I write The Macro Compass, a free newsletter delivering actionable investment ideas and unique macro insights. Former Head of ($20bn) Investment Portfolio.

Utrecht
Joined December 2020
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My free macro newsletter at Themacrocompass.substack.com just clocked 5k subscribers in less than 2 months. Fastest growing finance newsletter on Substack! Many thanks to all readers for taking the time to go through my educated brain farts :)
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$SPX a whopping 0.4% away from posting yet another YTD all-time high. An updated version of my Macro Compass is necessary.
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Until few days ago I was managing a $20 bn Investment Portfolio. That might seem huge. Until you divide that by the Fed balance sheet. Am I doing this right?
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Today it's Green Light.
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Not a crypto chart, but the price of coal extracted in the Powder River Basin - the largest coal mining region in the US. Supply bottlenecks and all, still so much for the “green transition”…
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> $ 12.000.000.000.000 This is the amount of the $-denominated loans and bonds sitting on the balance sheet of entities domiciled outside the US The death of the USD has been called for times and times again (last: '20-21): it's an easy narrative, but caution is required 1/8
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Our economic and monetary system is based on continuous credit creation. The US sits at the epicenter of this system as they enjoy the benefit of issuing the global reserve currency to the world: the majority of trades, settlements, payments across the world happen in USD. 2/8
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As @patrick_saner shows, the world is highly leveraged towards the USD: while the US only accounts for 15% of global GDP, 50% of global trade invoices and 75% of global securities issuance are $-denominated. Wow. 3/8
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The birth of the Eurodollar system has largely contributed to this phenomenon: entities domiciled outside the US can borrow USD and foreign banks (!) can lend USD out of thin air. The system works during risk-on periods, but it shows poor and convex behavior during crisis. 4/8
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When economic activity is fine, trade flows are robust and risk-on lending/borrowing behavior is there the system holds okay. When trade flows stop and nobody wants to lend $ offshore (e.g. 2020), foreign entities leveraged in USD have a problem. 5/8
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The Fed can intervene via FX-swap lines but it can't reach every place immediately. Banks are reluctant to extend fresh credit in $ as they start behaving in a risk-adverse way: the system shows evident cracks, and the USD rallies. 6/8
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Aside from this convex behavior, a continuous leveraging pattern is inherent to our economic/monetary system. The $ sits at the epicenter of such system, and the Eurodollar system complicates this mechanism further. 7/8
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While every global reserve currency is doomed to lose its status at some point, watch out for people calling for the USD to go to 0 every month Even a broken clock is right twice a day The reality is that we will still see the current (unstable) system in place for a while 8/8
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Let me help solve the mystery: demographics and the great resignation.
*YELLEN: LOW LABOR SUPPLY IS A `MYSTERY'
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🥳20.000! Thank you all for following and engaging with me, I would have never thought I could hit such numbers in only 4 months of active presence on FinTwit but this community is just awesome.
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Sure @goodalexander Taper tantrums are caused by CBs not able to ''prepare'' markets well The sudden change in net supply picture scares dealers, and abrupt increases in real rates tighten financial conditions in macro No catching a falling knife despite trn in reserves for a bit
Replying to @MacroAlf
If you wouldn’t mind - could you explain “taper tantrums”? Ie what mechanically has caused them in your mind? Are they likely to repeat (ie many say they literally can’t bc of bank reserves rn). Seems to be front and center in terms of focus, would love your opinion
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Q: ''Why do long term treasury yields tend to decline when the Fed begins tapering?''
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A: Because removing accommodation generally reduces the uncertainty about the future path of nominal growth - it's more likely to stay low and revert back to structural poor trends. That means owners of long-end bonds can demand less risk premium to own this asset class. 10/10
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