Macro View Here goes round two. Instead of focusing on macro themes, in this piece I am looking at ways to take advantage of the massive risk premia in markets right now, thanks to our friends in Paris. Geo-politics have a tendency to garner all of the headlines, but my macro view has not changed much since the last post. I continue to think inflation expectations overshot, which we have now seen in the March data in CPI in the US and HICP in Europe, as base effects took a firm hold. I continue to think the US economy is facing a negative GDP print in Q2 or Q3 of this year. Consumption is slowing as consumers face a third consecutive month of falling real wages with a FICA rise coming, bank lending has fallen off a cliff, velocity of money continues to make new lows, weakness in consumer credit is finally making headlines (delinquencies been rising since q3), and ISM is about to make a big turn lower (shown below). With that said, the market has already began to adjust to a slower growth paradigm, Atlanta Fed has GDP for Q1 at 0.5% and ff has barely 1.4 hikes in the curve for '17. So while I remain in the peak base effects and slowing US growth camp, I would not be adding to existing positions that express this view. Instead, I am looking at geo-political distortions, set on Europe and Italy in specific, case for buying BTPs below. The market has a funny approach to polls in this post fact world. If they show a benign outcome (Macron/Fillon), you can't trust the polls because look what happened with Brexit and Trump. However, if it shows the two volatile candidates gaining ground, perif spreads rip as the market cries about populism continuing its march through the developed world. Either way, only the removal of the uncertainty variable will allow markets to normalize.
Post April 19
Post April 19
Post April 19
Macro View Here goes round two. Instead of focusing on macro themes, in this piece I am looking at ways to take advantage of the massive risk premia in markets right now, thanks to our friends in Paris. Geo-politics have a tendency to garner all of the headlines, but my macro view has not changed much since the last post. I continue to think inflation expectations overshot, which we have now seen in the March data in CPI in the US and HICP in Europe, as base effects took a firm hold. I continue to think the US economy is facing a negative GDP print in Q2 or Q3 of this year. Consumption is slowing as consumers face a third consecutive month of falling real wages with a FICA rise coming, bank lending has fallen off a cliff, velocity of money continues to make new lows, weakness in consumer credit is finally making headlines (delinquencies been rising since q3), and ISM is about to make a big turn lower (shown below). With that said, the market has already began to adjust to a slower growth paradigm, Atlanta Fed has GDP for Q1 at 0.5% and ff has barely 1.4 hikes in the curve for '17. So while I remain in the peak base effects and slowing US growth camp, I would not be adding to existing positions that express this view. Instead, I am looking at geo-political distortions, set on Europe and Italy in specific, case for buying BTPs below. The market has a funny approach to polls in this post fact world. If they show a benign outcome (Macron/Fillon), you can't trust the polls because look what happened with Brexit and Trump. However, if it shows the two volatile candidates gaining ground, perif spreads rip as the market cries about populism continuing its march through the developed world. Either way, only the removal of the uncertainty variable will allow markets to normalize.