AIf @Macro_aIf___

Yes, Powell pivoted. From hawkish to...more hawkish. My piece that breaks down the Fed meeting and bond market reactions step by step, and analyzes implications for portfolios going forward. It's free. 👇 themacrocompass.substack.com/p/from-hawkish…

After a decade of making money for the US government, the Fed is now losing money on an ongoing basis As the QE portfolio is taking a beating and interest on excess reserves to be paid to banks is quickly heading above 4%, the Fed will be delivering a negative P&L going forward

Such a sharp deceleration in real-economy money creation (G5 Credit Impulse, black) anticipates that by the end of 2023 we are likely to have: - Negative YoY earnings growth (blue) - Sub-2% inflation (orange) Markets expect a nominal growth slowdown. But not of this magnitude.

Looking at the macro setup and markets in 2022, you wouldn't expect ETF flows to look like this. Yet, they do...

2022 is shaping to be the year with the most 1%+ intraday reversal days since 2008.

...banks don't lend or multiply reserves. When there is lending activity, the banking system expands its balance sheet by creating new loans and new deposits. They also create new money for the private sector. Understanding how money works will give you a great edge in macro.

...means that the equilibrium real rates (r*) the whole economy can take to not blow up under this never-ending creation of unproductive debt are.. ..lower and lower Total US debt (orange) charted against inverted 30y real yields (blue): higher debt = lower real rates 13/

The rate of change of real-economy money creation is now more negative than during the Great Financial Crisis. Credit creation in real terms has materially slowed down, and in some places outright dropped into negative territory. Doesn't bode well for cyclical growth. 19/

BUT. Don't mix cycles with trends. If you strongly believe we are at turning points in macro trends, be aware it can take even decades for them to unfold - while macro cycles will inesorably come and go every 12-24 months. Keep a close eye on both, and don't mix them. 23/

I am planning to release a piece on TheMacroCompass.substack.com which goes deep into these long-term macro trends and assess where opportunities might lie given market pricing. Consider subscribing so you'll receive it directly in your inbox, it's free! But most importantly... 24/

The US job market remains tight, but in macro the pace of change ahead matters more than where we are today. On a rate of change basis, the recent pace of US full-time hirings is more in line with the sluggish 2012 than the strong 2018 or the booming 2021.

''As long as underlying inflation has not clearly peaked, we shouldn’t stop on rates'' - ECB's Villeroy European core CPI trends have lagged the US by ~6 months, and US core inflation hasn't even really peaked yet. This suggests the ECB isn't done raising rates, at all!

3 months equity calls are now as expensive against puts as they were in late March 2020 Back then, the entire world had deleveraged and sold their risk exposure Same today? I don't think so I believe institutionals might be hedging for a Santa rally to preserve their bonuses

...major support in this compelling historical parallel. Also, notice how the vicious slowdown in nominal growth forced the Fed to cut rates from 6.5% to 1.5% (!) in 2001, and ultimately to 1% in 2002. Inflation might be settling at 3-4% structurally, but that... 18/

A very simple and yet effective chart. House prices plotted against mortgage rates. Look at that orange dot and draw your own conclusions.

The Ontario Teachers’ Pension Plan invested a couple hundred million $ in FTX at valuations ranging between $8-25 billion. OTPP is a sophisticated investor, but still - it’s a teachers’ pension plan. Sad, really.

As anticipated yesterday, markets are aggressively chasing the move up. Yet, for context: in 2000-2001, the Nasdaq rallied 20% or more 7 times. Every single time, these big rallies were followed by a new and lower low & we only bottomed in 2002. Don’t piss J-Pow off too much…

The GS Unprofitable Tech basket rallied 25% in two days after the soft CPI print 25% in two days These short squeezes are reminiscent of ‘00-01 and they will frustrate defensive long-term asset allocators Big picture though, don’t forget the stock market only bottomed in 2002

...the implied volatility of 20% out-of-the-money puts has never been this cheap relative to the implied volatility in 20% OTM calls. This largely exacerbated the equity market rally, as investors kept chasing the move up. 19/

...on The Macro Compass. themacrocompass.substack.com/p/bear-or-bull… Check it out - it's still free, but I will transition to paid products in 2023 offering not only this type of content but much more. More details in the free article. Have a nice Sunday! 22/22