Our first Deep Dive reviews the academic literature on Fed policy and the global financial cycle. We use the work of Professor Helene Rey – the leading thinker in this space – as a springboard. The work is particularly relevant right now given rising expectations that the Fed will cut rates in response to the economic fallout from COVID-19.
We turn to gamma for our second deep dive and how it’s not an explanation for every incomprehensible market move. Instead it’s a tool that can provide guidance on likely turning points, provided certain information on can be gleaned beforehand.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
(total reading time: 2 mins)
Our first Deep Dive reviews the academic literature on Fed policy and the global financial cycle. We use the work of Professor Helene Rey – the leading thinker in this space – as a springboard. The work is particularly relevant right now given rising expectations that the Fed will cut rates in response to the economic fallout from COVID-19.
We turn to gamma for our second deep dive and how it’s not an explanation for every incomprehensible market move. Instead it’s a tool that can provide guidance on likely turning points, provided certain information on can be gleaned beforehand.
Enjoy!
Bilal
How Fed Policy Determines Global Capital Flows (7 min read) When the US economy sneezes, every other country catches a cold. Many investors have long felt this, and in recent years academics have provided the empirical support for this notion. One of the central pieces in this literature is London Business School professor Hélène Rey’s paper Dilemma, not Trilemma: The global financial cycle and monetary policy independence. She finds that the global credit and capital flow cycle is dominated by US monetary policy, which can overwhelm local factors in other countries. This has important policy and market implications.
(Mehdi Farooq │ 26th February, 2020)
What Gamma Isn’t (5 min read) Some months back I published an article explaining the so-called Gamma-Flip. It was just when it became fashionable to use terms firmly anchored in the world of derivatives to explain market behaviour, rather than traditional valuation indicators which now appeared to lack explanatory power. I provided a fresh view from ‘left field’, the weird and wonderful world of option trading. Little did I know that my Macro Hive article would be picked up by various publications from Chicago to Mumbai, capturing a zeitgeist in the market.
(Thorsten Wegener│26th February, 2020)
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)