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Alf
Founder of The Macro Compass. Former Head of $20bn Portfolio. Access to my Institutional Research? Ping me (Alfonso Peccatiello) on BBG
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Feb 20 11 tweets 3 min read
China just surprised markets by slashing interest rates to revive its property sector and economy.

But here is why it's NOT going to work.

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China cut the 5-year Loan Prime Rate which is the reference rate used for mortgages, and so the idea was to reduce household borrowing costs for Chinese people

As other policy decisions have failed, authorities now hope that cutting mortgage costs will do the trick

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Feb 18 14 tweets 4 min read
Yield curve dynamics are crucial to understand if you want to become a better macro investor.

And there is a lot going on under the surface now.

Thread.

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Yield curve dynamics represent a crucial macro variable, as they inform us on today’s borrowing conditions and on the market future expectations for growth and inflation.

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Feb 15 11 tweets 3 min read
''Greatest real estate crisis since the financial crisis''.

This is how a German bank recently described the spillovers from US commercial real estate issues into Europe.

The credit spreads on their bonds are exploding today.

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US commercial real estate wobbles became apparent in 2023, and regional banks in the US have been hit hard because of their large exposure to US CRE.

But European banks also have some large CRE loan books to handle.

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Feb 11 14 tweets 4 min read
Narratives can dominate macro longer than you can remain solvent.

The two most dominant narratives out there today are:

- China is doomed
- AI will revolutionize the world

So: fade or buy into these narratives?

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Keynes once said that markets can stay irrational longer than you can stay solvent.

I love this quote because it speaks about the power of narratives, and my own humble readaption of that would be:

‘‘Narratives can dominate macro longer than you can remain solvent’’.

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Feb 8 12 tweets 4 min read
Today I want to cover one of the most underrated macro variables in the world.

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When rates are low credit is cheap and so financial actors tend to lever up more aggressively.

Debt levels increase and so does the coverage of...

...government debt/GDP levels.

''The US government will go broke''
''This is not sustainable''

Yet, the reality is...

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Feb 6 12 tweets 3 min read
Time to unpack what’s going on in China.

Thread.

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The Chinese stock market has been pretty much in a free fall despite regular attempts from authorities to stabilize markets.

In the meantime, the real estate market continues to suffer and Chinese policymakers are grasping at straws trying to stimulate the economy.

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Feb 4 11 tweets 3 min read
Where are we in the long term debt cycle?

Thread.

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Long-term, structural economic growth is mostly driven by two factors: demographics and productivity.

Both peaked in the late 80s, and we chose to fix the problem with a ton of debt.

It worked until now, but there are limits to how much we can push ahead with this.

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Feb 2 9 tweets 2 min read
Impressive US job report!

Does this mean the Fed isn't going to cut until summer at least, and disappoint bond markets?

Thread.

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Positive revisions to prior NFPs and a staggeringly positive number for January have left many wondering whether the US monetary policy stance is restrictive at all!

How do we define if policy is restrictive or not?

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Jan 30 10 tweets 3 min read
The Fed has been running QT for over 1.5 years now.

The intent was to remove excess liquidity from the system - but it's not happening:

- Jun 2022 reserves: $3.3 trillion
- Jan 2024 reserves: $3.4 trillion

We are witnessing a Sterilized QT.

What's that?

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Fed’s bond holdings are down $1.3 trillion from their peak (due to QT), yet only half of this supposed tightening has actually impacted bank reserves (aka ‘’liquidity’’) which are down a meagre $0.7 trillion.

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Jan 28 11 tweets 2 min read
Over the last month an interesting behavior in bond markets is back.

The yield curve is bear steepening again.

What does it mean, and why does it matter?

1/ Image A bear steepening of the yield curve happens when rates move higher but it’s long-dated yields that take the lead, hence shifting the entire curve higher but also steeper.

How to interpret such a move?

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Jan 26 14 tweets 4 min read
The Quarterly Refunding Announcement approaches.

