120 - Nick and Eric discuss new support after rally SP 500 upper expected move (Feb. 17 OPEX): 4,260 - Options-based expected move from chart segment SP 500 lower expected move (Feb. 17 OPEX): 3,940 - Options-based expected move from chart segment NASDAQ QQQ spot level: around 306 - Post-FOMC NASDAQ discussion QQQ gap fill target: around 310.84 - Nick cites a September gap fill area VIX spot level: around 17.6 - Volatility discussion in post-game segment Expected daily market move: about 1.1% - Derived from low VIX conditions Gold spot level: around 1,970-2,000 - Gold discussion after the FOMC rally Gold long-term target cited by Alex Gurevich: $3,000 - Gurevich's cycle target for gold Oil forward price reference: mid-to-high 60s per barrel - Gurevich cites three-year oil futures around $65-$70 Russia oil export benchmark: about 8 million barrels per day - Eric uses this in a hypothetical supply shock scenario Potential oil shock example: 4 million barrels per day removed - Used to illustrate supply shock and global recession risk US 10-year Treasury futures: potential move to 118-120 - Nick's technical outlook in the post-game segment

Pivotal Quotes: "The consequences of our tightenings, the full consequences of all our tightenings, are yet to be felt." — Jay Powell (quoted by Alex Gurevich): Gurevich reacts to the Fed chair’s opening remark at the press conference "I am rather puzzled, honestly, by what the Fed is doing." — Alex Gurevich: He challenges the Fed’s focus on inflation despite rapidly slowing inflation data "I think we will see $3,000 gold in the cycle." — Alex Gurevich: His medium-term bullish gold forecast during the hard-assets discussion

Implications: Listeners should treat the current rally in stocks, bonds, gold, and oil as liquidity-sensitive and potentially unstable. The bigger macro call is that tightening lags could trigger deflation and force the Fed into reversal, favoring long-duration bonds, deferred oil, and gold.