This thread has become a place to track changes to my macro outlook and the drivers behind those changes. It's against this backdrop that I'll trade on shorter time-frames, adjust asset allocations, and attempt to find weak spots in the market before the herd. The goal is to improve at deciphering macro conditions along the way.
Relevant:
(8/2021) Transitory
(3/2022) Supply chains, lasting impacts on trade, inflation
(4/2022) Consumer demand, revolving credit, more inflation
(10/2022) Tightening
(05/2023) Resiliency, and more inflation
Going to be using this space to map out my short-term sentiment and plan trades. My methods lean heavily on marginal capital flows, marginal changes in economic data, institutional risk management behavior, and yields. My sentiment is short-term in nature - every thought listed here has an expiration date, counted in US market trading days. I always keep dry powder.
Under 10-days:
Positive sentiment for risk assets leading up to the 5- and 7-year UST auctions (Mar 24, 25), primarily driven by the US stimulus (which has increasingly landed in financial assets and has been performance-chasing in nature) and improved covid outlook.
- Upward pressure on Nasdaq. (Conviction: Very Low, this is based on how much of the US stim bump has already been priced in)
10-25 days:
Negative sentiment for risk assets post-UST auction. I expect auction high yields to reflect an increased premium requirement on behalf of institutions to own USTs. Higher UST yields relative to SP500 dividend yield is going to attract capital flows if frothiness in equities continues, as the volatility is costly and TTM gains in equities are substantial. I expect realization of those gains at the margin. Higher UST yields (lower prices) will also incentivize traditional hedged corporate bond managers to reduce bond positions as they realize net gains owing to the short-UST leg of their credit positions.
- Downward pressure on Nasdaq. (Conviction: High, contingent upon high UST auction yields)
- Downward pressure on IG corporate credit. (Conviction: High, contingent upon high UST auction yields)
Relevant:
(8/2021) Transitory
(3/2022) Supply chains, lasting impacts on trade, inflation
(4/2022) Consumer demand, revolving credit, more inflation
(10/2022) Tightening
(05/2023) Resiliency, and more inflation
Going to be using this space to map out my short-term sentiment and plan trades. My methods lean heavily on marginal capital flows, marginal changes in economic data, institutional risk management behavior, and yields. My sentiment is short-term in nature - every thought listed here has an expiration date, counted in US market trading days. I always keep dry powder.
Under 10-days:
Positive sentiment for risk assets leading up to the 5- and 7-year UST auctions (Mar 24, 25), primarily driven by the US stimulus (which has increasingly landed in financial assets and has been performance-chasing in nature) and improved covid outlook.
- Upward pressure on Nasdaq. (Conviction: Very Low, this is based on how much of the US stim bump has already been priced in)
10-25 days:
Negative sentiment for risk assets post-UST auction. I expect auction high yields to reflect an increased premium requirement on behalf of institutions to own USTs. Higher UST yields relative to SP500 dividend yield is going to attract capital flows if frothiness in equities continues, as the volatility is costly and TTM gains in equities are substantial. I expect realization of those gains at the margin. Higher UST yields (lower prices) will also incentivize traditional hedged corporate bond managers to reduce bond positions as they realize net gains owing to the short-UST leg of their credit positions.
- Downward pressure on Nasdaq. (Conviction: High, contingent upon high UST auction yields)
- Downward pressure on IG corporate credit. (Conviction: High, contingent upon high UST auction yields)