Macroeconomic and Investing, The Macro Compass

Alfonso Peccatiello (Alf)

Macroeconomic and Investing

The Macro Compass

Actionable investment ideas and unique global macro insights. From the desk of a former Head of $20 bn Investment Portfolio straight to your inbox.

Actionable Investment Ideas

Macroeconomics

<ul><li>''Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.''</li><li>With this sentence, the Fed announced the tapering of their QT program last week.</li><li>The Federal Reserve has been running QT (Quantitative Tightening) since mid-2022: this process is aimed at unwinding the multi-trillion Fed bond holdings accumulated during previous QE episodes</li></ul>

''Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.''With this sentence, the Fed announced the tapering of their QT program last week.The Federal Reserve has been running QT (Quantitative Tightening) since mid-2022: this process is aimed at unwinding the multi-trillion Fed bond holdings accumulated during previous QE episodes

<ul><li>Keynes once said that markets can stay irrational longer than you can stay solvent.</li><li>I love this quote because it speaks about the power of narratives, and my own humble readaption of that would be:‘‘Narratives can dominate macro longer than you can remain solvent’’.</li><li>This is why today we are going to cover the two strongest narratives out there: China is doomed; AI is the new revolution and US tech will dominate forever.</li></ul>

Keynes once said that markets can stay irrational longer than you can stay solvent.I love this quote because it speaks about the power of narratives, and my own humble readaption of that would be:‘‘Narratives can dominate macro longer than you can remain solvent’’.This is why today we are going to cover the two strongest narratives out there: China is doomed; AI is the new revolution and US tech will dominate forever.

<ul><li>The Fed has been running QT for a while and yet there is still abundant liquidity in the financial system.</li><li>Fed’s bond holdings are down $1.3 trillion from their peak (due to QT), yet only half of this supposed tightening has actually impacted bank reserves (aka ‘’liquidity’’) which are down a meagre $0.7 trillion.</li><li>This ongoing ‘’money mystery’’ has caught many off-guard, and it has helped fuel several bullish narratives: the most famous one being that higher ‘’liquidity’’ has supported stock markets in 2023.</li></ul>

The Fed has been running QT for a while and yet there is still abundant liquidity in the financial system.Fed’s bond holdings are down $1.3 trillion from their peak (due to QT), yet only half of this supposed tightening has actually impacted bank reserves (aka ‘’liquidity’’) which are down a meagre $0.7 trillion.This ongoing ‘’money mystery’’ has caught many off-guard, and it has helped fuel several bullish narratives: the most famous one being that higher ‘’liquidity’’ has supported stock markets in 2023.

<ul><li>Are we back in 2011 or what? After the US debt ceiling drama earlier this year we just witnessed a rating agency downgrading the US exactly like in 2011 – back then S&amp;P, this time Fitch.</li><li>Today you are likely to read plenty of scary and fear-mongering headlines.</li><li>In this piece instead we’ll take a step back and rationally assess what the US downgrade means for investors and markets out there.</li></ul>

Are we back in 2011 or what? After the US debt ceiling drama earlier this year we just witnessed a rating agency downgrading the US exactly like in 2011 – back then S&amp;P, this time Fitch.Today you are likely to read plenty of scary and fear-mongering headlines.In this piece instead we’ll take a step back and rationally assess what the US downgrade means for investors and markets out there.

Cross Asset Strategy

<ul><li>Our economic system is ultra-financialized and dependent on leverage.</li><li>That’s why understanding the incentive scheme for both investors and borrowers is an important step to piece the global macro puzzle together.</li><li>Real yields play a crucial role in that puzzle.</li></ul>

Our economic system is ultra-financialized and dependent on leverage.That’s why understanding the incentive scheme for both investors and borrowers is an important step to piece the global macro puzzle together.Real yields play a crucial role in that puzzle.