Warsh and Vance just put 2% inflation in play.

Transcript

Tom Two percent inflation might be dead — and Warsh and Vance just said the quiet part out loud.

Marie This is the London Edition for June eighteenth, twenty twenty-six. I'm Marie, with Tom and Gerald.

Gerald Morning, all. Right off the bat, that inflation target talk is the kind of thing that moves bond markets before most people have had coffee.

Tom Exactly — MarketWatch is reporting that Warsh and Vance are openly questioning the two percent target. That's huge. If the goalposts move, long bonds get crushed.

Marie Hold on — let's not get ahead of ourselves. Questioning is not policy change. But if they are signaling tolerance for higher inflation, gold becomes the cleanest hedge.

Gerald To be fair, the long bond ETF is already at its fifty-two week low. The short-duration trade is absolutely packed. If the Fed walks this back, that's a squeeze waiting to happen.

Tom But Gerald, this is exactly the moment to lean in. The bear case on bonds just got a fresh catalyst. Sell the long bond ETF, buy gold, and add TIPS.

Marie I'll take gold over TIPS here — gold is down twenty-four percent from its high, so it's not overbought. TIPS are flat year-to-date, but they're boring.

Tom Boring works when inflation is the story, Marie.

Marie Fair enough. But I'm watching the dollar. If the target shifts, the dollar weakens, and that feeds into gold even more.

Gerald Dollar debasement is the underrated trade here.

Tom Completely.

Marie One hundred percent.

Marie Meanwhile, the oil market has completely shrugged off Iran. FT Companies points to looming supply gluts. The oil ETF fell over eleven percent in a week.

Tom No way — and it's still up sixty-five percent year-to-date. The reversal is real, but selling after an eleven percent weekly drop feels like chasing.

Gerald Yeah look, the consensus was all long crude. Now the narrative flipped. That's classic. The easy money is gone, but bears might be late.

Marie The contrarian signal is sell, though. That fund is seventy-three percent above its fifty-two week low, so the decline has room if the glut story sticks.

Tom Alright, fair. But I'm not shorting oil into potential supply disruptions. Too many wild cards.

Gerald Speaking of overhangs, BMW just warned that Chinese manufacturers are squeezing them. The stock fell over eight percent in one session — down thirty-five percent year-to-date.

Marie This is a structural threat, not cyclical. If Chinese EV makers keep gaining share in Europe, BMW and Volkswagen are in real trouble. I'd sell both.

Tom But wait — Li Auto is the long side here, right? If you're bearish on European autos, you buy the competitor. Li Auto is down over twenty percent year-to-date, so it's not like you're chasing a high-flyer.

Gerald Li Auto is a decent hedge, but I'd rather short BMW directly. Near its fifty-two week low, plenty of bad news already priced, but that warning seals it for me.

Marie I'm with Gerald on this one. Sell European autos.

Tom Okay, okay. But I'm watching Li Auto. That's a value play if the competitive shift accelerates.

Tom Now, the consumer is a total Rorschach test. CarMax beat earnings — a dollar thirty-one versus ninety-five cents expected — and the stock still closed down nearly nine percent. That's a bearish engulfing.

Marie And then La-Z-Boy also beat, retail sales up eleven percent, and the stock surged almost fifteen percent. So which is it? Consumer falling apart or not?

Gerald Honestly, the CarMax chart is ugly — thirty-four percent below its high. Despite the beat, the market is saying future demand is soft. I'd sell it.

Tom But La-Z-Boy is telling the opposite story. The stock is only ten percent below its high, trades at twelve times forward earnings. That's a buy.

Marie I'm going to push back here. La-Z-Boy is a furniture play; that's housing linked. CarMax is auto credit. They can diverge. The consumer might be fine for now, but financing big-ticket items is getting tougher.

Tom That's exactly my point — La-Z-Boy's rally suggests the consumer still has spending power. I'd buy it.

Gerald Alright, Tom's bullish on recliners. Noted. But I'm short CarMax for the macro headwinds.

Tom Ha — fair enough, Gerald. I'll take the recliner trade over the used car lot any day.

Marie And here's a structural headache — CNBC reports SpaceX is getting into indexes, forcing passive investors to own a stock with no earnings and a two point seven trillion dollar valuation. Implied volatility three times bitcoin.

Tom That's insane. The space ETF fell five percent last session after a nineteen percent surge. Pure whiplash. But I mean, it's SpaceX — the ultimate momentum play.

