It is 3:47am.
I have not slept since Tuesday. Not because I don't want to. Not because I'm not tired. I am extremely tired. My body is tired. My soul is tired. My psychiatrist is tired of me showing up and telling her that Gerald is still there.
Gerald is the man who lives in the corner of my eye. He has been there for approximately six months. He stands slightly to my left and slightly behind me in my peripheral vision and he never moves and he never speaks but lately I have become convinced, in the way that you become convinced of things at 3:47am after four days without sleep, that Gerald agrees with my thesis on Home Depot.
The sertraline is not working btw. Dr. Russo said give it six weeks. It has been nine weeks. Gerald is still there. He appears bullish.
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\# TL;DR
The Fed has five problems and its tool solves exactly one while making two worse. Long-duration tech is getting repriced by arithmetic not vibes. The 30-year Treasury yields 5.18% and Nvidia is priced like it doesn't. Meanwhile $HD beat earnings this morning, dropped 2.49% anyway, and is sitting at its 52-week low yielding 3.1% while the entire macro setup is pointing at it like a spotlight. Gerald is nodding. I think. It's hard to tell because he's in my peripheral vision.
This is not financial advice. I am a man who has not slept since Tuesday. Gerald is not real according to Dr. Russo although she has never technically met him.
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\# PART 1: THE MARKET DATA AND WHY I AM LOOKING AT IT AT 3:47AM
I opened my phone to check on my ex's Instagram and instead accidentally opened my brokerage app and saw the following numbers:
\\30-year Treasury: 5.18%\\ (+0.66% today)
\\10-year Treasury: 4.667%\\ (+0.95% today)
\\Crude Oil: $104.03\\ (Iran war, Hormuz blockade, mines nobody can find)
\\Gold: $4,485\\ (FALLING. In a geopolitical crisis. This is not normal.)
\\CPI: 3.8% YoY\\ (highest since May 2023)
\\PPI: 6.0% YoY\\ (energy driven, pipeline inflation incoming)
\\USD/JPY: 159.00\\ (the yen is basically disappearing)
\\26.44% of ALL US federal debt matures in the next 12 months.\\ That is $9.65 TRILLION that needs to be refinanced at current rates instead of the 0.5-2.5% rates it was originally issued at during COVID.
I stared at this for twenty minutes. Gerald stared at it too, from the corner of my eye. Then I took my sertraline (which is not working) and decided to write a DD instead of sleeping.
This is that DD.
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\# PART 2: THE FED IS TRAPPED AND I NEED YOU TO UNDERSTAND THIS BEFORE YOU UNDERSTAND HOME DEPOT
The question everyone is asking is: should the Fed raise rates to fight inflation?
The answer requires understanding that the Fed has FIVE SIMULTANEOUS PROBLEMS and its tool (the interest rate) works correctly for exactly ONE of them, is irrelevant for TWO, and actively makes TWO WORSE.
I learned about Tinbergen's Rule at 2am three nights ago. Jan Tinbergen won the first Nobel Prize in Economics in 1969. His rule: you need one independent policy instrument for each policy objective. The Fed has one instrument. It has five problems.
Gerald thinks this is important. I can tell because he is still there.
\\Problem 1: Supply-side inflation (Iran war, oil at $104)\\
Tool response: WRONG TOOL
Oil at $104 is not because Americans have too much money. It is because there is a literal war and the Strait of Hormuz is partially blocked and there are mines in it that Iran itself has lost track of. No amount of rate hiking produces more oil. The only mechanism through which rate hikes reduce oil-driven CPI is by destroying enough economic demand (factories closing, people unemployed and driving less) to compensate for the supply shock. That mechanism has a name. It is called a recession. You are inducing a recession to fight a war you did not start.
The 1973 oil embargo precedent: Fed raised rates aggressively. Result was stagflation. Rates addressed the symptom (high prices) not the cause (supp