Gold & everything is correlated to one
Chief Investment Officer
Summary: We see small signs of top being established: the two driving forces - lower real rates and the expansion of Fed's balance sheet - are both having engine failures.
Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong.
Over the last couple of days we have noticed how minute changes to real rates unearth the excessive leverage of the market. For example, gold tanked from $2060 to $1997 an ounce due to a 7-8 bps move against it in real rates. Yes, the positioning is extended, but so are the Fed and government responses, which are both guaranteed to increase in size.
So, if 7/8 bps creates this kind of havoc, imagine what would happen if we have an inflation boost, or if the Fed is insistent on not letting interest rates become negative. Failing to do so will increase real rates, which is the actual consequence of expanding debt – i.e. negative growth and inflation as debt increases.
Furthermore, as everything is correlated to 1, we are about to violate the very premise on which most of the positioning is done: falling real rates and expanding Federal reserve balance sheet. The Fed balance sheet is falling and real rates are rising, meaning that we are in total violation of the facts and the narrative, which temporarily to me at least is a massive warning sign and a time to consider buying some more puts to safeguard the gains.
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.