I do ๐ฃ๐ค๐ฉ think the most likely outcome here is classic stagflation. What I think we are looking at instead is a ๐จ๐ช๐ฅ๐ฅ๐ก๐ฎ-๐จ๐๐ค๐๐ ๐จ๐ก๐ค๐ฌ๐๐ค๐ฌ๐ฃ. 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. ๐๐๐ ๐ฅ๐๐ฎ๐จ๐๐๐๐ก ๐๐ฃ๐๐ง๐๐ฎ ๐ฅ๐๐๐ฉ๐ช๐ง๐
Europeโs 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 โsystem failureโ 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. ๐๐๐๐ฉ ๐ฉ๐๐ ๐๐ช๐ง๐ซ๐๐จ ๐๐ง๐ ๐ง๐๐๐ก๐ก๐ฎ ๐จ๐๐ฎ๐๐ฃ๐
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 todayโs 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. ๐๐๐ ๐ข๐๐๐ง๐ค ๐จ๐ฅ๐๐ก๐ก๐ค๐ซ๐๐ง
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:
๐๐๐๐๐๐ง ๐๐ฃ๐๐ก๐๐ฉ๐๐ค๐ฃ ๐ฉ๐๐๐ฃ ๐ข๐๐ง๐ ๐๐ฉ๐จ ๐ฌ๐๐ฃ๐ฉ๐๐, ๐ก๐ค๐ฌ๐๐ง ๐๐ง๐ค๐ฌ๐ฉ๐ ๐ฉ๐๐๐ฃ ๐ข๐๐ง๐ ๐๐ฉ๐จ ๐ฌ๐๐ฃ๐ฉ๐๐, ๐๐ช๐ฉ ๐ฃ๐ค๐ฉ ๐ ๐๐ช๐ก๐ก ๐จ๐ฉ๐๐๐๐ก๐๐ฉ๐๐ค๐ฃ ๐ง๐๐๐๐ข๐.
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 โstagflationโ as the core case here.
I think the more likely outcome is a ๐จ๐ก๐ค๐ฌ๐๐ง-๐๐ง๐ค๐ฌ๐ฉ๐, ๐จ๐ฉ๐๐๐ ๐๐๐ง-๐๐ฃ๐๐ก๐๐ฉ๐๐ค๐ฃ ๐๐ฃ๐ซ๐๐ง๐ค๐ฃ๐ข๐๐ฃ๐ฉ ๐ฌ๐๐ฉ๐ ๐๐ก๐๐ซ๐๐ฉ๐๐ ๐ซ๐ค๐ก๐๐ฉ๐๐ก๐๐ฉ๐ฎ. 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 โeverything breaks,โ 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... Show More
Not investment advice. The author may have financial interests in the mentioned instruments.
Things I was prepared for and fully expecting:
- highly intelligent, analytical post, streets ahead of what I would find elsewhere on eToro.
Things I wasn't expecting/caught me off guard:
- Over 18% up this year! Well done on this.
- The shaven head.
Keep up the good work Robert and hope you... Show More
Any thoughts on the increased food costs through higher prices for of gas (usual energy source for creating some fertilizer types) but also sulfur (still for fertilizer, and more than 40% of world exports would usually pass through the strait of Hormuz)... Show More
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