12 Years of VP vs Noise
Sharing the ideas and experiences that have influenced our work
Gold divergences
Gold has been diverging from macro and market data. Our macro-driven gold price indicator (a fair value forecast based on macro inputs like the DXY, yields and CPI) has jumped as higher inflation overcomes the negative impact of the strong USD. Source: Bloomberg,...
Cyclical headwinds vs structural tailwinds
It's difficult to know how to invest with building liquidity and growth headwinds while structural trends remain positive. For equities, one of the simple regime indicators we use tracks moving average crossovers on S&P 500 earnings. Whenever the 10-week moving...
Rotating market leadership
Market leaders tend to rotate after a recession and enjoy a multi-year period of outperformance. The GFC ushered in a decade of real asset underperformance vs financial assets (proxied by commodities vs bonds), which has reversed after the lockdown recessions. Source:...
The bullwhip effect in action
The bullwhip effect describes how a small change in end customer demand amplifies disruptions upstream through the supply chain. This helps to explain much of today's global supply chain disruptions, where we see excessive new orders from purchasing managers to...
Structural tailwinds for US homebuilders
The 2010s marked a lost decade for US homebuilding. The number of homebuilders declined 50% between 2007 and 2012 in the US, and the GFC caused a massive hole in personal savings and equity, meaning that fewer people could afford a home. This drove a shift towards...
Lessons from past market tops
We looked at 3 major tops (1929, 1973 and 2000) suggests tops are immediately preceded by 1) sustained monetary policy tightening and 2) divergence of surging bubble stocks vs the average stock moving sideways/falling. 2021 has been characterized by late-cycle markets...
A perfect storm for food prices
Brazil is suffering the worst drought in a century, after its crops were scorched and frozen earlier in the year. Agricultural commodities prices are spiking, forcing the UN world price index 33% higher vs 12 months ago. EM inflation baskets generally have a much...
US economic outperformance supports USD rally
We continue to expect US economic outperformance in the coming months, which should attract capital towards the US, boosting the USD. Although US PMIs are no longer elevated vs the rest of DM, the previous surge has yet to play out, and offers a long 12 month lead on...
When to buy EM debt
Real yields are much higher in EM vs DM, and the spread is the widest in 20 years. Source: Bloomberg, Macrobond, Variant Perception With many EM central banks committing to hiking cycles and front-loading rate hikes to combat surging inflationary pressures, nominal...