Folks, I have a surprise for you!
After a recommendation by a subscriber, I have started a “monthly” podcast series.
My first guest is Rich Excell, who is an ex-hedge fund manager, currently working as a Professor at Giess College of Business, Illinois and writes a weekly blog
and also writes Excell for Options for CME Group.We discussed the FOMC decision and how markets perceived JayPo as dovish when he talked about disinflation, claimed victory in the war with inflation and believed that the US economy was heading for a “perfect” soft landing.
We also talked about how bond markets are rooting for rate cuts as early as the end of the year and how loosening financial conditions can be counterproductive in this “likely” long-drawn fight with inflation.
Next, we discussed the earnings in the US and how muted has been the earnings surprise this quarter.
Rich shared with me this interesting chart.
Next on the agenda was the tremendous liquidity in the system. Some facts:
Assets in money-market funds hit a record $5.18 trillion in December, generating a yield of 4.12%.
BoJ QE of $550bn in the past six months and more than $150bn of US liquidity in the past three weeks despite QT as US Treasury aggressively withdrawing TGA funds (debt ceiling fiasco).
So much liquidity sloshing around despite a rundown of more than $500 billion in the Fed’s balance sheet thanks to QT.
Rich is an expert in options. He elaborated on the recent trend with the 0DTE options.
Can it become a systematic risk to the system, which can lead to violent moves?
Housing is the “real” business cycle, and signs are emerging that housing markets have bottomed.
The reason has been the 100 bps fall in the 30-year mortgage rates from the peak as the 10-year has fallen.
Rich explained the anomaly in the spread between the 30-year mortgage rate and the 10-year UST due to Fed’s MBS buying.
Nevertheless, the affordability is still extremely low, and the sky-high mortgage rates are still bad for single-family homes.
We also discussed the Chinese reopening and debated whether inflationary forces will weigh over the deflationary forces as the Chinese pent-up demand picks up.
The Services PMI bounced back sharply in January, indicating that the Chinese economy is undergoing a swift reopening.
As the Chinese splash RMB 2 trillion of excess savings, it is expected that Chinese GDP growth will be more than 5% this year (consumption is 55% of the total GDP).
BoJ is on the path to owning 100% of the JGBs if they continue to defend the YCC by buying bonds in large amounts. We discussed the potential future trajectory for the BoJ and the Japanese economy.
Lastly, we talked about productivity gains and how demographics may affect the future of the global economy.
It was a very insightful discussion, and I hope you all would learn a lot from it!
Do share with your friends if you loved it!
Disclaimer
This publication and its author is not licensed investment professional. Nothing produced under Marquee Finance by Sagar should be construed as investment advice. Do your own research and contact your financial advisor before making investment decisions.
Episode 1: Rich Excell!