I broke down a lot of the dynamics surrounding housing and how it connects to GDP in the macro report:
What you need to realize is that the tensions in the housing market are directly connected to the amount of money in the system. For example, all-cash buyers have increased significantly in the purchasing of homes:
When the quantity of money in the system increases, it leads to a concentration of wealth and thereby inequality. The economic consequence of inequality is that it can squeeze out consumption:
Whitney Baker does a fantastic job of explaining how the supply of money in the system relates to GDP and thereby macro flows:
Everyone knows that the rate at which money is increasing in the system will eventually hit the constraints of capital flight or devaluation via inflation. Remember, inflation is simply the revaluation of cash.
Main idea: there is A TON of dry powder on the sidelines still: Link
On top of this capital flow dynamic due to the quantity of money, there is a concentration of the conduit directing these flows. Passive continues to make up a larger and larger % of overall flows. This fundamentally has to do with the microstructure of the market as opposed to the quantity of money in the system.
has done fantastic work on this dynamic and touched on it in his recent article:The implication is that liquidity provision begins to shift and the market grows increasingly inelastic:
The impact of passive buying continues to take more and more of the float: link
When this shifts, it will be a huge deal. Similar to how BTC has huge swings when large players execute their trades due to the inelasticity of the float, the S&P500 will do the same when passive sells:
The shifts in global capital flows noted by Whitney Baker and passive selling are likely to overlap at the same time. The purpose of this Substack is to monitor all of these risks in real time and benefit from them by actively trading these flows.
When you have these types of situations, preparation over precise prediction is the key.