Matt King – Page 10 – Satori Insights

Wall Street has discovered what’s really driving US stocks higher

The biggest surprise of 2023 was not the resilience of the US consumer
It was that central banks added nearly $1tn in liquidity, rather than removing $1tn as had been widely expected.
This swing alone is worth 20% on equities – almost exactly the YTD gain in the S&P.
We think 2024 will show central banks have overtightened rates whilst simultaneously overstimulating risk assets.
But we also fear their misunderstanding of the dynamics means they may yet do more of both.

The rally does not reflect the likelihood of a soft landing
It is the direct consequence of a surge in Fed liquidity
Widespread misunderstanding of these dynamics increases the likelihood of more rate rises and a harder landing later

Poor risk asset performance in Sep/Oct reduces gap to CB liquidity
Fed $300bn reserve increase over past eight weeks helps explain renewed rally in S&P
Conversely, despite talk of stimulus, China liquidity injections remain lacklustre
Liquidity outlook still driven by RRP – and is much less negative than might be expected

Persistent fiscal deficits are increasingly cited as the #1 reason to short bonds
But the historical record is remarkably and perplexingly clear
High debt levels, and even high fiscal deficits, have historically been associated with bond yields falling, not rising
Only in part does this reflect factors like financial repression
It is also due to the counterintuitive nature of the credit creation process itself

Is the mini-correction in markets a foretaste of something bigger, or does the still-strong real economy give risk assets scope to bounce back?
Should investors be rotating out of equities and into bonds, or are the latter still vulnerable to buyers’ strikes against a backdrop of fiscal indiscipline?
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Is the mini-correction in markets a foretaste of something bigger, or does the still-strong real economy give risk assets scope to bounce back?
Should investors be rotating out of equities and into bonds, or are the latter still vulnerable to buyers’ strikes against a backdrop of fiscal indiscipline?
Open to clients with Group Webinar or One-on-One subscriptions

Webinar Wed 1 Nov 1600 Lon / 1200 NY
Is the mini-correction in markets a foretaste of something bigger, or does the still-strong real economy give risk assets scope to bounce back?
Should investors be rotating out of equities and into bonds, or are the latter still vulnerable to buyers’ strikes against a backdrop of fiscal indiscipline?
Open to clients with Group Webinar or One-on-One subscriptions, and to the press