Macro Research

Feb 10, 2023

A closer look at the issuance structure of Treasury securities

For most of the 2010s, there was not much volatility in interest rates. The short end was anchored to the Fed’s zero interest rate policy. The long end moved a little bit with the tides of the QE and QT cycle. But overall, it was a boring time for bond investors and equity investors were busy with other risk factors…

3 months ago · 12 likes · Fallacy Alarm

A closer look at stock bond correlation

Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes…

4 months ago · 17 likes · 2 comments · Fallacy Alarm

Building the roadmap for 2024

Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes. In February 2023, I published my call for the S&P to reach 5,000 by year-end, suggesting a 22% rally from 4,090…

4 months ago · 6 likes · 2 comments · Fallacy Alarm

Dec'23 Trader positioning update

Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes. Happy Friday! Folks, I am just sending over a quick update on positioning data from the CFTC’s Commitment of Traders Report that just came out. I did this…

4 months ago · 7 likes · Fallacy Alarm

The party is on. What comes after?

Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes.Fallacy Alarm is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid s…

4 months ago · 10 likes · Fallacy Alarm

Finger on the pulse of the US banking system

Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes…

5 months ago · 8 likes · Fallacy Alarm

Tracking Fiscal Flows in REAL TIME

Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes. Summary Going forward, I will closely track and analyze US Treasury deficit spending to observe and anticipate turning points and inflection points that carry market signal. This is the logical next step for me after pounding the table all year long about how fiscal stimulus has become the primary asset price driver…

5 months ago · 8 likes · 2 comments · Fallacy Alarm

November 2023 Market Strategy

Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes. I try my best to be transparent about my positioning to the extent it is relevant to my posts. However, I reserve the right to close positions at any time without further notice…

5 months ago · 6 likes · 2 comments · Fallacy Alarm

How are US households really exposed to the rate hikes?

As a result of the most shocking inflation surge in decades, we are now 18 months into the fiercest hiking cycle the Fed has ever conducted. Their objective is to discourage borrowing for consumption and investment to reign in inflation. For that to work, consumers and investors need to be net interest payers. Otherwise they will actually benefit from higher rates. Aggregate demand might then increase and consumer prices with it. This would render the entire current monetary policy pointless…

6 months ago · 5 likes · 4 comments · Fallacy Alarm

The Great Vindication of Modern Monetary Theory?

Modern Monetary Theory (MMT) is an unorthodox way of economic thinking that contradicts many ideas of mainstream economics. It was actually introduced in the 1990s, but did not gain significant popularity before the late 2010s. Lately, it has been scrutinized and even ridiculed a lot. This is presumably for two reasons. Firstly, it has unfortunately been…

6 months ago · 9 likes · 9 comments · Fallacy Alarm

USA 4Q23 earnings

On October 20, 2023, the US Treasury published their treasury statement for fiscal year 2023 that ended on September 30, 2023. Given that fiscal stimulus has become the dominating driver for the economy and financial markets, I believe it makes sense to study their financial statements in a bit more detail. I am going to look at what drives these enormo…

6 months ago · 13 likes · 3 comments · Fallacy Alarm

THE most important alpha generation tool

Positioning trumps valuation. It ultimately determines valuation. If valuation appears overextended when positioning is not, the analyst should revisit their valuation framework. It feels weird for me to say that. The system has hammered all the intricacies of the art of valuation into my brain during business school, the CFA program and the subsequent decade that I worked in various finance jobs. But I could not be more convinced that the intro above is true. First and foremost, valuation needs to be acknowledged, not traded…

6 months ago · 8 likes · 7 comments · Fallacy Alarm

What's crowded? Bond longs or shorts?

In recent months you have often heard me claim that the long bonds trade is hopelessly overcrowded which might cause trouble ahead. With a $2tn deficit, the US Treasury is effectively selling fresh bonds into a void. The Fed does not want to buy. Foreign players can’t absorb it because their currencies are under pressure. And private investors are maxed…

6 months ago · 11 likes · 4 comments · Fallacy Alarm

Commitment of Traders Report 29Sep23

Please check out this video or the article below for an explanation of my coverage of the CFTC Commitment of Traders Report.Fallacy Alarm is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber…

7 months ago · 2 likes · Fallacy Alarm

A wild scenario for the Treasury Yield Curve

In my opinion, the biggest macro story of these days is the stand-off between monetary and fiscal policy. It feels like something that has to be resolved because it is clearly not in a sustainably equilibrium. As I have outlined before, the bear case for the stock market is that the Fed will eventually force the Treasury to cut deficit spending. The bull…

