BZ1!97.440002 $CL1! $DBA

Back in 2021, inflation was running wild and the Fed still had not hiked. In November, the administration signed another $1.2tn spending package. That was when we first warned of the risk of stagflation that rhymes with the 1970s. The Fed tightened the following year, and inflation came down. Trump campaigned on reducing deficits and tackling the debt problem. As we head into the midterms, it is clear he has failed to deliver. That is putting it mildly. His administration have been doing the opposite of what is needed to salvage either problem.

The 1970s offer a familiar sequence. The 1973–74 oil shock drove energy costs sharply higher, and inflation reached 11% in 1974. The Fed tightened, then eased before inflation was fully contained. Inflation fell to 6% in 1976, only to climb again as the second oil shock arrived in 1979. Inflation rose above 13% in 1980. Volcker then tightened aggressively, taking the fed funds rate to around 19% in 1981. The 10-year Treasury yield rose from around 6% in the early 1970s to above 15% in 1981.

It's all just the same thing over and over. We just can't help ourselves.

The war is stagnant. No matter how many headlines about deals and reopening you see, there has been no real progress. The self-engineered TACOs are exactly what I expected and outlined in recent Tactical Positioning.

Unlike most prices, oil has second-order effects. It feeds into transportation, chemicals, agriculture and food production. Much of the shock has yet to reach consumers. Margin compression is ongoing: Campbell's adjusted gross margin fell 240bp YoY in Q3 and 190bp in Q4; General Mills' fell 90bp in its latest quarter. The next phase is passing those costs on to consumers. Food prices are the thing to watch, given the weight of food in inflation and its exposure to transportation and fertilizer costs.

If I am right—and let's hope I'm not—that the war drags on for years, the moves in oil and yields and the cross-asset repricing we have seen over the past seven months are only the beginning.

I posted this midweek but was quickly banned:

“Should the war drag on, the 150bp rise in 2y yields and 120bp rise in 10y yields since the war began are just the beginning. The inflation shock has yet to fully work its way through the economy. Food prices have yet to reflect the cost pressures that will inevitably feed through from higher transportation and fertilizer costs. Oil inventories continue to be drawn down at an unsustainable pace, with inventories in many regions already at minimum operating levels.

I expect major swings in the years ahead. There's gonna be a lot of money to be made trading through this mess.”

DBA (Daily, as of 2026-09-25)