+41 22 700 21 43

Things are MOVE(ing)… Too Much a Good Thing?

Feb 20, 2021 | Uncategorized

This was the title of my last Global Macro Insight.

Here some quotes :

“The title of course refers to the MOVE Index (the VIX of US Treasury bonds). The first graph that your scribe wishes to share this morning concerns the concomitance of the rise in the balance sheet of the FED with that of the MOVE Index”

“In 2020, the MOVE shift upwards caused the financial markets to fall and the Fed’s response, flooding the markets with trillions of dollars …

There are two interpretations of this graph.

  • Either the FED can no longer control the MOVE, and the rise in its balance sheet will not calm the volatility on Treasuries, causing a VaR Shock, then a Volatility Shock.
  • Either the FED has decided to be more reactive in order to calm from the start any hint of appreciation of MOVE”

 

“But your scribe wants to point out that nominal GDP growth in the 1970s was higher than the average rate at 10Y, causing the PCE to explode to + 6% … This correlation (or its inverse) is true over all periods except the last decade due to the intervention of central banks … But the end of the last decade has nothing to do with how it started, as the world economy rolled out of GFC. It should also be noted that the average rate of growth, during this period, is the lowest of all the post-war decades, as the FED poured out trillions of liquidities.”

“But, by boosting the monetary velocity of an economy, already flooded with liquidities, with new liquidities, we have all the parameters for an uncontrolled take-off of inflation. It should also be noted that ESG, climate change, and the disruption of the global supply chain, caused by the new Cold War between the United States and China, are also inflationary parameters.

Your scribe has always been against deflationary monetary policies. They destroy the value of labor and money. Inflation is an incredibly good thing when it includes wages, but it always goes through acceleration episodes that are often damaging to financial markets and economies if the Hyperinflation regime sets in over time.”

I wrote this Friday morning at 5 am CET… On Friday, the US 10Y skyrocketed to 1.35% and the MOVE Index moved up fast!!!

Next week will be THE week for financial markets. 3 squeezes must not implode :  the short dollar, the short volatility, and the long US 10Y… The two latter could blast at the same time… In addition, the FED asked to banks in the last stress tests to integrate a 55% drop in Equity markets…

March could become a challenging month in the US, but also in Europe. The British, Brazilian, and Sud Af strains could derail the vaccinations campaigns…

Stay Barbell

Share this:

Geopolitical Collateral Damages vs. Financial Collateral Advantages!

Somes extracts : Given the last point, your scribe believes that while condemnations are almost unanimous, most Western countries will do everything possible to prevent the conflict from spreading to other countries.   Since the Yom Kippur War and throughout the...

Geopolitical Risk vs. Squeeze vs. the FED…

Some extracts Looking back at Friday's session, it was one of the best days on record for our GTO (+1.6%) "We're not safe from a surprise, so many of the employment figures are revised and skewed." (GMI 06/10/2023). When your scribe wrote these words on Friday...

The Great Normalization. “Why” is essential, but “Why, Now” is crucial. China is not in Japanification.

Some extracts Your scribe insists we are only in the Great Normalization of our Western economies. After years of dependence on central bank liquidity, making a monkey able to build an asset allocation ...   It's not the "why," as Powell has been repeating his...

A New Quarter with Positioning and Economies at the Crossroads!

Some extracts : - On Friday morning, your scribe had shared, "Now, the optimal take-off zone seems to be around October 15, which leaves us with a few more complicated days ahead if the bond markets don't calm down unless the CTAs (whose asymmetry is to the buy side)...

Resilience Facing the Last Bear Barrage! Golden Week in China and India is not China.

Some extracts : Yesterday, we noted the "disaster" that was this revision for Q2: instead of the unchanged 1.7% figure of the second estimate of Q2 GDP, the final figure was a disaster of 0.8%, a 9-sigma deviation from estimates... China has no reason to be ashamed of...

Resilience in a No-Rules Market! Duration is THE risk! Chinese economy bottoming out and US Treasury Basis Trade to Watch!

Some extracts : We'll come back to these various points, but first, your scribe will recall his convictions in Global Macro even though the markets no longer have any rules: Duration is the main danger in asset allocation. Markets are increasingly ripe for a rebound...

US to indefinitely extend China waiver for South Korean chipmakers

The U.S. is expected to indefinitely extend a waiver granted to South Korean chipmakers Samsung Electronics and SK Hynix on needing licenses to bring U.S. chip equipment into China, Yonhap news agency reported on Wednesday. The U.S. Commerce Department has discussed...

Positioning stronger than Fundamental? Flows are Stronger, for now… Improving Entry Points in Risky Assets?

Some extract : Yesterday was symptomatic of our markets: neither fundamentals nor positioning were the cause of asset movements (except for rates), .... According to reports, after the US banking sector experienced a period of turbulence earlier this year, total...

Big Bet On U.S. Multifamily from The World’s Billionaires

Over the past 10 years, some of the world's richest have more than doubled their investments in apartments globally, with a particularly heavy emphasis on the U.S, Bloomberg reported, citing research from Knight Frank. With oversupply being an issue in the multifamily...

Positioning stronger than Fundamental? Just a Question of Temporality.

Some extracts: To be clear, your scribe believes that we are almost at the dawn of the October rally and that, given the extreme positioning of shorts, fundamentals will not carry much weight. For the record, our Global Macro's two best performances in yesterday's...

Categories

Disclaimer

I hereby certify that I am a professional investor

More information about our Privacy Policy