The Canadian economy is in trouble.

Thread.

1/ Central Banks hikes can be very punitive if an economy has:

- High levels of private sector debt
- A high share of floating rate mortgages and corporate loans/bonds
- A high share of short-term reset mortgages and loans
- Big refinancing cliffs

2/

The Fed hiked rates above 5%, and yet the US economy hasn't broken yet.

Here is why.

Thread.

1/ High interest rates are supposed to break something because an overly indebted economy will have to service a mountain of debt at expensive rates and it will have less money for income and spending.

The problem is that people are looking at the ''wrong'' debt.

2/

Liquidity is one of the most important drivers for markets.

But what is liquidity?
How do we measure and track it?

Thread.

1/ ''Liquidity'' is the most abused word in macro and markets.

People use it to justify every market move, and yet they never explain what it ACTUALLY is.

And you often see misleading charts like this:

2/

One day, the US Dollar will lose its global reserve currency status.

And it's going to be a huge event.

But here is some hard truth about the De-Dollarization.

1/ The big question is ''when''.

And the answer is: most likely not within any tradable horizon!

Here is why an orderly de-dollarization is nothing more than a fairytale.

2/

Macro fragilities are showing up outside the US.

Thread.

1/ High interest rates are supposed to break something because an overly indebted economy will have to service a mountain of debt at expensive rates and consumption will slow.

High rates were supposed to break the US because of government debt, but that's not how it works.

2/

Ever wondered what's like to launch a macro hedge fund these days?

Here are the 7 key insights I got so far:

1/ A) If you think it will be hard, you are wrong: it will be harder

In the early steps of launching a hedge fund you are required to be the CEO, CIO, COO, head of investor relations, and so on.

It's really hard work.

2/

QT was announced in 2022 and it was supposed to remove excess reserves from the system.

Yet, the amount of liquidity removal so far has been ZERO and the Fed might announce a QT tapering next week!

Thread

1/ Fed’s bond holdings are down $1.6 trillion from their peak in mid 2022 (due to QT), yet bank reserves (aka ‘’liquidity’’) are virtually unchanged!

Blue: Fed bond holdings
Orange: bank reserves (aka liquidity)

Why is this happening?

2/

In a week everyone will be talking about Yellen and the Quarterly Refunding Announcement (QRA).

Here is all you need to know so you are prepared.

Thread.

1/ Every quarter the US Treasury publishes a set of documents highlighting:

- Their expectations for upcoming bond issuance: how much, and split between bills and bonds

- Their expectations for the size of the Treasury General Account (TGA)

2/

The new theory is that Fed hikes are actually stimulative (?!) for the economy at this stage.

Let's take a look into it.

Thread.

1/ Higher interest rates generally slow down economic activity: corporates and households face higher debt servicing costs and therefore they must cut capex/hiring/spending to allocate more resources to debt servicing.

Lower spending = the economy slows down.

2/

Commodities are exploding higher.

Is the Fed losing control and credibility?

Thread.

1/ Over the last two weeks, commodities are absolutely ripping.

This is especially true for precious metals, but also copper or iron ore are trading well.

Volatility-adjusted moves between 1 and 3 (!) standard deviations higher: a big, fat rally!

2/

The Fed hiked rates above 5%, and yet the US economy doesn't break.

Here is why.

Thread.

1/ High interest rates are supposed to break something because an overly indebted economy will have to service a mountain of debt at expensive rates and it will have less money for income and spending.

The problem is that people are looking at the ''wrong'' debt.

2/

The yield curve is displaying a rare and dangerous pattern which often threatens financial stability.

All you need to know about the Bear Steepening.

Thread.

1/ There is a rare and powerful trend occurring in bond markets: the yield curve is bear steepening.

History shows that if left unchecked, it can cause serious damage to equity markets and the economy.

What's a bear steepening?

2/

Here is how the US is preparing to unleash even more liquidity.

Thread.

1/ The key player in this monetary plumbing operation won't be Powell and the Federal Reserve.

But rather Secretary Yellen and the US Treasury department!

How?

2/

Liquidity is going up, liquidity is going down, liquidity here, liquidity there.

Sure: but what is ''liquidity''?

Thread.

1/ ''Liquidity'' is the most abused word in macro and markets.

People use it to justify every market move, and yet they never explain what it ACTUALLY is.

And you often see misleading charts like this:

2/

The Fed tells markets they are tightening policy.
Yet Liquidity is up $500 billion in the last year.

We are witnessing a QT Sterilization.

Thread.

1/ The Fed has been running QT for a while and yet there is still abundant liquidity in the financial system.

Fed’s bond holdings are down $1.4 trillion from their peak, yet bank reserves (aka ‘’liquidity’’) are UP since June 2022 when QT started.

What?!?

2/

The Chinese economy has never looked more fragile than today.

Here is what's happening, and why it matters for global markets.

Thread.

1/ How did we even get here?

China joined the WTO in the early 2000s and benefitted from a wider access to global markets where they could leverage their internal competitiveness (read: low salaries) to gain shares – and they did.

But the inevitable demographics decline...

2/

The Bank of Japan just raised interest rates for the first time in 17 years.

Here are the implications for global markets.

1/ The Bank of Japan decided to raise interest rates by (a meagre yet still historical) 10 basis points.

The short-term policy range in Japan is now +0.00% to +0.10%.

Governor Ueda is highlighting why in his press conference, and this is what emerges so far:

2/

Do you feel like the way we are running our economy and financial system is unsustainable?

Then you should read this.

Thread: What's the macro end game?

1/ We often talk about what markets are going to do next month.

This obsession about short-term market performance puts investors at great risk of missing the forest for the trees.

Let's talk about where do we stand in the big macro picture, and what's the end game.

2/

Hear, hear: the bond market has three important messages for you.

Thread.

1/ One of the best ways to get important signals from the bond market is to look under the hood.

Instead of focusing on absolute yields, disentangling market-implied probabilities for several scenarios can be very informative.

2/

7 books that will fast-track your learning journey in global macro.

Thread.

1/ Let's start from monetary mechanics: if you don't understand money, you are going to have a hard time connecting the dots in global macro.

Pragmatic Capitalism from @cullenroche concisely goes through the different forms of money in an understandable way.

Must read.

2/

Fiscal Deficits + QE is one of the most powerful monetary combinations in the world.

You are going to see it more often over the next decade.

Here is how it impacts markets and the economy:

1/ Fiscal deficits are historically outsized.

In real terms, the US is spending the same amount of $ that it used to spend to fight the Great Financial Crisis.

Even though we clearly aren't in one.

2/