US 10Y yields are up 70bp on the year, after retracing some over the last few weeks.
How is the alleged EM taper tantrum going? (4 tweet thread)
It is a mixed bag, not all EMs are the same, but the most liquid crosses are interesting. Starting with South Africa:
the ZAR is appreciating strongly in recent week, and now clearly at a new post-COVID-shock high vs the USD (=USD at the lows...)
The MXN saw some volatility in Feb and early March, but is quickly approaching the strongest post-covid-shocks levels again, as seen in January
The rest of EM is very mixed (India dealing with its COVID surge, Russia dealing with its sanctions, Brazil dealing with its debt).
But that is not a function of US rates: there is no global tantrum to see, although that is not the same as saying that US rates are irrelevant.
Relatedly, overall EM fixed income flows are 'normal' looking at the YTD trajectory relative to previous years, based on @exantedata real-time tracking
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Some argue that showing 2023 rate liftoff at the March 17 FOMC would be counter-productive, and that it would be better to manipulate the dots lower to strengthen the forward guidance.
Is lying sound central bank communication?
On the one hand, the Fed is trying hard to be accommodative, and the new core element in the Fed's framework is not to be preemptive, and instead wait for realized (inflation) outcomes, before embarking on tightening. Hence, you want low dots.
On the other hand, some FOMC participants may indeed think that inflation will hit their objective (2%, and on a path to exceed it) within the forecast horizon. Hence, you can argue, within the framework, that it is logical then to show 2023 lift-off in that scenario.
A) The ownership structure of bitcoin is special. Institutions (hedge funds etc) have only gotten involved recently, and not in size yet. This is the reason there is no portfolio contagion, bitcoin selloffs do not create 'enough damage'.
B) as more institutions get involved (as all indicators are that they will during this year) the position size and relevance to institutional portfolios will grow. And then portfolio contagion is also likely to increase.
B2) It is even possible/likely that increased portfolio contagion will impact correlations, creating a more positive correlation to other risk assets (think SPX), and this could indeed be self-fulfilling, as higher correlation will mean more portfolio contagion.
We have a new substack out by @GeneralTheorist which digs into the core concepts of money supply, contrasting money expansion under QE (via the banking system) with digital currency (CBDC) provided directly to the public.
This may seem like an academic debate, and the presentation here is indeed conceptual. But central bank digital currency is potentially just around the corner in some jurisdictions. Hence, it is important to know how it can fundamentally alter the nature of monetary policy.
Digging into the accounting of digital currency also again highlights why 'asset swap QE' has such limited potency (outside a financial crisis). Digital currency provision blurs the border to fiscal policy, and that raises important legal issues, around central bank independence.
When I think about a country with testing issues, I think about Mexico, which has had a very high positivity ratio for its COVID testing through the entire pandemic (around 50%). But many US states are now seeing positivity rates really spike too, not far behind Mexico...
The trend higher in positivity rates / hit ratios (blue lines) are partly a function of less testing over the holidays. But it is still telling:
Ok, we are ready to officially launch our blog/substack called Money: Inside and Out. We have tested it and populated with 3 initial posts, and you can subscribe here:
One post, called "The Big Myth about Money and Inflation" touched on the conceptual misunderstandings around the link, and how the future may again shake things up, if monetary and fiscal expansion are (aggressively) combined.
Another post (from today) touched on the possibility of a liquidity crisis within the Eurosystem (written by our Advisor Chris Marsh aka @GeneralTheorist)