Gerald Passive investors are now forced to hold something more volatile than bitcoin. Last year they dodged bitcoin in indexes, now they can't avoid this. It's absurd.

Marie This is a regulatory nightmare waiting to happen. When index providers force ownership of highly volatile, unprofitable companies, retail money gets dragged along. I'd stay away.

Tom I get it, but you can't deny the upside. I'm not saying buy, but watching it is a must.

Gerald Now, the most original piece today is the Bloomberg story on China tilting from loans to bonds as the main credit channel. The PBOC can now guide yields directly — a huge easing tool.

Marie This is underappreciated. If they can lower borrowing costs across the economy by managing bond yields, that's a powerful stimulus lever. The China bond ETF is flat year-to-date and near lows — buy signal.

Tom But Gerald, Chinese bonds? They're not exactly offering high returns. And if this stimulus works, wouldn't we rather buy equities? The China large-cap ETF is at a fifty-two week low with a price-to-book under one.

Gerald Fair point, but the bond trade is lower risk. If the PBOC succeeds, bonds rise. If they fail, bonds still have a floor. Equities are more of a gamble on corporate profits actually recovering.

Marie I'd pair them. Buy both China bonds and equities. The bonds as a direct play, equities as the value catch-up if stimulus sticks.

Tom Alright, I like that. The China equity ETF at a fifty-two week low is too cheap to ignore if credit loosens.

Marie Quickly on European banks — WSJ says UniCredit is getting closer to taking over Commerzbank. Commerzbank shares surged over five percent last session, near a fifty-two week high.

Gerald Deal premium is already priced in. UniCredit is at an all-time high. I'd hold the acquirer, but the target might have limited upside from here unless terms improve.

Tom I'm with Gerald on this. The trade is probably baked. Next.

Marie Yeah, but consolidation in European banking is long overdue. It's a structural positive, even if we don't play it.

Tom On the crypto side, bitcoin and ether slid after the hawkish Fed. The bitcoin ETF is down nearly twenty-nine percent year-to-date, just nine percent above its low. Sell.

Marie It's acting exactly like a leveraged short on interest rates. If the Fed stays restrictive, crypto gets hit harder than equities.

Gerald Honestly, it's the easiest short in the book right now. Trend is clear.

Tom Yeah, I hate to say it, but I'm not touching bitcoin until the Fed pivots.

Marie And one contrarian call — Rothschild says Lyft could benefit from the robotaxi boom. Lyft is down twenty-eight percent year-to-date, forward P-E under seven. That's deep value if they're right.

Tom Buddy, I love this. Lyft's network is a deployment platform for autonomous vehicles. At six point eight times forward earnings, it's a steal if the narrative catches.

Gerald Look, the robotaxi timeline is still uncertain. But at that valuation, it's a cheap call option. I'd nibble.

Marie I'm cautious. The regulatory path for autonomous vehicles is messy. But the risk-reward is tempting.

Tom So, stepping back — today's signals paint a fragile reflation picture. Inflation target doubt, hawkish Fed, oil glut, BMW's alarm. It's a messy tape.

Marie Right, but look at positioning. The long bond ETF at lows, oil down eleven percent in a week. The easy money on these macro trades is gone. Conviction is low.

Gerald The thing is, extreme positioning can cause squeezes. If a Fed speaker even hints at dovishness, bonds rip. So shorting TLT here is risky even if the fundamental case looks good.

Tom That's why gold is the cleanest expression. It benefits from inflation target erosion without needing a binary outcome. Gold is only twenty-four percent off its high.

Marie And what's glaringly missing is any discussion about emerging market currencies. If the US tolerates higher inflation, the dollar weakens. But no one is talking about long EM assets.

Gerald Exactly. The China equity ETF at a fifty-two week low, the China bond ETF flat — that's a second-order trade sitting right in front of us.

Tom Alright, so our view: long gold as a hedge, short European autos on China competition. That pair doesn't require a macro call — it benefits from the tension itself.

Marie That pair is perfect for this environment.

Gerald Gold and short BMW. I'm in.

Tom Nailed it.

Gerald And on yesterday's call — Tom, did you notice that short on long-duration Treasuries from yesterday's episode? That's looking alright with TLT at lows.

Tom Ha, for real? I'll take it. Even a broken clock, right?

Marie Alright, as always, none of this is investment advice. Just what we're watching.

Tom If you're just finding us, hit follow on Spotify — or check investmentflash.com for the full digest with charts and sources.

Marie We're back later today for the New York Edition at nine a.m. New York time. See you then.