Author: Matt King

Investors should focus less on rates and more on the money flows

US Treasury futures positions at extremes

Free clip: Who pulled the plug?

• Free clip from first ten minutes of 3 July webinar
• Even as the rally continues, it does so on ever more fragile foundations
• The problem lies neither with the economy, nor with central banks being slow to lower rates, nor even with politics
• It is that the liquidity which fuelled markets in H1 looks increasingly likely to be turned off

Replay: Who pulled the plug?

• Full replay of 3 July webinar with Q&A
• Even as the rally continues, it does so on ever more fragile foundations
• The problem lies neither with the economy, nor with central banks being slow to lower rates, nor even with politics
• It is that the liquidity which fuelled markets in H1 looks increasingly likely to be turned off
• Open to clients with Group Webinar or One-on-One subscriptions, and to the press

Did someone pull the plug? (free to view)

• Recent softness in risk is not just the fault of France
• The underlying drivers of the rally have been faltering
• The outlook for H2 just darkened considerably

When star stands for confusion

• Recent statements are a reminder of the importance of neutral rates for policymakers
• But they also illustrate confusion – not only about the level of r*, but even as to what it is supposed to be measuring
• At the heart of the confusion lies a failure to distinguish between the impact of balance sheet on markets, and of rates on the economy
• This potentially leads to very different conclusions for r* and policy

Seven lessons from complexity

• Markets and economies should be analyzed as ‘complex systems’
• Their fat tails and emergent behaviours fit poorly with traditional linear economics, but very well with complexity modelling techniques
• Lessons from other complex arenas apply equally well to investing

Short-term exuberance alert

• We have been arguing markets face greater risk of melt-up than melt-down
• But the speed and extent to which many levels are deviating, not only from fundamentals but even from many technicals, is striking
• Expect fund inflows to continue to swamp such concerns – but watch for any sign of faltering

The asymmetric Fed

• The significance of last week’s FOMC lies neither with the rate view, nor with the earlier, larger taper of QT – mildly bullish though both of these are.
• It comes instead from the stark asymmetry of the response function which was described.
• While the true test remains with the details of the liquidity outlook, in conjunction with the Treasury refunding this opens the door to a continued cross-asset rally through Q2.

Free replay clip: Why are financial conditions so benign?

• Free clip from first ten minutes of 2 May webinar
• The exuberance in risk assets is less a consequence of a stronger economy than a driver of it
• The expectation of rate easing was never critical – which is why the exuberance has largely persisted even as yields have backed up
• It is instead the direct consequence of investor crowding following easy central bank balance sheet policy – and vulnerable to any reduction in CB liquidity