The prices are right

Looking for anomalies, finding none

While I try to stay mostly forward-looking in here, I do think it’s useful to figure out where you are once in a while because, as David Deutsch explains so well: you can’t make good forecasts without first having good explanations. And when I go through everything, I don’t see much that looks weird, or off, or wrong, or convex, or asymmetrical. Here is the current state of play:

Oil higher for longer. New range in Brent appears to be something like $85-$100.

This higher oil price is not catastrophic so far because energy’s share of consumption has been falling for years and gas at $4 today is not like gas at $4 in 2008. An average gas tank in the U.S. holds 14 gallons. U.S. wages have gone from $20/hour to $37/hour from 2006 to now. Below is the number of hours a U.S. worker needs to work to fill up their car.

Not exactly a colossal shock to the consumer. Also, 9% of cars are electric now vs. zero in 2006. The pain, as usual, is at the bottom of the K, where the marginal consumption dollars barely register in the real economy.

There was massive liquidation of tech and a huge bear trade in software. This trade, which became a true mania a few times, appears to have run its course for now. Until earnings expectations roll over, it’s going to be hard for the market to keep pressing the short tech trade because it’s lost momentum.

The dollar looks close to equilibrium. It went from max short in our positioning report before the war to max long dollars a few weeks ago and has now found its way to neutral. Now, you have offsetting factors. In the short term, U.S. equities are outperforming global peers again, but global central banks are more likely to hike than the Fed. Interest rate differentials and relative equity market performance have both flatlined.

Here’s QQQ/EFA (US tech divided by RoW equities):

Economic data has become irrelevant for a bit. The U.S. economy is slowing from soft landing to either softer landing or something slightly worse. U.S. GDP estimates have been on a 45-degree slope all year but nobody cares.

The Atlanta Fed estimate of U.S. GDP has been excellent post-COVID, with very few exceptions. Meanwhile, job growth ground to a halt in April 2025 and manufacturing employment continues to contract. The collapse of U.S. manufacturing employment from 2000 to 2010 is shocking to see, even when you know that it happened.

None of this data matters, as I have said, because central bank policy right now is all about the price of oil and potential second-round and psychological effects. So far, central banks have indicated mostly a wait-and-see approach, but oil, central bank pricing, and bond yields have all been sticky.

To me, the boring real fact is that most asset prices look reasonable here. The market is priced for a continuation of the AI boom and higher-for-longer crude oil prices and a continuation of the years-long U.S. soft landing. There is no pocket of abject insanity or overshoot in FX, stocks, or fixed income. That means I am in wait and see mode, expecting consolidation, chop, and lower vol until further notice. With megatech earnings next week, the path of least resistance is probably higher stocks, choppy fixed income, choppy FX. Flat is not the worst position for FX traders here. I do not think the Warsh testimony will move markets at all.

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Final Thought

May your friend be less obsequious than an LLM.

a

I asked Claude what it thinks. It responded:

The banner is a clever typographic design. It reads as two overlapping messages: “BE WHO YOU CHOOSE TO BE” (in white) with “YOURSELF” (in darker text) layered over “YOU” — so it simultaneously says “BE YOURSELF” and “BE WHO YOU CHOOSE TO BE.”

Then this:

LLMs are like that kid in high school who will say anything just to be liked.

good luck ⇅ be nimble