Capitalism's defining characteristic is to take underutilised resources and to exploit them. It seems to me that crisis in capitalism happens when the exploited act to stop exploitation.
There is a scenario where a commodity price boom accrues surpluses to commodity exporters that give them more capital to recycle into treasuries. Different driver, but similar to pre GFC period.
Possible but unlikely. Accumulating surpluses is a policy to keep currencies relatively weak, which keeps real wages low. I think the political appetite for such policies is limited these day. Saudi for example has huge plans to spend its surpluses on infrastructure.
I find it particularly interesting that there is such a large contingent of believers that the bond market is going to rally dramatically as the Fed starts cutting rates later this year. I am with you as far as the idea that the populism which continues to spread, and given the 40 elections due this year, will further entrench itself in the political sphere, is going to push things further. Stephanie Kelton may be a left-wing believer, but a Trump presidency will result in her policies being enacted right away
Interesting read. Compared to other macro investors, I find your analysis more illuminating as it is more about the changing dynamic of macro forces, which I do thing is important, rather than predictions of near term macro trends, which I think are rather useless in terms of informing investment decisions.
most of the time near term macro is more important. But we are in the middle of a huge political change - near term macro is dangerous, as the signals now mean different things
Macro came roaring back in 2022 then died again in 2023 lol. I agree with your assessment that energy/commodity price is the Achilles heel of the us market.
I beg to differ on who was the patsy. Citibank had 300 billion of mortgage bonds on an off balance sheet company. Bank of America bought Countrywide which doomed them. They also bought Merrill but Merrill owned part of Blackrock and Bloomberg which meant that it was a break even. The banks and brokers believed their own BS. And in a complete turnaround the the AIG cds payed off. But it did take the Fed and the US government to bail out the system. My take is the NY Fed didn’t do their job. They were making sure that terrorist money was being transacted and not checking on banks balance sheets. The question is who is the patsey now ?
In a game that big - you needed more than one patsy. But the MBS arbitrage game definitely the insurance that AIG offered for it to get as big as it did.
There is a scenario where a commodity price boom accrues surpluses to commodity exporters that give them more capital to recycle into treasuries. Different driver, but similar to pre GFC period.
Possible but unlikely. Accumulating surpluses is a policy to keep currencies relatively weak, which keeps real wages low. I think the political appetite for such policies is limited these day. Saudi for example has huge plans to spend its surpluses on infrastructure.
I find it particularly interesting that there is such a large contingent of believers that the bond market is going to rally dramatically as the Fed starts cutting rates later this year. I am with you as far as the idea that the populism which continues to spread, and given the 40 elections due this year, will further entrench itself in the political sphere, is going to push things further. Stephanie Kelton may be a left-wing believer, but a Trump presidency will result in her policies being enacted right away
Interesting read. Compared to other macro investors, I find your analysis more illuminating as it is more about the changing dynamic of macro forces, which I do thing is important, rather than predictions of near term macro trends, which I think are rather useless in terms of informing investment decisions.
most of the time near term macro is more important. But we are in the middle of a huge political change - near term macro is dangerous, as the signals now mean different things
Macro came roaring back in 2022 then died again in 2023 lol. I agree with your assessment that energy/commodity price is the Achilles heel of the us market.
I beg to differ on who was the patsy. Citibank had 300 billion of mortgage bonds on an off balance sheet company. Bank of America bought Countrywide which doomed them. They also bought Merrill but Merrill owned part of Blackrock and Bloomberg which meant that it was a break even. The banks and brokers believed their own BS. And in a complete turnaround the the AIG cds payed off. But it did take the Fed and the US government to bail out the system. My take is the NY Fed didn’t do their job. They were making sure that terrorist money was being transacted and not checking on banks balance sheets. The question is who is the patsey now ?
In a game that big - you needed more than one patsy. But the MBS arbitrage game definitely the insurance that AIG offered for it to get as big as it did.
Assume you dont like rating agencies!
If that's the case, foreign central banks who still own a huge stock of G7 sovereign debt are the new AIG?
Yes. After GFC, market needed someone to guarantee credit - and G7 Central banks gave it to them