TMC #2! The Macro Compass uses prop indicators for global credit impulse and changes in monetary policy stance to predict asset returns. It's now sending you a clear message.
If i remember correctly, it wasn't until March 10, 2020 then the market suddenly shifted to the bottom left according to your compass. Before that, from late Jan 2020 to March 9, the market has been stay in risk off sentiment at the top left?
We could see it very clearly via long-term Treasury price
I struggle to understand why rate of change is so important. It is easy to understand how going from net credit growth (say) to net contraction will move you quadrants. But if credit growth goes from (say) very strong to just strong, I wouldn't have expected that to fundamentally change things. Is this relationship just empirical or is there a theoretical explanation why continued movement in one direction, albeit at a slower rate, changes the asset classes that are expected to do best/worst?
Hi Alfonso! i very much love and apprewhat you’re writing. Though on this piece, its a bit brief to be understandable, could you please disclose your credit impulse model further?
Would be really interested to understand the working of the credit impulse better and back test it on post world war II data. Do you use flows or credit spreads?
Grazie mille per il tuo lavoro: il video e l'articolo della Bank of England mi hanno aiutato moltissimo nel capire il meccanismo del QE, per me che non sono laureato in economia!
Excellent compass. I listened to you explain it on a podcast and I wanted to dive into your substack to get a better understanding.
Does the Senior Loan Officer Survey (https://fred.stlouisfed.org/categories/32239) from FRED offer any insight into how US banks are approaching easing and tightening credit availability? This seems to help to understand the monetary policy of the banks actually putting money into the system.
For instance, the link is to the April 1, 2021 senior loan officer sentiment report. If you look at FED G-19 Release Date*: July 8, 2021 report you find that the consumer credit Total percent change (annual rate) went from 5.7 in April 2021 to 10.0 in May 2021.
The surveys include:
1) Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms
2) Net Percentage of Domestic Banks Tightening Standards on Consumer Loans, Credit Cards
3) Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Small Firms
4) Net Percentage of Domestic Banks Tightening Standards for Subprime Mortgage Loans
5) Net Percentage of Domestic Banks Tightening Standards for Auto Loans
6) Net Percentage of Domestic Banks Tightening Standards for Commercial Real Estate Loans with Construction and Land Development Purposes
7) Net Percentage of Domestic Banks Tightening Standards for Commercial Real Estate Loans Secured by Multifamily Residential Structures
8) Net Percentage of Domestic Banks Tightening Standards for Consumer Loans Excluding Credit Card and Auto Loans
9) Net Percentage of Domestic Banks Tightening Standards for Government Mortgage Loans
10) Net Percentage of Domestic Banks Tightening Standards for Commercial Real Estate Loans Secured by Nonfarm Nonresidential Structures
11) Net Percentage of Domestic Banks Tightening Standards for GSE-Eligible Mortgage Loans
12) Net Percentage of Domestic Banks Tightening Standards for Qualified Mortgage Jumbo Mortgage Loans
13) Net Percentage of Domestic Banks Tightening Standards for Non-Qualified Mortgage Non-Jumbo Mortgage Loans
14) Net Percentage of Domestic Banks Tightening Standards for Non-Qualified Mortgage Jumbo Mortgage Loans
15) Net Percentage of Domestic Banks Tightening Standards for Qualified Mortgage Non-Jumbo, Non-GSE-Eligible Mortgage Loans
If i remember correctly, it wasn't until March 10, 2020 then the market suddenly shifted to the bottom left according to your compass. Before that, from late Jan 2020 to March 9, the market has been stay in risk off sentiment at the top left?
We could see it very clearly via long-term Treasury price
Awesome post
Good stuff! But the transition will take a lot of time, imho. Guess 30yr bonds will give you an excellent signal at some stage.
I struggle to understand why rate of change is so important. It is easy to understand how going from net credit growth (say) to net contraction will move you quadrants. But if credit growth goes from (say) very strong to just strong, I wouldn't have expected that to fundamentally change things. Is this relationship just empirical or is there a theoretical explanation why continued movement in one direction, albeit at a slower rate, changes the asset classes that are expected to do best/worst?
1 year late. This is gold.
Probably the best piece of information I've ever read on the Internet.
I can't thank you enough.
Beautiful to see this post a year later and see that flashing watch out warning on spx returns! Well done.
Hi Alfonso! i very much love and apprewhat you’re writing. Though on this piece, its a bit brief to be understandable, could you please disclose your credit impulse model further?
great post
Would be really interested to understand the working of the credit impulse better and back test it on post world war II data. Do you use flows or credit spreads?
Thank you for a great article. Your quad model is similar to Keith McCullough’s. You should interview him or he should interview you.
Grazie mille per il tuo lavoro: il video e l'articolo della Bank of England mi hanno aiutato moltissimo nel capire il meccanismo del QE, per me che non sono laureato in economia!
Alfonso,
Excellent compass. I listened to you explain it on a podcast and I wanted to dive into your substack to get a better understanding.
Does the Senior Loan Officer Survey (https://fred.stlouisfed.org/categories/32239) from FRED offer any insight into how US banks are approaching easing and tightening credit availability? This seems to help to understand the monetary policy of the banks actually putting money into the system.
For instance, the link is to the April 1, 2021 senior loan officer sentiment report. If you look at FED G-19 Release Date*: July 8, 2021 report you find that the consumer credit Total percent change (annual rate) went from 5.7 in April 2021 to 10.0 in May 2021.
The surveys include:
1) Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms
2) Net Percentage of Domestic Banks Tightening Standards on Consumer Loans, Credit Cards
3) Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Small Firms
4) Net Percentage of Domestic Banks Tightening Standards for Subprime Mortgage Loans
5) Net Percentage of Domestic Banks Tightening Standards for Auto Loans
6) Net Percentage of Domestic Banks Tightening Standards for Commercial Real Estate Loans with Construction and Land Development Purposes
7) Net Percentage of Domestic Banks Tightening Standards for Commercial Real Estate Loans Secured by Multifamily Residential Structures
8) Net Percentage of Domestic Banks Tightening Standards for Consumer Loans Excluding Credit Card and Auto Loans
9) Net Percentage of Domestic Banks Tightening Standards for Government Mortgage Loans
10) Net Percentage of Domestic Banks Tightening Standards for Commercial Real Estate Loans Secured by Nonfarm Nonresidential Structures
11) Net Percentage of Domestic Banks Tightening Standards for GSE-Eligible Mortgage Loans
12) Net Percentage of Domestic Banks Tightening Standards for Qualified Mortgage Jumbo Mortgage Loans
13) Net Percentage of Domestic Banks Tightening Standards for Non-Qualified Mortgage Non-Jumbo Mortgage Loans
14) Net Percentage of Domestic Banks Tightening Standards for Non-Qualified Mortgage Jumbo Mortgage Loans
15) Net Percentage of Domestic Banks Tightening Standards for Qualified Mortgage Non-Jumbo, Non-GSE-Eligible Mortgage Loans
Thank for very very clear explanation. I have these concept in my mind before, but to me they're vague and no linkage as you do with the compass.
How would we judge the current stage, pace of global credit expansion/contraction?