Macro Dragon WK 3: Forget Noise... Focus on The Signal
Summary: Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon WK #3: Forget Noise... there is only The Signal
Top of Mind…
- TGIM & welcome to WK #3… Sometimes. Sometimes. You. Just. Know. Its going to be a sensational wk everyone, lets get after it!
- By the end of Jan we’ll already be through 8.5% of 2021… how stunning is that?
- If you missed our first Dragon of the year, take a deep breath, don’t panic, its right here:
- If you were surprised by the events at the US’s Capital Hill & Trump’s permanent ban from twitter… you are not picking up what KVP is putting down, we covered that back in Nov
12 Nov 2020 – Macro Dragon: Treason for Trump?
- KVP would not be getting caught up around what Trump will do next, impeachment, resignation so Pence can exonerate him, etc… its fascinating & very much lights up the social DNA algorithms that are embedded with us… yet it is all noise. KVP does not skate to the stands & audience, but to where the puck is going…
- There is not enough focus on the most important Macro Event of last wk…
- … & no that was not US10s breaking up past 1.00% (albeit that is key & complicates the very near-term tactical horizon for USD bears, precious metal bulls & YCC|Neg. rates views)… it was the Dems actually doing what seemed like impossible given their track record on flipping red states for the senate (i.e. +$100m in SC & still lost by a wider margin than a Usain Bolt foto finish).
- It the Ninja-Delayed-Slow-Motion Blue wave… & this is truly goliath. Let’s say this again to drive home the point. The Blue seep in WK #2 of 2021, is truly goliath & epic in everyway. With Harris to break the 50 / 50 potential Tie in the Senate – c. $7 Trillion Dollars in Green Infrastructure that Biden & Harris campaigned on, has risen several magnitudes in not just probability but scope
- The Dragon has gone from very bullish from coming out of the US Election… see…
- …to Mega Bullish… which is saying something seeing the amazing melt-up we had into year end… Still potential +$7trn on top of the already c. +$3trn of fiscal & ignoring what has been done already by the Fed/Treasury (+70% Fed Balance Sheet Expansion).
- $7trn is c. 1/3 of the US’s $22 Trillion Economy (pre Covid)… that money will cause an avalanche of asset class inflation & a spiral down the MMT / Social Stability / Climate Crisis campaign that is likely to last a decade or two – at the very least 8yrs. With the assumption the Dems keep the WH & Senate, plus if Texas is not blue by 2024… it almost certainly will be by 2028… with huge structural implications for US politics (its 38 electoral votes).
- Now we are not saying the full $7trn will come into fruition, it could actually be more… but even if its ‘only’ $3.5trn… the ripples are huge & we once again add onto the reflexivity of not enough assets & too much money. We may seem to be all-time highs on a number of different front, yet if one was to adjust for all the fiscal & monetary stimulus over 2020 into 2021… we are likely not yet at adjusted ATHs
- And whatever pullback is likely at best -10% to -20% on the S&P before policy makers freak-out about the tapestry unravelling. So make no mistake… the strategic/long-term upside picture just got multiplied by a positive multiple greater than one.
- Oil & equity-credit energy complex (which we have been yelping about like fanatics on the Dragon) was one of the few areas to really catch the significance of the moves. You had single stock names like BP, Woodside & Exxon putting in +17%, +12 & 10% moves last wk, with the broader energy etf XLE also clocking in at +9.3% for the wk [Brent & WTI we c. +9-10% last wk]. Kudos to those of you that resonated with energy call options towards back-end of Dec.
- Short-term term / tactical risks include US10s & US30s finding a floor for bond prices & a ceiling for their yields. Folks seem to be watching 1.2% to 1.4% on USTs & 2.0% at US30s… what they should be watching is the Fed & what Yellen does once she is in as US Treasurer.
- For now though if we keep punching higher in yields (& last wk was a massive move), the USD could gain more legs, precious metals will continue to collapse (strategic picture intact, yet we may test again recent lows…) & we may get some liquidity risk especially in commodities & currencies (check out BRLUSD which KVP has been advocating have an abysmal -4.10% last wk… again this is all a dollar story. Still watch out for BRB on Jan 21st).
