OF MARS AND VENUS (ROADSHOW FEEDBACK)

Published on: May 28th, 2021

Thus far the markets have wrapped themselves in the warm blanket of the Fed’s new ‘Outcome’ based policy framework. Gone are days of ‘Outlook’ and pre-emptive policy adjustments. Monetary policy has synthesized with the societal imperatives of the new Biden Administration. If the Fed and Treasury are both ‘woke’, cosy equilibria won’t hold. Could be good, could be bad. That is a matter of perception. The case for USD being the sacrificial lamb is rising. Institutional client feedback helps fine tune next steps and what to focus on.

Comments

  • DM
    Dez M.
    1 June 2021 @ 04:00
    I don't quite understand below dilemma when Julian mentioned " Yes, the ECB will protest, but their own inflation pressures would be intensifying by then. Faced with the option of ending QE and blowing up the BTP market, or allowing a higher Euro to take the strain, they’ll choose the latter." If the ECB won't end QE and continue QE, wouldn't it lead Euro to go lower? Why will this lead to a higher Euro? Would be really grateful to get a further clarification on this one.
    • HM
      Harry M. | Real Vision
      1 June 2021 @ 12:48
      FX markets are always either beauty or ugly competitions. In this scenario, the lesser of two fx evils would be the euro, because it would not be running massive and partially unfunded fiscal deficits while at the same time running a very expansive monetary policy. So one can argue that regardless of the ECBs QE efforts, the EUR may still appreciate vs the dollar.
    • DM
      Dez M.
      10 June 2021 @ 20:50
      Perfect explanation! Thank you, Harry.
  • PS
    Pan S.
    28 May 2021 @ 18:18
    The purpose of money is not money. The purpose of money is people. That the Fed's newfound interest in human misery is so alarming tells us more about the financial classes than it does about the Fed.... In a world wiped clean of people, a mile-high pile of Benjamins would be of surpassing uninterest to surviving cockroaches. Money is about people.... The fantastic and unproven idea that meager unemployment benefits will keep people from looking for work leads us to one inescapable conclusion - employers are obviously not paying enough for workers to live on, and need to raise their wages to a realistic level.... Capitalism has a bad reputation as a system that benefits only those at the top, and leaves the rest of the population sucking wind. In our hyperventilating analyses, we must distinguish between the distress of the 1% and the distress of the 99.... Don't dismiss Biden's aims as "laudable, but." Trump's aims were "unqualifiedly disgusting." Exactly who does the government represent?.... My own financial recommendation is: long pitchforks.
    • DW
      Daniel W.
      28 May 2021 @ 22:31
      Though I am not sure I agree or disagree with you, it reminds me of James Goldsmith's comment during the Charlie Rose interview. Something to the extent of capitalism is about the growth of capital or the economy. The purpose of the economy is to serve the needs of society, therefore the only restraint on capitalism should be to achieve the needs of society. LOL- "Long pitchforks...not financial advice" https://www.youtube.com/watch?v=wwmOkaKh3-s
    • JC
      Jey C.
      29 May 2021 @ 08:40
      The rich will always look for ways to escape being forced to help the poor. A few of the rich will help the poor in non-trivial ways but that does absolutely nothing against the massive and rapidly growing problem of global poverty created by humans thinking we are not one organism. The government will at times pretend to care but it will be disguised as concern for the "unfortunate" simply to create excuses to spend money which will flow to the rich because water flows through downward channels more easily than it does on flat parched ground. Irrigation is required in order for needy land to become fertile. Greed will be the root cause of the end of our civilization.. the rich will never share because they think they "earned it" ... and when the hoarding becomes so extreme that even the rich realize it was their collective greed that starved the world.. it will be too late.
    • HM
      Harry M. | Real Vision
      1 June 2021 @ 13:00
      I share many of your arguments. For example, its increasingly clear that government benefits were subsidizing a lot of jobs at Walmart or in catering. Clearly these jobs are not sufficiently attractive in the current environment. Whether thats to do with childcare, pay, home school, or simply benefits I dont know. But while I agree with much of your analysis, it does not paint a compelling picture for bond ownership. Most of what we do here is about helping people organize and design their personal investing. Right now that means warning investors about the risks of government bonds (risk without return), and the dollar (a crowded carry trade). Its because I agree that capitalism is meant to serve society that I am particularly nervous about bonds, (although that would change as soon as gridlock reemerges in Congress). We should expect measures which are not necessarily in the best interests of the investor class, because of problems in the wider society.
  • NH
    N H.
    1 June 2021 @ 00:57
    Why isn't the base case an inflation that settles towards the end of the year at 2.5-3% with nominal 10Y rates hovering around the same and currencies continue to be stable against each other but commodities rising slowly? Why is it always a boom or bust scenario in one dimension or another, where it is in everybody's interest (except bond investors...) that what we have is years of mild financial repression? Seems to me the most likely outcome
    • HM
      Harry M. | Real Vision
      1 June 2021 @ 12:53
      Currencies stable against each other is quite a tricky balancing act. Akin to landing a flipped coin on its side. Its possible but tough to achieve. An inflation rate settling at 2.5/3.0% poses a question to the Fed. If it comes down in a reasonably timely fashion then all is good. If it remains elevated for a while the the Fed will bleed credibility while it remains elevated, and bond investors may vote with their feet. After all, not buying bonds at current yields because of your concerns about a current elevated levels of inflation is not such a weird scenario. Of course, neither boom nor bust is baked in the cake. But stasis in what might be considered a very dynamic environment is a pretty brave call too. One has to boil frogs very gradually to stop them trying to jump out of the pot.
  • JW
    Joel W.
    28 May 2021 @ 16:57
    Such a valuable and fascinating tour d'horizon of markets and opinion of market participants. Read like a novel as well....excellent writing :-)
    • DM
      Dez M.
      1 June 2021 @ 04:01
      Indeed!
  • SN
    Sean N.
    29 May 2021 @ 18:42
    Great in depth piece. Good point about buying the commodities over the producers... its hard to see how new commodity supplies could be brought on quickly in an ESG friendly way.
  • SN
    Sean N.
    29 May 2021 @ 18:42
    Great in depth piece. Good point about buying the commodities over the producers... its hard to see how new commodity supplies could be brought on quickly in an ESG friendly way.
  • MD
    Mike D.
    29 May 2021 @ 13:56
    Outstanding and insightful update. Many thanks!!