1- #ConnectingTheDots Markets & the economy
Let's start with the economy: There is an abundance of signs now pointing to a "hard landing"
Near term US Retail data tracks very poorly...
Let's start with the economy: There is an abundance of signs now pointing to a "hard landing"
Near term US Retail data tracks very poorly...
2- ...the European consumer is cutting back sharply...
https://twitter.com/fkronawitter1/status/1602594092076212228
3- ... and China is ravaged by Covid. This wave will blow over soon, but what remains afterwards? A property bubble with 20% vacancy rates
https://twitter.com/michaelxpettis/status/1602930721454231552
4- Yet, markets remain resilient after their recent drop. Why? Three reasons, in my view
First, as the debt ceiling is reached, the Treasury can't issue new debt anymore, so it spends down its coffers
First, as the debt ceiling is reached, the Treasury can't issue new debt anymore, so it spends down its coffers
5- This improves market liquidity and in turn risk assets
With ~350bn left today, the TGA will be run down to zero around March
A compromise to raise the ceiling will happen *before* that. Then, UST issuance picks up and - ceteris paribus - Net Liquidity declines again
With ~350bn left today, the TGA will be run down to zero around March
A compromise to raise the ceiling will happen *before* that. Then, UST issuance picks up and - ceteris paribus - Net Liquidity declines again
6- Second, markets will likely also be supported by the Fed
As inflation abates, Powell will feel more room to avoid an "overtighten" which he already said he does not want to do
As inflation abates, Powell will feel more room to avoid an "overtighten" which he already said he does not want to do
https://twitter.com/NickTimiraos/status/1602700934550806528?s=20&t=V4FRojldeNvYTCfW6XijzA
7- Finally, there is seasonality. The Santa Rally shows in data from mid-December
8- I had a negative stance on risk assets coming into this week. But markets remained resilience so far.
Especially the liquidity dynamics are noteworthy
When the facts change, you gotta change. As such I have adjusted my stance accordingly
Especially the liquidity dynamics are noteworthy
When the facts change, you gotta change. As such I have adjusted my stance accordingly
My expectation remains that the dissonance between markets and a "hard landing" will likely be resolved by a market sell-off
However, it appears that the probabilities shifted for this to occur in the New Year
However, it appears that the probabilities shifted for this to occur in the New Year
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