32 Comments

It is a very interesting and didactic article . Reminded us market players the mechanisms os markets liquidity . Cheers

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Glad you enjoyed it!

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You might as well start a fund. Bianco doesn't understand money at all and they gave him a fund.

And I agree with you in the aggregate we've just entered the tipping point on liquidity, but even though a little early from a pricing perspective this past October - November was probably it in terms of an entry point. And with the 5% positive carry locked in on the treasuries we can wait.

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Aug 2
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My opportunity cost is too high, but I wish you all the best.

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conclusion: the FED will stop QT sooner than later. Not only, will also start to cut rates as soon as the chance to do it without excessive criticism will pop up. election year, banks ALM disaster, government funding...all points to lower short term rates other than the economy and inflation

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Fantastic, Alf!! Is it similar in the case of the ECB?

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Not exactly, the Euro Area monetary plumbing structure is a bit different. For instance here in the Eurozone we don't have a big money market fund industry

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Excellent insights! Great work.

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My pleasure, Pavan!

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Thanks Alf, very interesting and clearly explained. Cheers!

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My pleasure, Julian!

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Please start the fund soon!

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:) reach out at fund@themacrocompass.com to have a chat!

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This is excellent!

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Thanks, Adrian!

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I am thrilled to find you in substack. I listened to you last year on real vision. You are the true bond king. Thanks for sharing your knowledge with us.

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So, to keep the flow into MMF, the Fed bias would be to continue the inverted yield curve? A bias to only slowly consider dropping short term rates, unless long term rates go lower first?

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Great work. Certainly, that shows how well you understand the ongoing process. Many thanks for sharing the wisdom, Alfonso.

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It would be great to have the above info from a UK centric viewpoint.

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so would it be fair to say that most of the money printed in 2020-2021 went to RRF, from where they are migrating now to short term gov bonds / bills, meaning they are going back to the government to get recycled again but now from the fiscal side into economy ?

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Thanks. In your opinion, what accounts for the seeming correlation between “liquidity” and asset prices? I’m not sure commentators who say the Fed drives stock prices are using a consistent definition of “liquidity” but generally when you ask for an explanation of the process of how “liquidity” generated by Fed actions finds its way into asset prices in near real time they don’t respond. Sven Henrich would be an example. Yet they provide a FRED chart that overlays their chosen liquidity metric on top of the S&P 500 and it does show some correlation. But “correlation is not causation”. Is there some indirect connection between Fed driven liquidity and asset prices? Thanks again.

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Please correct me if I‘m wrong, but weren’t you guys predicting rate cuts last year and long TLT?

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Yes, I am also wrong from time to time like many other investors.

No: I didn't let a single macro idea affect the entire year's P&L and ended up scoring a decent year after all.

Risk management, sizing and diversification by far more important than ''being always right''.

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Yes valid points. I’m an amateur investor, I’m just ‘bookmarking’ things and try to make sense of it all. 😊

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Alf: With what you know today, which of these would you go long, or short, FOR ALL OF 2024? UFIV IBTL TLT

Is it a roller coaster?

Thanks!

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So MMF usually has enough cash rolled in RRP. But as besides the normal bonds and bills they purchase. So as the RRP decreases, it would indicate that MMF excess cash is also decreasing. So much so, at some point MMF would not have enough cash to buy any more treasury issuance

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