The Macro Compass

Hi everyone - this is Alf. I hope you’re having a great day. My macro models have been suggesting a bi-modal framework to approach markets for the near future: Run It Cold Now (growth < expectations, and dovish Fed) and Run It Hot Later (growth up, inflation risk premia up, but no Fed hawkishness). My Run It Cold Now theory has been increasingly vindicated by labor market data, and markets are oft...

Hi everyone - this is Alf. I hope you're having a great day. ‘’I compile statistics on my traders. My best trader makes money only 63 percent of the time. Most traders make money only in the 50 to 55 percent range. That means you’re going to be wrong a lot. If that’s the case, you better be sure your losses are as small as they can be, and that your winners are bigger.’’ – Steve Cohen. This is a h...

Hi everyone - this is Alf. I hope you're having a great day. The US economy and markets might face a double negative whammy over the next 2 months : a large reduction of the fiscal impulse and the aggressive rebuild of the Treasury General Account (TGA). A slowdown in real-economy money creation (primary deficits) could result in an economic slowdown, which will coincide with a drainage of bank re...

Amidst all the noise, markets haven’t had time to digest 5 key macro news: 1) Elon Musk announces formation of ‘’America Party’’ 2) Speaker Mike Johnson: "We're gonna have a second reconciliation package in the fall, and a third in the spring of next year..." 3) President Trump: ‘’ “Stock markets are now at all-time high -- we’re going to maintain it, believe me.” 4) Bessent: We could appoint new...

Hi everyone - this is Alf. I hope you're having a great day. Alongside with running my hedge fund, I work as a consultant and external advisor for some of the largest pension funds, asset managers, banks and funds in the world. Arrangements are flexible: from access to my institutional research + daily access to me all the way to monthly or quarterly calls and sitting through your investment commi...

Hi everyone - this is Alf. I hope you're having a great day. On Friday, the credit agency Moody’s downgraded the US rating by one notch to Aa1 (equivalent to AA+). By now, you’ve probably read tens of opinion pieces arguing this is the beginning of the end, and that there will be dire consequences for the US Treasury market. In this piece, you’re going to read a more sober and data-driven approach...

Hear, hear: the US Dollar is going down. Investors love to attach an ex-post narrative to any price action, and this time the blame was on Trump’s erratic policies, the reduced attractiveness of US assets, and ‘’China dumping’’. Two of these actually make sense (you can easily guess which ones). But there is a much bigger catalyst for the USD to sell-off more: FX hedging flows from proper ‘’whales...

Hi everyone - this is Alf. I hope you're having a great day. ‘’There are decades where nothing happens; and there are weeks where decades happen’’ – Vladimir Lenin. Markets were sleepwalking into April 2nd before we had a decent sell-off in US stock markets on Friday. But the size of the YTD sell-off (a mere 5%) masks a very interesting pattern happening below the surface. For the first time since...

Hi everybody, Alf here - welcome back to The Macro Compass! Before we go into today’s piece, a short announcement. I advise several institutional investors on a bespoke basis. Clients include Canadian pension funds, one of the biggest tech companies around, and top 3 multimanager hedge funds in the world. Services go from sitting on the investment committee as an independent advisor, to constructi...

Hi everyone, Alf here - welcome back to The Macro Compass! And now, to the piece. Our main macro thesis for the first half of 2025 is that another disinflationary wave will hit the US. We expect core PCE to annualize at or below 2% in H1 2025. Our Leading Inflation Indicator suggests we might be due for one last wave of disinflation in the first half of 2025: To add some substance, this Leading In...

Next week will be crucial for markets as Trump is set to announce (or disappointingly not announce) tariffs. In this piece I will highlight the rationale behind my base case scenario and its impact on markets. Before we do that, I want to share something with you. I am offering a FREE trial to my institutional macro research service! The service includes: * Multiple macro research pieces per week;...

Good morning, this is Alf - welcome back to The Macro Compass! I wish you a fantastic year ahead: follow your passions, keep learning, and don’t drink cappuccino after 11am. In this macro piece, we will cover the biggest market mover for H1 2025: tariffs. We will also investigate what’s the most attractive asset class today. But before we start, here is a present for you to kickstart this new year...