- One last near-term horizon “risk” is the New Administration inducing a Federal Lockdown for the first 100 days. Presidential Joe talks about masks for first 100days, including +100m vaccines… And yes an enforced lock-down will put a pause in the k-shaped segments of the economy & society, once again raising the probability & magnitude of the next fiscal bill being in the +$3-6trn range.
- If/when KVP was/is consigliere to Team Biden|Harris, this would be a no brainer, as well as incentivising people to get their vaccine shots. You want more fiscal support, np, take your vaccine for the greater of the country.
- No vaccine? Np, guess what now you are a threat to the rest of the population & we have to track you plus you have little to no access to basic government services & goods. People, you cannot have the best of both worlds… nothing is free in this world, even for those of you that ‘freely’ read the Macro Dragon.
- Biden|Harris can also incentivise the states that respond best to vaccine mitigation & shutdown by helping them out with their finances & resources. It smart for them to take the hard medicine that America should have done in Jan/Feb a year ago. And all this right at the start of what is likely to be a +8 to +12yr run.
- What’s the biggest risks to the Macro Dragon Macro Views? Obviously a Senate that is dead set against any further fiscal spending, despite the dems control. A more hawkish stance from the ECB & the Fed… Yellen dropping her clock of Doves for one of Hawks.
- As well as a view – likely wrong – that enough has been done policy wise globally & the world will be able to grow itself out of the C19 crater symmetrically & damn the K-shaped!
- In summary, make sure you are focusing on the absolute most important macro factor right now = US Blue Sweep.
- Likewise, make sure you are focusing on the most important asset right now = _________?
- Everything else is just noise.
Some SaxoStrats Specials from KVP’s peers that were likely missed during X-mas Season
- Saxo’s Outrageous Predictions for 2021
- Special Edition Podcast: Equities and interest rate sensitivity
- Special Edition Podcast: Commodity Outlook for 2021
- Podcast: Energy sector ready to rip in 2021? FOMC preview.
- Podcast: Fresh “everything up” (except US treasuries) surge post-FOMC
Rest of the Week & Other Top of Mind Thoughts
- US: Quieter wk ahead, at least in regards to known unknowns… we got inflation out of the US, the usual Fed speak… yet key will be Powell due to speak on Thu (0150 Fri SG time), will he talk YCC or/& yields lower, be neutral or give the all clear?
- EU: EZ has Lagarde (hands down most active ECB president KVP has ever seen, think Lagarde has spoken more in her first 2months that entire ECB presidents have in their entire career – this is good. This is leadership, out at the forefront, not hiding under a desk in your 3rd villa minimizing your gigs… Lagarde will be speaking on Weds (1700 SGT). We also have ECB mins & some IP data due this wk.
- CH: China has CPI & PPI data due, as well as new loans & money supply.
- CBs: Central bank majors, really only BoK scheduled to remain neutral at 0.50% e/p.
- Hols: JP out today. Have upcoming long wkd in the US given LMK day & obviously next Wed, Jan 20th should be the inauguration of President Biden, with very high probability of violence & domestic terrorism, that could make last wk look like a cake-walk.
Dragon’s Heavy Rotation…
More of these on the way – editing ran into year-end, house moves & the like. What can we say, can’t rush greatness. Yet two more Dragon Interview coming up before the month is over – they are stuck with my editor… patience… KVP cannot do it all… apparently…
In case you missed it previously – been super well received, thx for feedback, sharing & support on this project folks - the first in a string of exclusive Dragon Interviews series with exceptional professionals with skin-in-the-game, across different strategies, asset-classes & backgrounds.
We kicked off with Singapore Based, AVM Global Opportunity, run by the talented & always exceptional Ashvin Murthy. Who in KVP’s view is world class in his approach, process & even more importantly trade construction & money management. Point being, if the process is pristine & consistent, the returns will take care of themselves overtime.
The timing of the interview is uncanny as it was at the cusp of the last US presidential elections that AVM was launched. It’s worth noting since the interview, the fund has also been nominated for the Singapore’s Best Hedge Fund of 2020, given its consecutive five straight positive months at the start of this volatile year.
Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea.
This is the wayKVP
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.