Monday 18, July 2022
Macro trends
Crescat produces a first class monthly newsletter this month it identifies the following macro trends:
- Real interest rates dropping
- Consumer sentiment dropping
- Dropping real consumer income
- Corporate margin squeeze looming
- Raw materials structurally higher
- Labour costs rising steeply (at least in nominal terms)
- High housing cost inflation
- Unemployment probably going to bounce back
- Tech layoffs coming
- EM bond spreads exploding
- Yen ceases to be a safe haven
(The focus is US, but most of these trends would apply equally to Europe.)
There are lots of nice charts to illustrate the points. I like this one:
It’s very hard to time trades to take full advantage of these trends, but it is probably worth the effort.
Classic inflation trades, such as short credit, short long-dated treasuries, long precious metals, long diversified commodities, long energy should all work. But it’s a lot harder making this work than you’d think
Equities are tricky. Tech stocks (outside of the FAANGMAN) have been hammered. Different sectors respond differently: miners should be OK, consumer discretionary, maybe not. Overall, though, equities surely have further to fall (that’s Crescat’s take too).
Wrap
Basically, risk on. Commodities motoring. Maybe we’re through the recession and marching to the sunny uplands? Equities were weak. Yields were going up. The Yen was falling.
Interesting that oil is going up as Biden returns from the Middle East. The conclusion I’d draw is that he failed to persuade Saudi to pump more oil. TBH, it’s refining capacity that’s the problem, not oil, which is pushing up gas prices in the USA.
Tweet
Lot of people assuming commodities can’t rally in recession, and everybody knows that everybody knows this. But that is a failure of imagination + recency bias. Look at 1973, 1980, 1990 commodity-induced recessions. pic.twitter.com/CXjZZnM8hR
— Paulo Macro (@PauloMacro) July 17, 2022
WH self-own
Incredible: Bernstein says the White House stopped using the word “transitory” to describe inflation not because it was false, but because “it has to do with the ambiguity about the length of that word.” pic.twitter.com/KQDQj22S2F
— John Cooper (@thejcoop) July 18, 2022
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