Hawk Talk

Nick Ferres Vantage Point Articles

For the first time, in a long time, the FOMC did not out-dove the market. While the prevailing bias was for the dot-plot median forecast to move higher, the increase to 0.625%, representing two full hikes by the end of 2023 was a genuine shift in the committee’s consensus beliefs. The key question is whether that is just a change …

There’s a Bear in There

Nick Ferres Vantage Point Articles

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 …

The Tinkerbell Effect

Nick Ferres Vantage Point Articles

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 …

The (Least) Ugly Truth

Nick Ferres Vantage Point Articles

As we often note, currencies are always a relative price. The focus over the past few days has been on the renewed weakness in the US dollar trade weighted index to new lows. However, from our perch, the recent wave of dollar selling has been driven less by domestic data and more by the relative trajectory of COVID amelioration and …

It is the Response that Counts

Nick Ferres Vantage Point Articles

The way price responds to news is always more important than the information itself. It is difficult to imagine a more bullish macro backdrop for equities. Monetary and fiscal policy is exceptionally loose (with the promise of even “more”) and liquidity is super abundant. Earnings growth and profits relative to expectations are near the strongest on record. However after an …

What if it all goes pear-shaped?

Nick Ferres Vantage Point Articles

The current prevailing bias is pretty bullish on risk assets. While we don’t have a quarrel with the way price has responded to news, it is still a valid exercise to think about ways to manage downside risk or hedge portfolios if there was a correction in risk assets. A simple way to do this is to manage how much …

Don’t Confuse Genius with Leverage

Nick Ferres Vantage Point Articles

It seems like an obvious point today, but it is important not to confuse genius with leverage. Extreme leverage always seems to be a good idea when it works, but it clearly operates both ways. For years the Fed have denied the fact that super-abundant liquidity and financial repression could pose financial stability risks. In January this year Jay Powell …

The Buzz Lightyear market; to infinity and beyond

Nick Ferres Vantage Point Articles

The valuation of a growth market (or company) taken to its logical extreme can be almost infinite as the discount rate approaches zero. Of course, in the real world, risk premia do (and should) exist. While market leaders in some sectors have monopoly-like power, growth is eventually constrained by competition, new entrants, market size, regulation and available resources (unless we …

Shifting the Goal Posts

Nick Ferres Vantage Point Articles

1. The Fed has upgraded its forecasts for growth, employment and inflation at the March FOMC 2. However, the Fed Funds Rate (policy rate) is projected to remain at 0.25% until end 2023 3. The key implication for markets is ongoing accommodation, reflation (positive for equity prices), yield curve steepening and USD weakness 4. As we have noted recently, inflation …

Keep it Simple

Nick Ferres Vantage Point Articles

The good news overnight was that February US consumer price inflation showed little cause for near term concern. Of course, the base effects from the low prints in March and April 2020 will roll off the annual numbers over the coming two months. However, the big picture point is that current inflation and expectations are well below the level that …