Heisenberg Macro The moves in central bank pricing and risk assets in a month in which Fed delivered its second consecutive 75bp hike and ECB hiked 50bp for the first time has truly been head scratching to put it mildly. Acknowledging it could simply amount to apophenia, I'm still going to attempt to offer an explanation. I think there are three drivers (not independent of each other) of the recent moves in markets -
Great read as always. Love your clear thinking and lateral views which are fascinating. One thought I had on your point about Fed staying at an elevated level of rates constituting incremental tightening. I agree with that as rate hikes are second order tightening and pace is third order. The level of Financial Conditions in some respect capture this. Conversely, was not the Fed way too easy for way too long and hence will the Fed not need to be tighter for longer or long enough for price pressures to ease. Wages in particular will take a long long time to cook much after labour market cools. Rents similarly have not even reflected the rise in house prices and vacancies fully.
great read. prefer your wave -particle approach..put-call play. Wolfgang Pauli Heisenbergs advocatus diaboli would appreciate it😉
why is august the last post
Clearly formulated and explained reasoning for 1 major market idea/feature at the time.
If you think the higher rates will remain sticky at the short end, what’s your outlook for the backend of the curve over the next 6-12 months?
You should give credit to Goldman's recent research note if you're going to steal their idea of put spreads funded by calls.
Hoping you continue the publication.