Unfortunately, the stand-out move in markets since my last report—the crash in oil prices—is one on which I have little to say, let alone expertise. I didn’t see it coming, and I am not exactly sure why it happened. That said, I am not here to make excuses, so I’ll try to connect the dots as well as I can. A sudden fear of over-supply due to a shift in OPEC policy doesn’t seem to cut it as an explanation. I am more inclined to buy the idea of linking it with the jump natural gas prices, deeming it an erstwhile winning spread-trade gone wrong, at least in part. Pierre Andurand’s name has been mentioned too, which certifies that this has been a real rout in the oil market. Mr. Andurand’s $1B commodities fund reportedly shed a cool 20.9% last month. Whatever the causes of the swoon in oil, it serves as a decent entry the broader market discourse. I am sympathetic to the argument by Cameron Crise, a strategist with Bloomberg, that “Recent energy-price mayhem is just the latest sign that something about these markets looks broken.” Cameron goes on: “The presumption of a continuous liquidity spectrum is clearly an errant one.” Most readers of these pages will have plenty of recent examples that fit this picture, so I’ll jump straight to the grand conclusion.Read More
Depending on the wording, a search on Google Scholar for papers and research on the link between macroeconomics and demographics yields anywhere between 20,000 and 100,000 results. This is an unhelpful start for someone looking to explore and understand the field. This essay aims to rectify this issue by tracing the origins of the life cycle hypothesis (LCH)—ground zero for linking macroeconomics and demographics—through a close inspection of the 1950s literature that gave birth to the theory. It is motivated by the idea that anyone who wishes to explore this topic needs to have a firm grasp of the original material. A lot can be said for getting the basics right, and this essay is an ode to that idea.Read More
If you were pinned down and had to summarize the economic and political discourse since the financial crisis in one line, I reckon many would settle one a version that includes income inequality and political polarisation. But this is probably where the agreement ends. Ask ten so-called thought-leaders about the drivers and impact of these two trends, and you’re likely to get ten wildly different answers. In his new book, The Myth of Capitalism, my former colleague Jonathan Tepper, and his co-author Denise Hearn, provide a razor-sharp synthesis of an economy and markets which are increasingly devoid of the virtues that we tend to ascribe to them.
The book’s central message is microeconomic in nature—the market power of one or few firms is going parabolic in one industry after the other—but its implications are profoundly macroeconomic. The plummeting share of labour and wages in firms’ profit and capital creation, the soaring inequality between owners of capital and workers, and the increasing sense that the system is rigged against the median household and individual. Jonathan’s and Denise’ book offers important insight to illuminate all of these issues.Read More
If you are an equity investor with time to read this, I reckon that I should have the decency to cut straight to the point. Based on macro liquidity indicators, I see a convincing case for a short-term bounce in global equities into year-end, before—unfortunately—further weakness in Q1. The main argument is summarized in the two charts on the following page. The first compares momentum—the 2nd derivative of y/y growth—in global equities and global real M1. I am working under the assumption that the year-over-year rate in the global stock index will decline gradually to -10% by the end of March. Adding back into the price points to just under 6% upside between now and the end of December, before a nasty 11% drawdown in the first quarter. This story is supported by the idea that higher yields and rising oil prices are now a significant challenge to multiples, especially in the U.S. Abee makes a similar point over at Macro Man, with the ominous addendum that it’ll probably get worse if growth in earnings falter, which they are liable to do, eventually. The argument for a short-term bounce is straightforward. At the time of writing, the global equity benchmark is down nearly 10% on the month in October, and about 5% for the year. I never thought that this would be a particularly good year for equities, but this seems like an excessive reaction, after all.Read More