Macro Report/Insights: FOMC, Rates and FX
Macro Report/Insights: FOMC, Rates and FX
Important Week!
Hello everyone,
There are so many important things happening this week that I felt it was necessary to put together some extended thoughts for you.
Summary of article:
Big picture
Events this week
Extended report on bonds, credit risk, and identifying a top in equities
Big Picture:
First, we need to ask the question……..are we still in a bear market?
This is actually a great question because the current price action we are seeing is very different from the bear markets of 2000 and 2008. This is where you need to account for the discontinuity.
I will say two things about this:
First, the microstructure and flows of the market have changed dramatically. We have so many passive vehicles buying the market. Since we have such a strong labor market, the inflows into passive vehicles have been able to remain consistent. This is a dynamic that didn’t exist in previous bear markets. The danger is passive selling as unemployment rises!
Second, the underlying economy is very different. In past cycles, autos and housing provided a much clearer signal and impact on the overall economy because of their sensitivity to the demand side of things. However, when supply-side problems occur, this dynamic can change.
just did an exceptional macro report covering housing and auto:
Are we still in a bear market and are we going to make new lows in SPX? Here is the thing, I don’t need to know the exact answer to that in order to make money. What I think is that we have some delinquencies, credit risks, and downside in risk assets ahead. This could be from a growth shock or another inflation shock. I laid out my view of the different scenarios in my macro report:
As we move into the end of the year, I do think we have some downside in equities. How much? I will just tell you now, no one knows the answer to that. We all have some rough guesses but getting amplitude and duration is even harder than getting the direction of things right. I would rather go into the end of the year with my eyes wide open to multiple scenarios than be dogmatic about a specific outcome. I extract returns from the market by planning and managing risk.
An exceptional interview I recently watched was the Bloomberg interview with Dawn Fitzpatrick. I think she laid out the case very well:
Events this week:
We have FOMC and the ECB meeting this week. When we are at an inflection point in the cycle, these types of catalysts become increasingly important. CPI will be important in pricing the June and July Fed Funds Futures as we move into FOMC:
Extended report on bonds, credit risk, and identifying a top in equities
I wrote a report (30 pages) for Subscribers breaking down the way I am thinking about the bond trade, credit risk, and the signals for identifying a short in equities. This will be important for framing the trades I will be sharing in the future. See below!