Daily Brief Macro: Portfolio Watch: What if We Add a Rate Cut to This Fire.. and more

• The cyclical rotation is slowly but slowly rolling and if central banks add rate cuts to this mix, we are staring directly into the melt up.
• Welcome to our weekly Portfolio Watch, where we assess the tradeable themes and discuss our portfolio composition.
• In this revamped version of the series, we will touch upon the developments in our Macro Alpha Portfolio and our Digital Assets Portfolio.

• Happy Sunday from Copenhagen and welcome to our flagship editorial.
• The cyclical rotation continues in markets, but interest rates have to a certain extent been out of sync with the business cycle for a while.
• The yield curve inverted during the summer of 2022, but we are yet to see a recession in the US economy, which is a bit out of the ordinary given the typical validity of the yield curve inversion signal.

• A YOLO and FOMO mania has gripped stock market psychology and it’s unclear when the mindset will reverse.  Numerous warnings are appearing and the market can correct at any time.
• We are long-term bullish on stocks, but remain cautious near term.
• Despite our cautious short-term outlook, traders are advised against taking a short position until some tangible signs of a bearish reversal appear.

• We review Warren Buffett’s shareholder letter and his pivot from deep value to QGARP investing.
• We offered two case studies to compare and contrast his approach: 1) Berkshire’s holdings in Japan, which was successful; and 2) China, a deep value opportunity that he ignored.
• We are agnostic in our opinion between the two approaches and believe both can offer alpha, but on different time horizons.

• My hybrid nowcasting framework tracks the inflation-adjusted or real GDP growth rates of US, Euro Area and Japan
• My nowcasts for the individual G3 economies are prospectively diverging at the beginning of 2024
• But in aggregate, my nowcast suggests that G3 GDP growth is potentially tracking softer through the first-half of 2024 on average 

• In contrast to previous Fed tightening cycles, there are fewer signs of private sector balance sheet stress, thereby potentially sowing the seeds for significant stimulus once monetary policy is eased.
• US households have delevered, while the prospective onset of lower mortgage rates will boost housing affordability. Companies took advantage of extremely favourable borrowing conditions during the pandemic to refinance debt. 
• The current real Fed policy rate appears high, but aggressive nominal rate cuts are not in the offing and interest rate futures are now reflecting this baseline outlook.

• Chair Powell set to deliver semiannual testimony in Congress, February employment data on Friday
• ECB decision on Thursday with potential impact on US rates and currencies
• Revision of rates forecast to reflect Fed easing expectations and QT process, potential for rates to decline if February data does not repeat January strength

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