Now that the Fed is restarting to expand its assets, I think that the balance at On Rrp facility must be carefully monitored. If it starts to increase, Fed will be in a bind with 2 unpleasant choices: 1. reduce or discontinue the program, which would mark the end of the Fed Put for equity markets; 2. pretend that nothing is happening and risk to disanchor inflation expectactions, with dreadful consequences for long duration assets.
The Fed has to hope that energy prices do not follow gold higher... intriguingly for me, the QE program is mainly at the short end... I guess to match the US government issuance
The Fed is essentially printing money in order to accomodate the payment of taxes: they call it independent monetary policy. No question that long term yields are rising...
Great write up. Russel. I tend hold the news views that the private equity market will Be punished by those new macro regimes. But recent price action did not confirm, we still seem like in a bull market. What will you consider to trim your PE short?
I think sideways movement in a bull market is always a good sign of trouble. You have to remember I pair what should be losers in a rising cost of capital environment (private equity) with winners (Japanese banks). That trade still makes sense.
I would trim PEs is they touch all time highs OR they rise when there is bond sell off (because they should fall in that environment - so something is wrong).
How you see FX/ the dollar in this framework? Isn’t a feature of the pro-labour world avoiding recessions via loose fiscal and monetary policy at the cost of letting the currency go?
Other than Swiss Franc - I am not sure dollar weakens that much - mainly as the threat and reality of tariffs make currency movements hard to judge. My base case is that yield rise as government try and keep real wages high - and currencies stable
Over supply. Copper is not saying recession. Oil and gas seems to be political driven - I suspect its Trump's way of putting pressure on Russia (and Venezuela)
Now that the Fed is restarting to expand its assets, I think that the balance at On Rrp facility must be carefully monitored. If it starts to increase, Fed will be in a bind with 2 unpleasant choices: 1. reduce or discontinue the program, which would mark the end of the Fed Put for equity markets; 2. pretend that nothing is happening and risk to disanchor inflation expectactions, with dreadful consequences for long duration assets.
The Fed has to hope that energy prices do not follow gold higher... intriguingly for me, the QE program is mainly at the short end... I guess to match the US government issuance
The Fed is essentially printing money in order to accomodate the payment of taxes: they call it independent monetary policy. No question that long term yields are rising...
Or gold is going higher
Great write up. Russel. I tend hold the news views that the private equity market will Be punished by those new macro regimes. But recent price action did not confirm, we still seem like in a bull market. What will you consider to trim your PE short?
I think sideways movement in a bull market is always a good sign of trouble. You have to remember I pair what should be losers in a rising cost of capital environment (private equity) with winners (Japanese banks). That trade still makes sense.
I would trim PEs is they touch all time highs OR they rise when there is bond sell off (because they should fall in that environment - so something is wrong).
Oh that Japanese bank long, I am happily riding the wave with you ! Thank you for the idea.
How you see FX/ the dollar in this framework? Isn’t a feature of the pro-labour world avoiding recessions via loose fiscal and monetary policy at the cost of letting the currency go?
Other than Swiss Franc - I am not sure dollar weakens that much - mainly as the threat and reality of tariffs make currency movements hard to judge. My base case is that yield rise as government try and keep real wages high - and currencies stable
Thanks for sharing very thought provoking. Merry Christmas!
Oil and gas? What they saying. Recession ?
Over supply. Copper is not saying recession. Oil and gas seems to be political driven - I suspect its Trump's way of putting pressure on Russia (and Venezuela)
Do you have any view on oil/ gas . Agree politics but seems infinite supply
Very tricky - but it is odd that we have not seen Saudis or shale producers respond to lower prices.