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Former macro hedge fund manager, Hugh Hendry, again invites his former investment colleague, Tom Roderick, to review the global macro landscape.  
This week they argue over inflation. Hugh is sceptical, Tom less so. The gonzo investor rails against the media’s shock and outrage on witnessing higher prices. “We closed the world for more than a year and then jolted it back to life with the greatest ever cash incentive to buy...why are we surprised that some prices have surged?” bellows Hugh from his cave in St Barts.  
The boys consider a means to overcoming their differences and suggest that the Fed should take note. Tom has an ingenious idea – The Rule of 2 %. That the Fed should only announce a hike in rates should the 10-year Treasury yield breach 2%. But could the Fed ever admit to its lack of omnipotence in the rate setting arena even though the bond market always calls it right? Tom then explains why macro managers own gold in their hedge funds - hint, it’s the cheapest inflation hedge. 
This is macro conjecture for grown-ups and part I concludes with a review of a recent and revelatory thread by Michael Pettis, a prominent macro economist. Does China’s undervalued exchange rate and / or low wages export deflation onto an unsuspecting West? The boys de-construct the logic to confirm that yes, it is trade policy and not interest rates that govern our financial universe. Unless surplus nations mend their ways, risk-free rates will likely remain pinned to the floor and cautious investors will continue to forgo maximising future returns in favour of avoiding even greater losses.  

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