Good Morning BullBuzzers!
"The market can remain irrational longer than you can remain solvent."
⚡ TODAY IN 10 SECONDS
Fed Chair Kevin Warsh used his Jackson Hole keynote on Friday to say inflation is still too high and that rate hikes may be needed
Overnight, the US struck Iranian rocket launchers near the Strait of Hormuz, and WTI jumped 3.6% to about $86 — so this morning's tape is a rates story wearing an oil costume.
FOCUS OF THE DAY
The Hike Became The Base Case, And Almost Nobody Was Positioned For It
Warsh spoke at Jackson Hole last week, saying inflation remains uncomfortably high, the commitment to 2% has not softened, and (for the first time as Chair) that hikes may be required to get there. He also described the economy as stronger and the labor market as stable, which removes the excuse for patience.
A rate hike raises the return you can earn from cash and short-term bonds with no risk. Every stock has to compete with that. The assets that suffer most are the ones whose value sits furthest in the future or depends most on cheap borrowing: long-duration growth stocks, small caps, real estate, gold, and crypto. That is exactly the list that fell on Friday.
How to trade a repricing like this without guessing. You do not need to predict the September 16 decision. You need to notice which parts of the market are already behaving as though the hike is coming, and let those groups tell you when the view changes. Watch $IWM against $SPY for the small-cap read, and $XLK against $XLE for the rotation read. Both are live all day, and neither requires an opinion about Kevin Warsh.
HEADING INTO THE OPEN
1. US Strikes Iranian Launchers Near Hormuz; WTI Jumps 3.6% To About $86
Central Command confirmed strikes on two rocket launchers on Iran's Larak Island Sunday — the first publicly acknowledged strike on Iranian positions since late July. Brent is trading near $89. Roughly 6 to 8 million barrels a day still transit Hormuz.
2. Japan's 2-Year Yield Hits A 31-Year High As The World's Front End Reprices
The 2-year JGB touched 1.730%, a level last seen in April 1995, with markets pricing roughly an 87% chance of a BOJ hike to 1.25% in September. Japan auctions 10-year paper Tuesday and 30-year Thursday. The US 10-year sits near 4.72%. When the short end rises globally, leveraged and long-duration assets get repriced whether or not the Fed moves.
3. Today is the last session of August.
Month-end rebalancing distorts the tape, especially in the final 30 minutes. Big moves today carry less information than usual. Treat the close with suspicion and let Tuesday's ISM print give you a cleaner read.
IDEA OF THE DAY
$XLE ( ▲ 0.63% ) — Own The Barrel, Not The Headline
Energy is the one group that comes into today with both a fundamental catalyst and a chart that has already done the work. $XLE bottomed at $52.81 on July 1 and has climbed roughly 19% since, peaking at $64.70 on August 20. For the last seven sessions, it has done nothing but digest that run in a $62.04–$64.70 band, and it closed Friday at $62.68, up 0.63% on a day when eight of eleven sectors could not manage that.
Higher oil is inflationary, which reinforces the hawkish Fed story rather than fighting it. That makes energy one of the very few groups that can go up because of the same force that is pressuring everything else. This is the difference between a hedge and a bet.
Geopolitical premium is the fastest-evaporating thing in markets. If the Hormuz story de-escalates this week, the barrel gives it back overnight, and every energy chart looks silly by Wednesday.
$69.8M of 30-day volume sits behind these books.
Our read: HOLD 55%
On Friday we published 78% hold while the venues sat near 74%, and we wrote that "the crowd has come to us." Warsh then spent Friday morning telling Jackson Hole that inflation is too high and hikes may be needed, and the books moved roughly 27 points against us in two sessions. That is not a rounding error. That is our thesis getting run over by the one input we do not control.
We are cutting to 55% hold, only modestly above the market. The reasoning that survives: a hike asks the Fed to tighten a few weeks after July payrolls fell by 23,000, and the September meeting comes with a fresh dot plot the committee would normally use to signal a move before making it.
😂 MEME OF THE DAY
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