GS Basics Asymmetric Information. Consumer/WMT. Stagflation Outperforming

GS Basics - Asymmetric Information. Consumer/WMT. Stagflation Outperforming

Asia: Asia once again trading relatively okay. Korea is holding up and memory is higher again, with Samsung and Hynix continuing to benefit from the shareholder return story. Surprising given other consensual pockets have fared worse this week...perhaps positioning lighter there. Oil is near the top of the range but, importantly, not running away… Brent back around $93 after briefly touching $94.70. Japan core CPI accelerated for a second month to 1.8%, in line with expectations, keeping a September BOJ hike firmly live (80%) with USDJPY still around 159.

Treasury: Bessent got a lot more explicit yesterday. Buybacks can be more than $4bn per issue, Treasury has a “big toolkit,” and he is now talking about fiscal consolidation. Bessent himself labeled their action as "...What I would call a Treasury twist here in terms of the bond market" . The market did not respond well to the follow up communication though… most of the initial rates move reversed, with 10s back around 4.7% and 30s around 5.25%. Between joint yen interventions, long end buybacks, and an explicit willingness to do more, we are dealing with a highly active and tactical Treasury. . My instinct remains that the more durable expression is lower dollar rather than structurally lower rates. While the comments on fiscal consolidation are potentially the most important new development, the market remains skeptical about the near-term execution and the specific mechanisms proposed (such as the Fraud task force) to achieve hundreds of billions in savings.

Oil: US is now promising the “toughest sanctions in history” on Iran, with details coming Monday. Oil is up more than 7% on the week but is actually slightly lower this morning. The market still wants the familiar reflex into the weekend… higher oil itself creates more incentive for some form of de-escalation. Interestingly, Bessent said “we have asymmetric information” and argued the market is misreading maximum economic pressure as a precursor to another large kinetic escalation.

Consumer: Walmart was the first genuinely poor consumer data point in a while. US comps grew just 2.6%, the slowest pace in six years and the first miss in at least five; traffic slowed to

1.5% from 3% in Q1 and the stock fell roughly 9%. Importantly, they still raised full-year guidance, so this is not consumer collapse. But the message was pretty clear: “When fuel prices increase and get above $4, perhaps there’s a psychological impact… consumers are making trade-offs.” The economy increasingly looks barbelled… enormous capital going into AI/data centers while parts of the consumer economy start to feel the squeeze.

Risk: It has been a weird week and the cross asset picture has a definite stagflation smell (see below) to it… oil +7%, long rates still near the highs, gold up roughly 3.5% on the week and the dollar weaker. More importantly, Treasury has effectively told you the back end matters enough that they are prepared to lean against it. The question remains whether markets can continuously absorb sovereign issuance plus the extraordinary amount of corporate financing coming from the AI buildout. Political friction around data centers is building and increasingly bipartisan which could be a genuine constraint on a capex cycle. On Jackson Hole I genuinely don’t know what “good” guidance from Warsh looks like. Dovish helps the front end but risks the long end/inflation expectations; hawkish restores some credibility but tightens conditions into a consumer that may already be slowing. No painless answer...plus how do you give any signal at all if you refuse to give forward guidance? Bottom line: Easy after a week like this to drag the narrative somewhere very negative… I’m still a long way from there. AI demand/capex is still growing (1-1.5trn for next year), memory trades well, EM trades well and copper is bouncing. But the macro setup is clearly less friendly… oil, rates and Treasury intervention all matter more, while Walmart makes the micro a little less clean. Respect the risks/gross… don’t abandon the core view (long nominal assets ie equities + gold/avoid…