Robert Reynolds @RobertMERC: "I do 𝙣𝙤𝙩 think the..."

Spain

I do 𝙣𝙤𝙩 think the most likely outcome here is classic stagflation. What I think we are looking at instead is a 𝙨𝙪𝙥𝙥𝙡𝙮-𝙨𝙝𝙤𝙘𝙠 𝙨𝙡𝙤𝙬𝙙𝙤𝙬𝙣. Meaning higher headline inflation, weaker hiring, margin pressure, and slower real activity, but with elements that echo both the 1940s and the 1970s such as elevated debt levels alongside fiscal support and spending pressures, combined with supply-side shocks rather than a clean signal of a deep recession or a durable 1970s-style inflation spiral. I have been spending a lot of time looking at this through three buckets: 1. 𝙏𝙝𝙚 𝙥𝙝𝙮𝙨𝙞𝙘𝙖𝙡 𝙚𝙣𝙚𝙧𝙜𝙮 𝙥𝙞𝙘𝙩𝙪𝙧𝙚 Europe’s gas system looks stressed, but it does not look broken yet. The storage data shows withdrawals easing and injections turning positive into early April which is consistent with absorption season. My own estimate is low 70% inventories into November 1st and a very fine margin to get through an average winter drawdown So when I look at gas here, I do not see “system failure” this year, I see a market that is under pressure, but still functioning with significant risks into 2027 if we fail to find a solution sooner. 2. 𝙒𝙝𝙖𝙩 𝙩𝙝𝙚 𝙘𝙪𝙧𝙫𝙚𝙨 𝙖𝙧𝙚 𝙧𝙚𝙖𝙡𝙡𝙮 𝙨𝙖𝙮𝙞𝙣𝙜 The TTF curve is pricing a front-end shock and then a meaningful step down over time. Brenthas the same shape curve, elevated near-term pressure, but not a market that believes today’s stress is permanent. To me, that says the market is treating this as a real disruption, but still a temporary one. But I also think we need to be open to the idea that the curves may be **underpricing the near-term risk**. If they are wrong, it is likely on **timing and front-end severity**, not necessarily on the broader idea that the shock eventually fades. 3. 𝙏𝙝𝙚 𝙢𝙖𝙘𝙧𝙤 𝙨𝙥𝙞𝙡𝙡𝙤𝙫𝙚𝙧 The US data is inflationary and softer at the same time, but still not recessionary in a hard sense. Manufacturing and services are still expanding. New orders are still holding up better than many expected (including me). At the same time, prices have clearly re-accelerated and employment components have weakened. That is not a healthy mix, but it is still an expansion mix. So the cleanest base case for me remains: 𝙝𝙞𝙜𝙝𝙚𝙧 𝙞𝙣𝙛𝙡𝙖𝙩𝙞𝙤𝙣 𝙩𝙝𝙖𝙣 𝙢𝙖𝙧𝙠𝙚𝙩𝙨 𝙬𝙖𝙣𝙩𝙚𝙙, 𝙡𝙤𝙬𝙚𝙧 𝙜𝙧𝙤𝙬𝙩𝙝 𝙩𝙝𝙖𝙣 𝙢𝙖𝙧𝙠𝙚𝙩𝙨 𝙬𝙖𝙣𝙩𝙚𝙙, 𝙗𝙪𝙩 𝙣𝙤𝙩 𝙖 𝙛𝙪𝙡𝙡 𝙨𝙩𝙖𝙜𝙛𝙡𝙖𝙩𝙞𝙤𝙣 𝙧𝙚𝙜𝙞𝙢𝙚. The way I would summarize it is this: * oil is acting like a near-term inflation tax * gas is a regional stress point, not yet a systemic collapse * services and manufacturing are still expanding, but labor is softening * bond markets are not pricing a clean recession washout * energy curves still imply eventual normalization, even if the path may be too smooth Personally, that is why I have softened to the idea of “stagflation” as the core case here. I think the more likely outcome is a 𝙨𝙡𝙤𝙬𝙚𝙧-𝙜𝙧𝙤𝙬𝙩𝙝, 𝙨𝙩𝙞𝙘𝙠𝙞𝙚𝙧-𝙞𝙣𝙛𝙡𝙖𝙩𝙞𝙤𝙣 𝙚𝙣𝙫𝙞𝙧𝙤𝙣𝙢𝙚𝙣𝙩 𝙬𝙞𝙩𝙝 𝙚𝙡𝙚𝙫𝙖𝙩𝙚𝙙 𝙫𝙤𝙡𝙖𝙩𝙞𝙡𝙞𝙩𝙮. I care more about the front end of energy than the long end, and more about path risk than neat long-term equilibrium stories. I would frame it as roughly a 50/50 setup from here. While the current data still leans me toward the muddle-through outcome, I think there are meaningful odds that one or more of the key risks materialize, so I am trying to stay balanced rather than treat them as remote tail scenarios. What would change my view? A longer disruption through Hormuz, a much worse European refill trajectory, or signs that current front-end energy curves are materially under-pricing physical tightness. The portfolio is not built for “everything breaks,” and it is not built for a clean normalization either. It is built for a slower-growth, stickier-inflation and higher-volatility environment. I think it goes without saying that this is not an easy market to navigate so I am open minded to changes that might force a reconsider of positioning. $SPY (State Street SPDR S&P 500 ETF) $OIL

Not investment advice. The author may have financial interests in the mentioned instruments.

2 Mentioned

SPY

State Street SPDR S&P 500 ETF

OIL

Oil (Non Expiry)

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