Pro Macro: In Focus – Q4 Road Map, Macro & Markets

Published on: September 15th, 2022

With the spread between nominal GDP and rates extreme in US & Europe, something has to give. Relative moves in the components in the two regions will inform policy and markets. Hyper-financialisation makes stocks the “tail” wagging the macro “dog”. Below, a (bearish) framework allowing room for countertrend oscillation and some observations on bonds and FX.

Comments

  • JL
    John L.
    15 September 2022 @ 17:32
    Your last report had the put stops at 4100 so they stopped out...now you're changing the story...not cool
    • JL
      John L.
      22 September 2022 @ 15:59
      @Harry if you agree you screwed up you should not count the gains in your P&L for next month, as your subscribers also can't... and this would be highly misleading
    • BF
      Ben F.
      18 September 2022 @ 17:35
      Harry - what would be a fantastic addition to real vision would be an alert when a stop is hit. Julian uses end of day prices as stops, which is very hard to replicate in most trading systems such as interactive brokers, but also in times like this when you are clearly trying to work out a more sophisticated stop, it would allow you to communicate it as you want to. This also dovetails with housekeeping comments in the article re email alerts. i think the RV team misunderstand. We can all sign up for alerts, the problem is the timeliness at which they are sent. Some people get them hours later than others. Additionally i don't think i have ever got as good an entry point as the email, because there is a delay. Moving to a text based notification service for entries and exits is an easy service to implement and would solve these issues.
    • HM
      Harry M. | Real Vision
      16 September 2022 @ 14:50
      John L, truth is the "portfolio" RV maintains requires us to provide a stop in a certain form. The young (and very competent) man who maintains the spreadsheet asked one of our colleagues for a stop in the correct RealVision "form" (ie as a price). My colleague took a look at the chart, and gave him that level. It was not properly thought through to ensure consistency with the stops in the report. Poor stuff. We screwed up.
    • JL
      John L.
      15 September 2022 @ 19:29
      What I don't understand though is in the initial report you explained the stops in terms of % premium and that was clear. Then you revised the stops to be contingent on spx level. How was this a simplification? It was actually a total change in the trade - the initial stops were simple enough
    • JL
      John L.
      15 September 2022 @ 19:26
      Thanks Harry Could you please make an effort in future to provide some context and explanation when stops are changed? This may help
    • JK
      James K.
      15 September 2022 @ 19:02
      Harry …. honestly …. How refreshing. ! ….. no one walks on water ….. Thx
    • HM
      Harry M. | Real Vision
      15 September 2022 @ 18:52
      So first of all you are right. Now let me try and explain what happened. We screwed up here because we meant to risk a certain amount of premium. What we had in mind was to risk 50% of the Dec Puts and 75% of the Nov Puts premia. WIth that in mind, we then used an S&P level which was roughly consistent with that as the stop. i.e., 4100 on S&P. Turns out that although the market rallied to about 4110, the options never got anywhere near a 50% or 75% draw down. Closer to a 17% draw down. Of course we feel dumb about it now, but the question was whether to say we have stopped out, when we still like the trade, or say we haven't. Given the logic of the trade, and seeing it was pretty close based on the S&P level, we decided to keep it, although I can definitely see how this looks shady. But I think we are hung either way here. Damned if we do, and damned if we dont. Really the error was in trying to simplify where the stop should be for the options. This explains but it doesn't really exculpate. Our S&P level was just lazy. So perhaps an additional sorry from me is in order. Sorry.
  • JK
    James K.
    15 September 2022 @ 19:00
    Thanks Julian for the timely information ….. Best, Jim
  • SB
    Stephen B.
    15 September 2022 @ 22:04
    Great stuff, as always, Julian. One question though: how do you reconcile the thought SPX might bottom in the summer of 2023 with the thought that the dollar is getting close to breaking something, i.e. fed pivot. Is it possible stocks continue selling even after the pivot? Or should the word "close" be interpreted rather loosely?
    • HM
      Harry M. | Real Vision
      16 September 2022 @ 14:53
      Interpret loosely Stephen. The Fed will at some point change its mind when things get bad enough. When the market sniffs that the dollar will peak, and the equity market will form a base. But the two events (SPX basing and dollar peaking) do have to be pretty closely entwined. At least they are usually.
  • YC
    Yi C.
    16 September 2022 @ 20:07
    Julian, have you considered shorting or buying puts on EUR or GBP vs USD as a hedge or a directional bet? It sounds to me that all roads lead to a dollar wrecking ball for the recession scenario to play out fully.
    • HM
      Harry M. | Real Vision
      19 September 2022 @ 19:47
      JB is constantly looking at FX positions. Its probably his favorite market. Dollar wrecking ball is definitely happening right now, but its not clear the risk reward is great at these levels. I imagine we will see the dollar continue to strengthen, but its a long way from cheap now.
  • HL
    Harold L.
    17 September 2022 @ 00:39
    With the Fed about 200bps left to go (with a terminal rate >4pct) and QT still not really started I'm not convinced treasuries are cheap. I think with M2 levels still elevated and not really decreased, there is still a lot of liquidity in the system. Also, with velocity of money not moving despite inflation, i think there is still a lot of gas left in the tank for inflation for longer. I'm interested where on the curve you think QT is going to hit. I think the back end will be dragged down.
    • HM
      Harry M. | Real Vision
      19 September 2022 @ 19:49
      I can see why you say that. Its not clear that rates are cheap, and they do keep cheapening. JB takes a relatively controversial position on the impact of QT. He thinks it tends to support bond prices, because it primarily a reduction in stimulus to the broader asset markets. Risk assets lower, so bonds stronger.
    • HL
      Harold L.
      17 September 2022 @ 00:41
      by down, i mean prices down, rates up
  • TY
    Tony Y.
    17 September 2022 @ 13:38
    Hi Julian, I've been following your work closely since 2018 and I'm a big fan. Serious question, I recall about a year ago, around this time last year, you had a model that shows USD could see a big drop of 20% plus. Obviously we now know USD turned out the other way. I just wish to better understand what went wrong in that model? What kind of adjustments to the model has been made? And what is the model saying now about the outlook for the USD over the next 12 months? Thank you for everything you do.
    • HM
      Harry M. | Real Vision
      19 September 2022 @ 19:51
      I think several things but mostly the Fed. There is no end in sight to Fed hawkishness. Sometimes (Im a pretty paranoid guy) I wonder if the Fed and UST are actually aiming to squeeze the dollar higher as a strategic policy. Would have the effect of cheapening US investment spending, lowering inflation in the US, and weakening (at the margin) the financial position of the Russian Federation. Whats not to like?