Looking back at the 2015-2021 period when I traded bond markets at a large bank, it was quite boring. Rates were mostly stuck around 0% at the front-end, and to make money you had to find small dislocations and monetize them with leverage hoping volatility would remain low forever. Today, the story is different: bond markets are truly exciting. So let’s have a fresh look at them. Before we do that...

The key macro event of 2024 is approaching: US elections are around the corner. Next week I will release a deep research piece on US elections , which will be centered around the key questions looming large. How to trade different scenarios? What happens to markets if Trump secures a Red Sweep? And what asset classes to prefer if instead Kamala wins? This special election piece will be ONLY availa...

The Chinese real estate market is de-leveraging very hard. Economists estimate Chinese households have suffered $10+ trillion of wealth losses as a result. There is now a strong urge to stop the bleeding amongst Chinese policymakers. Last week, China unleashed a ‘‘stimulus bazooka’’. But what were the measures all about? And will they be effective to fix the Chinese economy? Chinese policymakers a...

The news of the week is NOT the Fed cutting 50 bps - yes sure, that’s important but there is something much more relevant going on. The Chinese economy keeps imploding from within. And we should pay attention. The Property Price Index for Chinese tier-1 cities keeps making new lows , and it’s now approaching levels last seen 8 years ago! At this point you might ask yourself: well, is it so bad if...

We are observing a true regime change in markets. And for macro investors, it’s incredibly important to stay vigilant and on top of our game at this stage. It all starts with this: the Fed is behind the curve, and it is playing with fire. Consider this. The recently released US job report showed the US private sector is only adding an average of 96,000 jobs per month over the last 3 months. Such a...

We just witnessed one of the biggest market panic events ever seen in the last 4 decades. At some point, Asian markets were down 10%+ in a single session and the Japanese bank index saw the largest daily loss since Black Monday in 1987. During such panic events, it’s important to remember three crucial rules: * Markets can remain irrational longer than we can stay solvent; * Opportunities abound,...

The S&P500 realized volatility is below 10%.Credit spreads are super tight, and aside from some short-lived European political drama markets keep marching higher. Yet, I think macro volatility is coming back. First of all: we are suppressing economic cycles, injecting an artificial equilibrium which will only make the system more fragile in the long run. We are not allowed to have a recession anym...

The Fed hiked rates above 5%, and yet the US economy doesn't break. Back in 2022 already, the yield curve inverted and it has stayed inverted ever since. The lags looked relatively short, and the US economy was going through a soft patch in 2023 when it became consensus that a recession was gonna happen. Something even broke in markets (regional banks), and yet nothing really happened. Here is why...

When the yield curve flattens and eventually inverts, you worry. But it’s when a recession hits, the Fed cuts rates and the curve steepens that you become s**t scared. Yield curve dynamics represent a crucial macro variable , as they inform us on today’s borrowing conditions and on the market future expectations for growth and inflation. An inverted yield curve often leads towards a recession beca...

Hey, this is Alf - welcome back to The Macro Compass! Last week was big for macro and markets. Today’s piece is going to cover: * The Fed’s dovish announcement: a sizeable tapering of their Quantitative Tightening program; * A potential upcoming shift in market dynamics : for the first time in a while the reflation thesis was challenged by a weaker suite of data clashing versus the very optimistic...

Here is a trillion (dollar) reasons why the US economy is likely to hold up until elections : between now and then, Yellen is likely to drain the Treasury General Account (TGA) and unleash a wave of almost $1 trillion liquidity on markets and the economy. In a second, I am going to walk you through the mechanics of the TGA drainage and its impact on markets. But before we do that, it’s important t...

If you have been around for the last 10 years as a global macro investor you have experienced a situation where the US stock market was pretty much the only game in town . Since 2010 US stock markets largely overperformed Emerging Markets: In the investment world, recency bias is strong and people assume this has always been the case. Yet taking a 70+ years historical perspective the evidence is m...

Animal spirits are running loose. * Bitcoin just hit all-time highs; * NFTs of penguins and monkeys selling for over $500k; * Virtually bankrupt stocks like Carvana rallying to the moon; Investors aren’t thinking macro at all recently. They aren’t overweighting assets with better balance sheets or higher profitability, or going after companies because of their earnings growth profile. Instead they...