A perfect three-pronged storm is brewing: oil, the labor market, and fiscal policy in the US will soon propel inflation notably higher than appreciated by overly complacent economists and analysts stuck in a delusion of “low-flation” recency bias. Just this past Friday afternoon–Friday afternoons being the most notorious time to quietly dump toxic news sludge into the market–Saudi Arabia went […]
Emerging Market Credit Risks Could Fuel a Temporary Rush of Capital into USD as the Receding Tide Exposes Naked Swimmers
Risks are increasing for a rapid rush of capital out of low-quality EM and this could temporarily reverse or complicate the longer term trajectory of a weaker USD.
Synchronized global growth heading into early 2018 has become more complicated. Global divergences are forming in growth and inflation. US Treasuries are not coming off the hinges just yet but an increased risk of (too) sharp of a rise in interest rates is clearly in the back of investors’ minds. China and Europe are decelerating somewhat but from elevated levels. […]
Why Equity Market Gains Fueled in Part by a Weak Currency Just Aren’t the Same: Here is the S&P500 in Euro Terms
If foreign investors don’t expect the dollar pendulum to swing back anytime soon, they will demand much higher interest rates to compensate for the currency and inflation risk. Additional UST damage won’t do risk assets any favors and neither will trillion+ dollar deficits as far as the eye can see. Watch long end bonds.
An influx of new fixed income supply over the coming four plus years is going to have a difficult time finding enough increased marginal demand to fill the void left by central banks gradually winding down their balance sheets.
We like to build a foundation of top-down macro themes over longer time frames and then optimize specific risk management strategies to fit the nature of the themes more actively.
The current fiat-based monetary system is becoming insolvent from a dead-end Keynesian “debt and inflate” feedback loop paired with a lack of needed structural reforms, and it can only be kept intact going forward with capital controls and financial repression–which is what will eventually kill the current trickle-down system of centralized government fiat and precisely what spawned cryptos in the first place.
The Privatization and Decentralization of Money: One of the Greatest Financial Stories in Your Lifetime Is Unfolding Right Before Your Eyes
One thing is nearly certain from our perspective: governments will try to blame private cryptocurrencies for the failures of a poorly devised trickle-down inflationary monetary system which spawned their demand.
Venezuelan sovereign credit default swaps have priced-in imminent default.
Global Macro Backdrop: Absolutely remarkable and historically unprecedented Developed market equity indexes are scorching higher across the board. New all-time highs or multi-decade highs are being reached nearly every day in the US, Japan, Germany, and elsewhere. Bond yields are constrained across the duration and risk spectrum near multi-decade lows. European sovereign 2-year notes in periphery nations such as Italy, Portugal, and Spain are negative and continuing to hit new lows. Bond spreads between Germany and the periphery are generally narrowing to new lows, pricing in similar levels of risk between EU nation states. European high yield bonds are trading below 2%. Equity, bond, and currency market volatility are all at or near historic lows. This is the least volatile […]
However, we would like to point out the most important passage in the statement supporting the “central bank put” thesis outlined in several Assist FX notes.
US Economy Is Increasingly Dependent on Elevated Stock Shares and Real Estate As Personal Saving Rate Hits Decade Low: “Central Bank Put” to Remain in Place if Core PCE Stays below 2%
The “central bank put” safety net for asset prices will remain in place because it is too late to do otherwise. Therefore, selling risk assets short will remain the equivalent of pushing an inflated basketball under water. We reiterate our call to accumulate equity index longs on any dips and trim position sizes on rallies until core PCE convincingly rises above 2%.
New Zealand Takes Step in Direction of Economic Nationalism and Less Central Bank Independence: How This Impacts Our Long Standing Bullish Stance on Kiwi
We view the incoming coalition as openly hostile to the New Zealand dollar, all else equal, though Labour’s coalition lead is a moderating force compared with what would be the case if NZ First party leader Peters were fully in charge. This means risks increase notably for the kiwi dollar but not in an extreme fashion overnight.
Central bankers have flat lined risk and investors have crossed to the other side expecting nirvana & free money forever.
A major Bloomberg article gaining traction essentially lays out the case for why nothing matters anymore in risk asset markets. Just keep calm and buy the dip–and by dip, that means any dip you can find. No dip? No problem. Just buy anyways. Anything is better than getting left behind sitting in the dugout on a pile of rotting cash while passive index investors trot around the bases effortlessly.
“Revenge of the Savers:” The Real Reason Behind Demand for Bitcoin and Other Decentralized Digital Currencies
The main driver of cryptocurrency demand, which we describe as “revenge of the savers,” is what concerns central banks, governments, and too-big-to-fail banking behemoths such as JP Morgan Chase.