TMC#18! 2022 looks a lot like summer 2018: portfolio returns adjusted for inflation are likely to be poor across the board but few investments might still work.
Hi Alf, your analogy to 2018 could indeed be a real scenario, I agree. But somehow only the second half of 2022 ? The economy still appears strong enough (structurally, with pent-up demand etc.) to be able to absorb a large part of the tightening in my view. Structurally, the US household, corporate and banking sector are all strong. That suggests an ability for the economy to absorb higher interest rates. If correct, then real bond yields (and indeed much of the interest rate structure) should move higher which, given those high stand-alone valuations, at some point (2H 2022?), will create significant challenges for the stock market.
Awesome read and great interview on Real Vision recently Alf! You should also note that the Eurodollars futures curves inverted (currently!) and they also did so in 2018. The Eurodollar system is clearing pricing in deflation/disinflation/risk off which is consistent with your Macro Compass take on the global credit impulse (what I call BOMD = Bank Originated Money and Debt).
Hi Alf, Great read as always. Now that we know what you think of inflation, I was wondering how the different directions of the ECB and the FED in combination with the inflation will affect the equity markets (US vs European) and the balance of portfolios.
I expect reactionary politics to dictate policy for the "independent" FED up against inflation and then a quick a significant reversal once markets have sent a clearer enough message.
Timing is always tricky but hedging against long term investments and cash is a reasonable play despite the premium paid to hold in the interim. Suspect the opportunity to pick up quality shares will significantly offset the interim hold.
Risk / reward equation seems highly geared for that probability given the FEDs recent turnabout, the orchestrated political narrative to support the need to appear to be doing something as we head into the mid terms and the significantly out in front of its ski's market.
Hi Alf, new subscriber and excited to be here. If you have a premium newsletter please let me know. A question I have is why are you leaving out the Dec '18 episode? At that time i was hoarding cash given the macro and it turned out very good for me when I could jump back in as the rebound started by end of the month. I'm starting to do the same now given the similar macro, but with the mid term elections (US) I question if the Fed is going to be all talk and no action this time.
Glad to see you back Alfonso, My email did not notify me of your return another blog notified me. Since your article the big 8 tech stocks are down 5% or more. In 2018 it took a year for the big 8 to recover. Looks like it's time to rotate into other assets but nothing seems to working right now. Energy is up last month but got hammered latley. In 2018 TLT and GLD seemed to work not sure if that is going to work this time. If your correct what is going to work? I don't like shorting would rather hold cash. Sorry if I missed this.
Great, thoughtful post. I see similarities, and a 3x taper will reward flatteners, ergo the long end. If the Fed raises rates 3 times in 2022 the long end won't be spared a beating, as you say. Maybe one rate hike is coming, but 3 would create big trouble in China and avalanche from there. Can't see the Fed on board for that an won't repeat a mistake.
Alf, of course I enjoy your economic analysis. Without using too many macro technical tools you make forecast points and then suggest asset categories fitting the forecast. My comment (suggestion really) has to do with the format. Another substack account to which I subscribe (Matt Taibbi) publishes his articles and then later releases an audio of his article being read. This allows me to "read" his pieces while walking for exercise or driving (I am an owner-operator, OTC trucker. Lots of time spent driving.) Of course you have charts and that would require a little more thought in publishing an audio version of your article, but I've heard you speak and believe you can make your points verbally. Just a suggestion to improve the subscriber experience. Best of luck with the rejuvinated Macro Compass.
Hi Alf, your analogy to 2018 could indeed be a real scenario, I agree. But somehow only the second half of 2022 ? The economy still appears strong enough (structurally, with pent-up demand etc.) to be able to absorb a large part of the tightening in my view. Structurally, the US household, corporate and banking sector are all strong. That suggests an ability for the economy to absorb higher interest rates. If correct, then real bond yields (and indeed much of the interest rate structure) should move higher which, given those high stand-alone valuations, at some point (2H 2022?), will create significant challenges for the stock market.
Awesome read and great interview on Real Vision recently Alf! You should also note that the Eurodollars futures curves inverted (currently!) and they also did so in 2018. The Eurodollar system is clearing pricing in deflation/disinflation/risk off which is consistent with your Macro Compass take on the global credit impulse (what I call BOMD = Bank Originated Money and Debt).
Hi Alf, Great read as always. Now that we know what you think of inflation, I was wondering how the different directions of the ECB and the FED in combination with the inflation will affect the equity markets (US vs European) and the balance of portfolios.
Thanks
Enjoyable read as usual Alfonso. Thanks!
I expect reactionary politics to dictate policy for the "independent" FED up against inflation and then a quick a significant reversal once markets have sent a clearer enough message.
Timing is always tricky but hedging against long term investments and cash is a reasonable play despite the premium paid to hold in the interim. Suspect the opportunity to pick up quality shares will significantly offset the interim hold.
Risk / reward equation seems highly geared for that probability given the FEDs recent turnabout, the orchestrated political narrative to support the need to appear to be doing something as we head into the mid terms and the significantly out in front of its ski's market.
Hi Alf, new subscriber and excited to be here. If you have a premium newsletter please let me know. A question I have is why are you leaving out the Dec '18 episode? At that time i was hoarding cash given the macro and it turned out very good for me when I could jump back in as the rebound started by end of the month. I'm starting to do the same now given the similar macro, but with the mid term elections (US) I question if the Fed is going to be all talk and no action this time.
Glad to see you back Alfonso, My email did not notify me of your return another blog notified me. Since your article the big 8 tech stocks are down 5% or more. In 2018 it took a year for the big 8 to recover. Looks like it's time to rotate into other assets but nothing seems to working right now. Energy is up last month but got hammered latley. In 2018 TLT and GLD seemed to work not sure if that is going to work this time. If your correct what is going to work? I don't like shorting would rather hold cash. Sorry if I missed this.
Cheers,
MV
Great, thoughtful post. I see similarities, and a 3x taper will reward flatteners, ergo the long end. If the Fed raises rates 3 times in 2022 the long end won't be spared a beating, as you say. Maybe one rate hike is coming, but 3 would create big trouble in China and avalanche from there. Can't see the Fed on board for that an won't repeat a mistake.
Alf, of course I enjoy your economic analysis. Without using too many macro technical tools you make forecast points and then suggest asset categories fitting the forecast. My comment (suggestion really) has to do with the format. Another substack account to which I subscribe (Matt Taibbi) publishes his articles and then later releases an audio of his article being read. This allows me to "read" his pieces while walking for exercise or driving (I am an owner-operator, OTC trucker. Lots of time spent driving.) Of course you have charts and that would require a little more thought in publishing an audio version of your article, but I've heard you speak and believe you can make your points verbally. Just a suggestion to improve the subscriber experience. Best of luck with the rejuvinated Macro Compass.