Macro Dragon: Re-Up Part IV-B... Higher Probability Pathways...
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: 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
Quarterly Outlook Q2 2022
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