After the FOMC: my macro convictions for 2027

In the aftermath of the FOMC, my macro convictions for the year 2027 have become increasingly clear. The skyrocketing cost of diesel fuel, soaring to $6.50 per gallon, has the potential to upend the political and economic landscape across the globe. As President Donald Trump's support dwindles in heavily affected regions, such as New England, Alaska, and the Farm Belt, American consumer-price growth is anticipated to climb to a staggering 4%.

This price surge is a direct consequence of the increased costs of trucking, which is now embedded in inflation calculations, much like how India's onion prices influence political rallies.

Given this diesel shock, shorting trucking stocks could prove profitable in the coming winter and beyond. The freight company, JB Hunt, has already acknowledged that diesel costs will significantly impact its operational expenses, causing its shares to plummet by 10% on the New York Stock Exchange. Experts predict that trucking stocks may lose up to half of their value by the time the diesel shock reaches its peak, potentially triggering a global recession.

In the realm of international politics, the polls and opinions of Parisian Left Bank cognoscenti suggest that Marine Le Pen will ascend to the presidency of France when Emmanuel Macron vacates the Élysée Palace. This shift in power could lead to a compelling strategy to short long-duration OATs in relation to German Bunds, while simultaneously shorting the euro against the Swiss franc and the Norwegian krone.

The unanimous vote of 9-0 at the September FOMC meeting, coupled with a rise in the "dot plot" projection to a 4% overnight borrowing rate by December, implies that we have not witnessed a singular policy shift from the Federal Reserve, but rather the beginning of an extended tightening cycle.

The Federal Reserve chair, Kevin Warsh, refused to align with the FOMC's dot plot forecast, anticipating that any forward guidance on interest rates could provoke a global panic with far-reaching consequences. This may force the Warsh-led Fed to intervene as the lender of last resort, and potentially exacerbate inflation risks through the injection of liquidity into financial markets.

Wall Street metrics have become increasingly surreal, driven by the AI-driven capital expenditure surge and the rising cost of credit risk. Consequently, the Chicago debt futures pits exhibit a more hawkish stance on interest rates compared to the FOMC dot plot projection. Chicago-fed funds futures indicate a potential overnight rate of 4.5% by April.

However, my diesel thesis posits a more ambitious scenario, wherein the fed funds rate could climb to 5% by June, accompanied by a 10-year US Treasury yield of at least 100 basis points. This could prompt US Treasury Secretary Scott Bessent to intervene in the $32 trillion American government bond market with extensive daily buybacks.

Drawing from Shakespeare's words, any term used to describe financial repression will ultimately bear the same negative impact on the dollar, as it surfs the wave of rate hikes and prepares for the inevitable global currency wars by 2027.

The past eight centuries of financial history, including the infamous default of King Edward I on debts to Italian bankers, have illustrated that any period of accelerating sovereign debt accumulation leads to only one outcome: devaluation, default, or both. The introduction of stealth devaluation, in tandem with a 4% consumer-price growth rate, signals the beginning of this inevitable process.

The American Republic must now be prepared to confront the endgame of the largest public-debt black hole in its 250-year history. As the global bond bear market synchronizes, it is unlikely to conclude in 2027.