Why are financial conditions so benign?

presentation cover page
  • Financial conditions have eased to the same levels as 2007
  • This comes in spite of central banks thinking they are running restrictive policy
  • The nature and timing of the market moves suggest these not so much reflect or anticipate the strength of the economy as drive it
  • Their ultimate cause is easy balance sheet policy having crowded investors into risk
  • Misunderstanding of these dynamics increases the likelihood of bubbles and subsequent busts

Why are financial conditions so benign?

presentation cover page
  • Financial conditions have eased to the same levels as 2007
  • This comes in spite of central banks thinking they are running restrictive policy
  • The nature and timing of the market moves suggest these not so much reflect or anticipate the strength of the economy as drive it
  • Their ultimate cause is easy balance sheet policy having crowded investors into risk
  • Misunderstanding of these dynamics increases the likelihood of bubbles and subsequent busts

Outlook 2024: tight credit, easy money

global credit impulse private vs central bank
  • The remarkable performance of risk assets in 2023 is not primarily due to the growing likelihood of a soft landing
  • It instead reflects markets being buffeted by extraordinary amounts of central bank liquidity
  • For now, those technicals remain positive, but beyond Q1 they should fade or reverse
  • Underlying momentum in growth, earnings and inflation – beyond sticky supply-side effects – is significantly weaker

Some slides on the S&P rally

spx vs fed reserves 4wk chg
  • 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

The yield is not enough

the yield is not enough satori insights
  • It’s not just a stronger economy
  • Nor even those long and variable lags
  • It’s that markets are being driven by money flows and not rate levels
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