Kryptonite

Nick Ferres Vantage Point Articles

In a 2021 note we discussed the Ouroboros (Greek word meaning tail devourer) as a metaphor for the financial alchemy driving the modern feedback loop between liquidity, leverage and volatility. The Ouroboros is the ancient symbol of a snake consuming its own body in perfect symmetry. In extreme heat a snake, unable to self-regulate its body temperature, will experience an …

Too Much Doom in the Room

Nick Ferres Vantage Point Articles

As we often note, a behavioural episode is typically characterised by; a rapid and violent movement in price; focus on a single story; and occasions when price is potentially inconsistent with fundamentals. The first element – rapid price action – helps distinguish something from a cyclical, emotional or short term overreaction and a legitimate fundamental structural problem. The single story …

Cognitive Dissonance

Nick Ferres Vantage Point Articles

From our perch, it is plausible that markets are experiencing a phase of cognitive dissonance on inflation and policy risk. Cognitive dissonance is the perception of contradictory information that causes stress when two actions or ideas are not psychologically consistent with each other. The prevailing bias appears to be that the conflict in Europe suggests that the Federal Reserve less …

Peak (Inflation) Fear?

Nick Ferres Vantage Point Articles

One of the key ways we describe a behavioural episode, is when market participants are focused on a single story. Or put another way, when a key risk factor has become the widely accepted prevailing bias and front page news. In the current episode, everyone is now obsessed with inflation and the potential policy and market consequences. That suggests we …

Loose as a Goose

Nick Ferres 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

Nick Ferres 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 …