Global Multi-Asset Investment Strategist, True Insights

Jeroen Blokland

Global Multi-Asset Investment Strategist

Build Well-Diversified Multi-Asset Portfolios

True Insights

Our research helps investors build well-diversified multi-asset portfolios and profit from market developments. In addition, our unique and proven Macro – Sentiment – Valuation (MSV) investment framework ensures a consistent flow of new investment opportunities. Together with our market views, these opportunities will be reflected in our live ETF-based Global Multi-Asset Portfolios.

Cross Asset Strategy

<ul>
<li>Operating leverage works both ways. With the gap between earnings growth and sales growth now negative, stock markets have entered a phase of 'reverse operating leverage.'</li>
<li>To determine the impact of reverse operating leverage on future equity market returns, we looked at all instances when sales growth topped earnings growth since 2000.</li>
<li>As it turns out, a recession determines whether 'reverse operating leverage' hits equities or not. And since we expect a recession...</li>
</ul>


Operating leverage works both ways. With the gap between earnings growth and sales growth now negative, stock markets have entered a phase of 'reverse operating leverage.'
To determine the impact of reverse operating leverage on future equity market returns, we looked at all instances when sales growth topped earnings growth since 2000.
As it turns out, a recession determines whether 'reverse operating leverage' hits equities or not. And since we expect a recession...


Operating Leverage in Reverse: The Impact on Equity Markets

<ul>
<li>‘We lower the weight of equities. With markets pricing several Fed rate cuts, valuation rising, and earnings expectations too upbeat, catalysts for further increases are vanishing. </li>
<li>After the significant decline in March building permits, the implied recession odds linked to this indicator are rising again.</li>
<li>There's a classic example of reverse operating leverage going on: earnings growth is negative, while sales growth is positive. Most of the time, this is followed by a recession.</li>
</ul>


‘We lower the weight of equities. With markets pricing several Fed rate cuts, valuation rising, and earnings expectations too upbeat, catalysts for further increases are vanishing. 
After the significant decline in March building permits, the implied recession odds linked to this indicator are rising again.
There's a classic example of reverse operating leverage going on: earnings growth is negative, while sales growth is positive. Most of the time, this is followed by a recession.


Weekly Market Monitor (16) - The Odds of a Recession Is Rising; Earnings Just Don’t Know It Yet

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


<ul>
<li>Latest weekly Global Liquidity data reveal a sharp hiccup caused by tax payments in the US and repo timing issues in China  </li>
<li>This does not foretell of any future serious disruption to our expectations for easier liquidity conditions later this year and next  </li>
<li>The jump in America’s TGA at the Fed signals weak tax revenues and warns that the debt-ceiling may be hit sooner, possibly by June/ July</li>
</ul>


Latest weekly Global Liquidity data reveal a sharp hiccup caused by tax payments in the US and repo timing issues in China  
This does not foretell of any future serious disruption to our expectations for easier liquidity conditions later this year and next  
The jump in America’s TGA at the Fed signals weak tax revenues and warns that the debt-ceiling may be hit sooner, possibly by June/ July


Is Global Liquidity Already Threated By America’s Upcoming Debt Ceiling?

<ul>
<li>
 Global Liquidity cycle bottomed around October 2022 based on our calculations, immediately following the UK gilt crisis. That is no coincidence!</li>
<li>Central Banks are increasingly using their balance sheets to focus on financial stability. Expect more subtle forms of YCC in the future</li>
<li>QT (quantitative tightening) is effectively dead. Central Banks are becoming active collateral managers. Investors must closely watch the MOVE not the VIX</li>
</ul>



 Global Liquidity cycle bottomed around October 2022 based on our calculations, immediately following the UK gilt crisis. That is no coincidence!
Central Banks are increasingly using their balance sheets to focus on financial stability. Expect more subtle forms of YCC in the future
QT (quantitative tightening) is effectively dead. Central Banks are becoming active collateral managers. Investors must closely watch the MOVE not the VIX


A Sea Change in Global Liquidity: Why QT Is Dead?

<ul>
<li>US Fed has injected a positive US$167bn into markets so far in Q4, 2022. This partly reverses the US$1.1 trillion they withdrew in year up to September</li>
<li>Based on US Fed projections of a further US$1.5-2 trillion of QT liquidity withdrawals, the S&amp;P500 could skid lower to 3200 (i.e. minus 20% from here)</li>
<li>QT has stalled, showing the operational difficulty of withdrawing cash.  This may also reflect underlying concerns about US Treasury market liquidity. A pause/ pivot is coming, but its not now</li>
</ul>


US Fed has injected a positive US$167bn into markets so far in Q4, 2022. This partly reverses the US$1.1 trillion they withdrew in year up to September
Based on US Fed projections of a further US$1.5-2 trillion of QT liquidity withdrawals, the S&amp;P500 could skid lower to 3200 (i.e. minus 20% from here)
QT has stalled, showing the operational difficulty of withdrawing cash.  This may also reflect underlying concerns about US Treasury market liquidity. A pause/ pivot is coming, but its not now


Has The US Fed Already Paused Its QT and 'Pivoted'?

United States

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

S&P 500 INDEX (SPX INDEX)

Operating Leverage in Reverse: The Impact on Equity Markets

A recession determines the impact of 'reverse operating leverage' (earnings growth less than sales growth) on future equity market returns. And...

Jeroen Blokland

Weekly Market Monitor (16) - The Odds of a Recession Is Rising; Earnings Just Don’t Know It Yet

Welcome to the weekly Market Monitor, keeping you updated on the week’s most important charts and developments in financial markets.

Jeroen Blokland

Is Global Liquidity Already Threated By America’s Upcoming Debt Ceiling?

Latest weekly Global Liquidity data reveal a sharp hiccup. It warns that that America's debt-ceiling may be hit sooner, possibly by June. It does...

Michael J. Howell

A Sea Change in Global Liquidity: Why QT Is Dead?

September 2022 UK gilts crisis has proved a major wake up call for Central Bankers. It marked a major turning point in the Global Liquidity cycle....

Michael J. Howell

Has The US Fed Already Paused Its QT and 'Pivoted'?

US Fed has de facto reversed its QT and restarted QE according to liquidity data. Is this a genuine policy 'pivot' or does it reflect technical...

Michael J. Howell