This will likely be our last batch of Exclusives for this year, unless something dramatic happens during Christmas next week. I’ll be sending an end-of-year message with more on Macro Hive in a few days, but I do hope you enjoy today’s articles.
I wrote the first piece with the new UK government in mind as the audience. I’ve outlined that aside from Brexit, the UK could experience three major shocks in the next five years – a recession, a market liquidity crisis and a pension problem…
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This will likely be our last batch of Exclusives for this year, unless something dramatic happens during Christmas next week. I’ll be sending an end-of-year message with more on Macro Hive in a few days, but I do hope you enjoy today’s articles.
I wrote the first piece with the new UK government in mind as the audience. I’ve outlined that aside from Brexit, the UK could experience three major shocks in the next five years – a recession, a market liquidity crisis and a pension problem.
US rates guru, George Goncalves gives a more detailed take on repo and Fed liquidity issues – it’s well worth a read. Then we have our new contributor, John Butler – seasoned researcher and asset allocation expert – writing on the less known legacy of Fed Chair Paul Volcker.
Finally, we announce our awards for the best macro podcasters of 2019! Happy listening.
Bilal
3 Non-Brexit Macro Shocks the New UK Government Could Face in Its First Term (5 min read) With the large Conservative majority in government, both UK markets and the economy are likely to enter a honeymoon period in the months ahead. While many are focused on Brexit as the main shock that could hit the UK economy, there are at least three other potential shocks that could be as significant. And crucially they could all materialise in the next five years during the term of the newly elected UK government:
(Bilal Hafeez | 19th December, 2019)
Year-End: One More Look Down The Repo And Reserves Rabbit Hole (7 min read) As we head into the final days of trading in 2019, the Fed is taking no chances. But at the same time, they are avoiding jumping to QE4 (and SRF is further afield). The Fed is still acting as if this is a plumbing issue that should be handled with repo operations, leaving QE for macro measures.
The day after the FOMC, the NY Fed surprised front-end investors by unveiling an even larger round of repo operations for the current period, lasting from 13 December 2019 through 14 January 2020. Year-end overnight repos will increase to at least $150bn and there will be a $75bn forward settlement repo on 30 December 2019 – all to help get markets over the hump. There is also a series of term repos thrown in for good measure.
(George Goncalves | 18th December, 2019)
Paul ‘Darth’ Volcker (1927-2019): Monetary Jedi Knight, or Sith Lord? (6 min read) Shortly after assuming the role of Chairman of the US Federal Reserve in 1979, Paul Volcker was nicknamed ‘Darth Volcker’ – after the first Star Wars trilogy’s infamous antagonist, Darth Vader. While vilified early in his term for raising interest rates and causing a deep recession, the eventual success of his policies garnered him a reputation as a ‘hard-money’ man who ‘saved’ the US from spiralling stagflation: a monetary ‘Jedi Knight’, if you will. So what’s the posthumous reputation he most deserves?
Well, it depends largely on your perspective on modern US economic and monetary history. In many ways, Volcker’s career personifies the fundamental policy transformation that occurred during and following the end of the Bretton-Woods era. Indeed, a strong case can be made that his most famous policies, or those he advocated, were attempts to correct prior policy mistakes in which he had a hand. It is these early years of Volcker’s – the story of how the stagflation he was so famously to slay in part arose from his own actions – that this article explores.
(John Butler | 19th December, 2019)
Macro Hive: Top Macro Podcasters Of 2019 (3 min read) Welcome to Macro Hive’s Podcast Awards for 2019. We find that podcasts are fast becoming a top medium for timely macro insights – perhaps because they are often more convenient to consume than reading a lengthy tome or a jargon-filled academic article. In fact, we spend so much time listening to podcasts we’ve curated our top ten for you. So, in no particular order:
(Bilal Hafeez | 19th December, 2019)
(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.)