Macro Dragon: Re-Up Part IV-B... Higher Probability Pathways...

Macro 2 minutes to read

Kay Van-Petersen

Global Macro Strategist

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.


(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)

Macro Dragon: Re-Up Part IV-B... Higher Prob. Pathways... 

 

Top of Mind…

  • This is an extension of yest’s piece which focused on Monetary Policy & the overall raison d'être of this Macro Dragon monthly exercise…

  • Fiscal Policy: Taps are still wide open – yes, we may be in a period where there is no new headlines are we continue to digest previous fiscal packages, yet there are on going discussions for new packages or/& enhancing previously released fiscal packages. In the US alone, the house passed a $3trn bill for the next fiscal package, its stuck in the senate where the Reps are saying they want to keep it a $1trn. Its going to be closer to $3trn than $1trn.

  • Whether we get a Biden Presidency or a two-peat from Trump, smokers gonna’ smoke, haters gonna hate & politicians are gonna spend. Oh & if you think a Trump administration has been spending, wait until the potential Dems sweep everything… i.e. Liquidity accelerant. Apart from even more spending, a Biden presidency is likely to differ massively from Trump on one key aspect, pivoting back to the work – in particular Asia. So keep the ITA etf (Aerospace & Defense) on your radar folks, if you don’t already have an INIL.

  • Policy makers & government officials, be they on the fiscal or monetary side are all-in whether or no they realize it. Remember, the world runs on incentives & the system running at all costs keeps officials & the incumbent players well incentivized, despite having very little individual accountability to themselves. And yes, the Fed will move towards having the Number One or Number Two headband on credit etf’s such as LIQ. And yes, the role of monetary policy in this liquidity regime, will be to finance fiscal policy – as per our 3Q Outlook on Localisation, state capitalism & unconstrained MMT is already here.  

  • Regime & likely Asset Allocation Implications: The backdrop of the Liquidity Is King regime, the dips be they -5% to -10% on the S&P 3225 are to be bought as ATHs are in the works, yields are going down, bond prices are going up (UST Futs 139-13, yield 0.62%), debt is going up, real negative rates will continues to go down, gold at c. $1800 is going up (above $2000 before E-2020, likely E-3Q20 & +$3000-4000 lvl by E-2021 & E-2022…) alongside the rest of the precious metals complex, the USD is in the early innings of a multi-year bear market that will see the DXY well south of 86 from the current 96 handle. A weaker USD will be a massive meta tailwind for gold & the precious metals complex, commodities & EM assets in general. So oil at these $40 to $43 lvls depending on Brent or WTI, will likely be in the $55 to $66 range, by mid to 2H2021.

  • Tech & Gold will continue to have that debasement & non-debt thesis going for them, not to mention benefit from the current & post C19 world that will structurally have a bigger skew towards remote living & working. Bitcoin & Crypto assets also have their place in this theme, also being recently touted by Hedge Fund veteran Paul Tudor Jones.  

  • Industrials, materials & construction sectors should explode upwards as All Fiscal Policy Roads will eventually lead to the City of Infrastructure – this is going to be a mega powerful force of real demand being created. I.e. its not going to be another $2-3 trillion of debt on the Fed’s balance sheet that primarily benefits Blackrock, wall street & the Elites (yes, if you are reading this you are likely in the elite’s camp, as you are likely to own some liquid assets), doing little for Main-street.

  • Infrastructure: Yet +$2-3 trillion of US infrastructure spend, will create huge structural multi-year demand for commodities (think steel, copper, silver, iron, concrete, wood, etc), labor & machinery. It will be akin to China saving the world post he 2008/2009 financial crisis when they spent c. 15% of their GDP in a massive fiscal infrastructure move.

  • This is where we are going – KVP see’s this so clearly, it boggles his mind, how other cannot – kinda’ takes him back to Bitcoin in 2014 & 2017, SoGal in 2019 or US Duration in Jan 2020. This is like a black-hole that cannot be escaped, except in this case, it’s a black-hole that has a monopoly of asymmetrical profits & retirement trades. Check out my excellent colleagues works (Peter Garnry & Anders Nysteen) on infrastructure names & put the likes of the XLI etf on your radars, if you don’t already have an INIL or/& potential long-dated calls on the name/s.

  • Lastly on Fiscal, a lot of that spend will also go into green tech, climate crisis & sustainable social investment initiatives which is an excellent thing.

  • Will there be money flushed down the bathroom & making its way into the insiders? Absolutely – check out the , yet there will also be some structural changes that are vastly for the overall great good of society – this will be far from symmetrical globally… some countries will nail it on the Fiscal spend, like Norway & Singapore, where others like the US & most emerging markets, it could go either way.

  • So in summary currently KVP is still looking for ATHs in equities, bond prices (ATLs in yield), gold & precious metals complex, other metals & commodities, real assets & lower lows in the USD, higher highs in localisation & inverse globalization, with correspondingly higher highs in geopolitical tensions & overall social unrest – i.e. this nuclear winter of QE infinity is only accelerating the gap between the minorities who own the majority of the assets & have the majority of the flexibility, vs. the majority of those who own the minority of the assets & have minimal to no flexibility.

  • KVP has about as much “respect” that one can give a central banker in Jay Powell (it’s a dammed either way type of role), but to sit there with a straight face & deny that the Fed has not been a huge catalyst in causing the rift between the poor & the wealthy is abominable. It is just simple math – we’ve seen the effect of QE since the 2008/2009 GFC, that liquidity has to flow somewhere & it flows into listed assets, predominantly equities.

  • Now what percentage of the US population owns equities, is it like Australia where +80% of the population owns equities?

  • No its more like 55% according to a Gallup poll – now if we had to extrapolate how much of those are actually holding material equity exposure, lets be generous & say its 50% of 55%, so basically about 90m out of a population of 330m, which actually gels as a good estimate, with the IRA claiming that Americans with  taxable investment accounts are c. 33%.

  • So just based here on pure first principles & keeping things on a META skew, we can prove that Powell is either lying & does not want to accept the truth that CBs are part of the problem, or despite being smart (lawyer, making his way to become the Chairman of the Fed likely were not achieved by being ignoramus) he has miraculously missed this Machiavellian point & all of the Fed’s +400 PHDs have also missed this.  

  • The beauty of being an instrumental part of the problem, is conversely you can be a game changing part of the solution. Just as the unequivocal truth of:

    “I am my only problem & I am my only solution”

  • A lot of good can come from focused central bank initiatives that directly tackle the bottle necks of a potential free flowing equitable society (like ECB’s Lagarde on Climate Crisis & NewGen Tech). So just as how we have seen a mini-version of this, with the Fed expanding programs to keep non-profits running (taking it from min 50 employees to 10 & upping the tranche), they can have minority focused loans, banks & entrepreneurial programs – that are also run by the target group they are meant to empower & lift-up, with set quotas for gender & ethnic backgrounds.  

-

To Keep In Mind Today

  • We got MI leading index & retails sales out of Aus. Flash mfg. PMI will come out of Japan (JP out Thu & Fri on hols).
  • Europe is quiet apart from Ger 30yr auction. 
  •  US will be seeing house prices, existing home sales & the weekly weds crude oil inventories. CA will see inflation. 

-

Start-to-End = Gratitude + Integrity + Vision + Tenacity. Process > Outcome. Sizing > Idea.

This is the way

KVP

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed here or within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.