So let's talk about the plumbing of the US monetary system and why this matters.

A thread.

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In this particular thread I will elaborate on the metric everybody is obsessed with.

''Liquidity''.

The reason why people care about the BTFP, RRP, or the QRA next week is because they want to get some insights on what will happen with ''liquidity''.

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Jan 18 13 tweets 3 min read
The yield curve is dis-inverting rapidly.

Here is how to analyze this important phenomenon.

A thread.

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Nothing better than a deep dive into the yield curve on a Thursday!

Many are familiar with the yield curve slope as the predictor of recessions: the track record is almost perfect, and there are good reasons why.

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Jan 12 8 tweets 3 min read
What a week in bond markets!

Let's go through it together.

Short thread.

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There is an increasingly loud sense of ''protest'' against Fed cuts and front-end bond market rallies.

I am not sure why people aren't simply listening to what the Fed is saying.

They target (core) PCE, and even with the latest ''hot'' CPI print this is how it looks:

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Dec 30, 2023 9 tweets 2 min read
Here are 5 important macro investing lessons I learned the hard way.

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Lesson #1

Embrace Being Wrong

Even the top directional macro traders are right ~55% of the times which means they are wrong a ton.

I was expecting a recession and inflation falling off a cliff in 2023: right on one, very wrong on the other.
Dec 3, 2023 14 tweets 3 min read
The big bond market whales have been dormant for years.

But they could be back with a vengeance in 2024.

Here is who the real bond market whales are.
And why they might be developing an appetite again.

Thread.

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‘Who are the biggest whales in the bond market?’’

If you’d go around and ask this question, most people would tell you that’s either the Fed or foreign Central Banks like the Bank or Japan or the People’s Bank of China.

That’s wrong.

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Nov 28, 2023 11 tweets 3 min read
A primer on yield curve inversions.

Thread.

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History says that yield curve inversions lead us into recessions.

The chart below is pretty telling: going back 50 years the track record is pretty much intact.

But why?
What are the exact mechanics at play here?

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Nov 21, 2023 13 tweets 4 min read
Liquidity is one the most important yet misunderstood macro variables.

This thread will help you understand how it works.

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This is one of the most popular and yet misleading charts in macro.

People like simple narratives: the Fed is ''pumping money'' into the ''system'' and that's why equity markets go up.

That’s just NOT how it works - let’s explain why.

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Nov 16, 2023 14 tweets 3 min read
In 2021 the Chinese housing market was the biggest single asset class in the world.

It was valued at ~$50 trillion.
That was the top.

Chinese house prices now continue to fall despite authorities' attempts to stabilize the market.

Is China in a balance sheet recession?

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A balance sheet recession is a toxic economic loop.

It happens when after being burnt by deleveraging and lower asset prices, households and corporates refuse to take in new credit and focus on just repaying their debt and shrinking balance sheets.

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Nov 13, 2023 21 tweets 4 min read
Here is why you keep hearing about a De-Dollarization but it just never happens.

Thread.

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We have heard about the upcoming de-dollarization for decades now.

But it never really happens.

To understand why and what are the real hurdles to clear for a true de-dollarization of our monetary system...

...we need to understand how the USD system works first.

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Nov 11, 2023 14 tweets 3 min read
Retail investors are often called “dumb money”.

Yet I think they have 3 key advantages against institutional players and hedge funds - supposedly the “smart money”.

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1. Time horizons

As an institutional investor your performance is assessed on a quarterly basis - if you are lucky, otherwise it could also be monthly.

That means you are going to set up trades whose risk management relies around this time horizon.

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Nov 9, 2023 16 tweets 5 min read
Liquidity is the most important macro variable to follow.

Here is how it works.

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This is one of the most popular and yet misleading charts in macro.

People like simple narratives: the Fed is ''pumping money'' into the ''system'' and that's why equity markets go up.

That’s just NOT how it works - let’s explain why.

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