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By Bilal Hafeez 06-02-2020
In: post | Newsletter

Macro Hive Exclusives: Peak Tesla / Australia v Canada / Fair Value For Gold

(4 min read)
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Somewhat remarkably, markets appear to be looking beyond the fall-out from the spread of coronavirus. Instead, the big story this week seems to be surge in the stock price of Tesla. We don’t normally write on companies, but we couldn’t resist. So we feature an excellent piece from alternative thinker Anton Tonev. He writes on why Tesla is not the new iPhone, but also how it could justify its valuations.

One country that been in focus this week is Australia. It has strong ties to China, yet its central bank, the RBA, decided not to cut rates. Dominique Dwor-Frecaut, a former NY Fed and Bridgewater economist, writes on Australia, its housing market and how it compares to Canada. The other central bank meeting of note was in India. The RBI didn’t move rates, though did inject additional liquidity. Morgan Stanley’s Mirza Baig had earlier written on India, which still holds true.

We also continue our focus on gold. Commodities expert John Butler returns with his fair-value approach to modelling gold prices. This follows on from his earlier article on gold in an asset allocation framework.

Finally, former credit strategist John Tierney and researcher Harshal Babla, review what was a bifurcated market in January and what investors should prepare for this month.





Tesla: No Paradigm Shifts, Yet. (4 min read) In light of the vertical rise in Tesla’s share price in the last few months, I thought it worthwhile to revisit an old narrative comparing the Apple’s iPhone moment with Tesla now. My verdict: I wouldn’t get sucked in by any ‘paradigm shift’ just yet. Though there are plenty of possible reasons and even more conspiracy theories, this share price spike is likely nothing other than mad short covering.

(Anton Tonev | 6th February, 2020)


Elon Musk

Australia Policy


Why Australia Needs More Policy Support Than Canada (4 min read) For the first time in 20 years, Australian yields have fallen through Canada’s. In addition, the AUDCAD cross is at its lowest level since the crisis.  I expect these trends to persist, which can be expressed as short AUDCAD.

Australia and Canada had a better crisis than most. Both countries had stronger financial sectors than other advanced economies and, as commodities exporters, rode China’s debt reflation.  At the same time neither countries could insulate from major central banks easing, which supported growth but saw their real estate prices and household leverage move to the top of global leagues (chart 1)

(Dominique Dwor-Frecaut | 6th February, 2020)



India: Trading The L-Shaped Recovery (4 min read) We update our views on India ahead of Thursday’s MPC meeting.  After the RBI’s surprisingly hawkish MPC meeting on 5 December, when the policy rate was left unchanged at 5.15% following five successive rate cuts totalling 135bps, my modal scenario was as follows:

“RBI will focus on improved policy transmission (OMOs, twist, etc.) but stop short of direct intervention in credit markets. Growth expectations would continue to deteriorate. RBI would resume cutting rates in 2020.


Reserve Bank of India

INR would continue depreciating; bonds would be volatile in the near-term with a misplaced focus on onion prices but rally next year for the wrong reasons (lack of growth).”

(Mirza Baig | 4th February, 2020)



Gold Bars



Gold: A Modern Investment Framework For An Ancient Asset, Part II (4 min read) Gold has the unique and valuable characteristic of being a de facto form of ‘insurance’ for a portfolio of financial assets, and the national fiat currencies in which they are denominated. This is due to it not being a financial asset per se, as explained in Part I of this series. In Part II of this series, I present a way to model the price of gold based on fundamental macroeconomic variables.

The variables with the strongest historical significance for determining the price of gold suggest that it is currently close to fair value. However, a case can be made that the explanatory variables themselves have a skewed future distribution at present, suggesting potential future upside for gold.

(John Butler | 6th February, 2020)



From Iran Tensions To Coronavirus: Event Risks Dominate In January (5 min read) January was something of a bifurcated market. Equities generally tried to remain sanguine amid unsettling geopolitical developments, and US bond market tilted decisively to a more negative view.

First Iran…

After a solid fourth quarter where equities in many countries all but levitated, investors tried to keep the party going into 2020. But they soon hit a ceiling.


January Wrap Up

First was the assassination of Iran’s major general, Qasem Soleimani, on 3 January, which briefly caused fears of another major confrontation in the Middle East. Markets hiccupped for a couple days but settled down after the Revolutionary Guard mistakenly and tragically shot down a Ukrainian passenger jet. Overall, the incident focused global attention on how sanctions have crippled Iran’s economy and led to an increasingly restive population. For now, Iran is out of the headlines. But the next Iranian conflagration could just as likely be domestic as with one of its neighbours – with highly unpredictable implications almost guaranteed.

(John Tierney, Harshal Babla | 6th 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.)