Millennial Macro

Over the last twelve to eighteen months, the configuration of the global markets has undergone a drastic shift.  This post seeks to compare the twelve to eight month period immediately preceding 2018 with the market trends that have occurred since the start of that year.  The objective is to understand just how different today's world appears to the one market participants lived through from the 2nd quarter of 2016 until the end of January 2018.  The hope is that by analyzing this shift, we may gain insight as to whether another turn is set to happen again in the year or two ahead. 2016 - January 2018:  A recession scare turns into euphoria Following the US nominal GDP slowdown from 2014-206 and Chinese scare , the Fed reacted by holding off from any further tightening for much of 2016.  Simultaneously market participants began to correctly anticipate the Trump fiscal expansion.   Furthermore, Chinese policymakers also eased their credit pol...

Given that 2018 ended with the suspicion that decelerating global growth and falling inflation/inflation expectations would force the Fed to pause, bond markets all over the world had begun to rally along with risk assets.  Seeing how his rebound has unfolded in Q1, the strength and broad-based nature of the uptrend in credit and risk suggest that the global economy may have averting the potential disaster scenario that was being priced in by markets in Q4 2018.  In this light, 2018-2019 so far has more in common with 2015-2016 and 2011-2013 when compared to the prior two pre-recession periods leading up to the cyclical turns in 2000/2002 and 2007/2008.  With that said, current market conditions still requires that market participants remain flexible even if a bias toward optimism continues to be favorable.  All it would take is for the 2018 lows in credit and risk to give way for major trends and sentiment to shift meaningfully. Before discussing the rally in glob...

Following a sharp decline in Q4 2018, risk assets ended the year by putting in a bottom that ushered in a strong rally to begin 2019.  Given the precarious nature of foreign markets, January's post made it clear why it is imperative that the 2018 lows remain intact.  As long as that continues to be the case, it becomes much more likely that the Q4 slump was nothing more than a large correction in an ongoing secular bull market for US equites.  On the other hand, should global credit spreads start to widen once more with global equities breaking their 2018 lows as investors seek the safety of the US dollar and long-term treasuries, it opens up the very real possibility that the current ongoing rebound is a temporary counter-trend move in a new prolonged bear market.  To clarify these opposing possible outcomes, this month's entry seeks to review important intermarket relationships that have been present since the late 1990s/early 2000s in order to present a bull ...