For more than a year, global risk assets have rallied thanks to an almost perfect combination of positive tailwinds. The emergence of vaccines allowed economies to open more aggressively. In most parts of the world fiscal policy has continued to provide support for households and business. Monetary policy settings also remain super-accommodative. This has contributed to the recovery in growth, …

Having spent some of my formative macro years at Goldman Sachs underlined the importance that the Fed placed on broad financial conditions. Of course, that framework was reinforced by the former Governor of the New York Fed (Bill Dudley) who had previously been Chief Economist of the Famous Investment Bank. The emphasis on broad financial conditions makes a lot of …

While investors are likely to be focussed on Jackson Hole later this week and any hint over the timeframe of the Fed’s taper, the mini growth scare continues to weigh on cyclical assets. From our perch, the prevailing bias has become too pessimistic on the cyclical growth outlook over the next few quarters. To be fair, another debilitating wave of …

It has been a tremendous bull market in US mega-cap technology (FATMAN-G) stocks over the past few years. While outperformance was a function of the low discount rate and super-abundant liquidity, it was also likely due to superior cash flow, profits or returns on equity. The major US technology companies have also tended to have net-cash on balance sheet which …

Arguably the description of Gold as a “Barbarous Relic” might be even more appropriate in the post modern financial era of crypto and NFTs. However, gold has around 4000 years of financial history as store of real value against the devaluation of fiat currencies. More recently, a key point to note is that the spot price of gold still largely …

The impulsive sector rotation and flattening in the yield curve following the June FOMC, highlighted crowded positioning in reflation winners and interest rate sensitive assets relative to “defensive” ones. Even prior to the FOMC, investor enthusiasm for “reflation” and “inflation” trades had probably already topped, consistent with peak liquidity, policy and cyclical growth momentum. The good news is that policy …

The 2013 taper tantrum had a profound impact on the psyche and behaviour of the Federal Reserve and markets. From our perch, it reinforced the observation that the Fed’s desire to create “stability” eventually leads to even greater instability in once there is a shift in future rate expectations and a withdrawal of liquidity. The prevailing bias that low short …

Something that has garnered attention recently has been the decline in the real (headline CPI adjusted) US earnings yield. Based on the forward earnings yield less the headline CPI, the real yield is now zero. However, if we use the current trailing earnings yield (1/29 = 3.4% – 4.2%) the real yield is now negative by 80 basis points. In …

Following a rapid and emotional liquidation on Wednesday, there has been a solid recovery in the liquidity beneficiaries over the past 24 hours. As we noted yesterday, it is plausible that there has been a (tactical) peak in goods and commodity price inflation expectations. However, it is also our sense that the conditions for a secular rise in broad consumer …