Loose as a Goose

Melita Breen Vantage Point Articles

In Australia, a “goose” is a light hearted term to describe someone who is a bit foolish. A more derogatory term might be a “flaming galah.” Last week we noted that the US Federal Reserve might be committing a costly policy error based on the false premise that inflation is pending a normalisation through supply side adjustment. The recent strength …

Too Much of a Good Thing

Melita Breen Vantage Point Articles

As we noted last week, team transitory has taken a credibility hit after the recent inflation data. Martin Wolf put it well in the Financial Times; the false premise that inflation is pending a normalisation through supply side adjustment is a potential costly policy error. Put differently, recent inflation pressure is not simply a function of supply side constraints but …

Terminal Velocity

Nick Ferres Vantage Point Articles

As widely expected, the Federal Reserve has started to taper its asset purchase program and retain flexibility on the pace of reduction moving forward. That has been well-flagged by the Fed for months, which reflects “modern” monetary policy of forward guidance and the desire to let the markets know what is coming well in advance. Indeed, some would argue that …

Now for the Payback?

Nick Ferres Vantage Point Articles

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, …

Fire in the (Jackson) Hole: Part II

Nick Ferres Vantage Point Articles

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 …

Like a Wrecking Ball

Nick Ferres Vantage Point Articles

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 …

On the Highway to Sell?

Nick Ferres Vantage Point Articles

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 …

Cold Gold

Nick Ferres Vantage Point Articles

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 …

A Little More Defensive?

Nick Ferres Vantage Point Articles

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 …

You Should Be Selling When they’re Yellen

Nick Ferres Vantage Point Articles

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 …