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.
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 […]
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.
USD is acting more like an injured EM commodity currency with political risk typically witnesses in developing countries, not a safe haven.