7 months ago · 10 likes · 9 comments · Fallacy Alarm

The Stage Today, Statistics Canada released the September 2023 CPI. It came in at 4.0% year over year, at the surface a reacceleration from 3.3% a month earlier. As I will point on below, it’s a figure that vastly overstates the issue, at least from a monetary policy perspective…

7 months ago · 6 likes · Fallacy Alarm

The fate of this bull market

Stimulus provides liquidity that drives economic activity and inflation of goods, services and asset prices. It’s secondary whether this stimulus is monetary or fiscal in nature. Both accomplish the same job in similar ways. While monetary stimulus was crucial for the 2010s bull market, it appears as if fiscal stimulus will be more relevant for the 2020s…

7 months ago · 14 likes · Fallacy Alarm

Money Supply ≠ Liquidity

Liquidity has always set the pace for economies and financial markets. Imagine a simple closed-loop island economy with a coin-based currency for a moment. If you double the number of coins and everything else remains equal, then you would probably expect consumer prices, wages, corporate profits and asset prices to double as well. I have discussed this…

8 months ago · 12 likes · 10 comments · Fallacy Alarm

Commitment of Traders Report 25Aug23

My coverage of the CFTC Commitment of Traders Report is about the aggregate net long exposure of futures and option traders in various financial and non-financial underlyings. This informs us about their risk appetite and whether there might be crowded trades or potentially dangerous leverage building up in the system…

8 months ago · 1 like · Fallacy Alarm

Aug'23 Bank of America Fund Manager Survey

Check out my interview with Vinny Sottile on my Tesla 2030 EPS and valuation scenario. Bank of America runs a big monthly survey among institutional investors. The August 2023 version was published yesterday and covered 211 fund managers with $545bn assets under management. You might have noticed that I like this indicator a lot because it is a fairly representative sample that allows for insights not just into investor sentiment, but in fact into actual positioning…

8 months ago · 6 likes · 6 comments · Fallacy Alarm

Jul'23 CPI Update

You might have noticed that I have not covered the inflation theme much in recent months. The reason is that I feel like I have gained sufficient clarity on this topic and it is now simply a question of waiting for the inevitable scenario to play out…

8 months ago · 7 likes · 4 comments · Fallacy Alarm

Shorting UVXY: Madness or Money Maker?

Before we dive in: I recently discussed Tesla’s Q2 earnings with Randy Kirk. We touched on the cyclicality of their margins, the strategy of the Legacy OEMs, the ramp of Tesla Energy and insights from option trading. Check it out and let me know what you think…

9 months ago · 5 likes · Fallacy Alarm

Commitment of Traders Report 21Jul23

It’s time for an update on the CFTC Commitment of Traders Report. Remember, this is about the aggregate net long exposure of futures and option traders. It informs us about their risk appetite and whether there might be crowded trades or potentially dangerous leverage building up in the system…

9 months ago · 1 like · 7 comments · Fallacy Alarm

This is where 2023 differs from 2008.

Before we jump in: Fallacy Alarm has now surpassed 3,000 subscribers and Substack has awarded me with their Bestseller badge. :D I started at the end of 2021 ice cold with a handful of friends and family that I manually put on the mailing list. I did not show my name, my face or my credentials. I did not use video or audio formats to help me. I did not …

9 months ago · 18 likes · 20 comments · Fallacy Alarm

The Great Bull Steepening

I recently posted that I am betting that long-term treasury yields won’t come down for a while which is a deviation from my overall macro framework. I have a couple of follow-up thoughts that I believe are worth sharing with you as additional support for that thesis. In particular, I will look at the 2019 policy pivot that serves as a blueprint for the …

10 months ago · 14 likes · 4 comments · Fallacy Alarm

I strangled the TLT.

A quick announcement before we dive in: My first actual vacation in two years is approaching fast. I have a few other projects to finish up next week and then I will head to Europe to visit family and attend an important wedding. I will be back in the office on July 16. If anything comes up, I might publish another piece before that. But to manage expectations, the next Fallacy Alarm edition likely won’t be in your inbox before the 3rd week of July…

10 months ago · 4 likes · 8 comments · Fallacy Alarm

Commitment of Traders Report 16Jun23

Summary The S&P is up 6% over the past 30 days. A pretty wild rally that caught many off guard. Today’s CoT report confirms that a good amount of it was likely driven by short covering. S&P futures and options traders have cut their net short exposure by $90bn (!) over the past week. They are now pretty much flat. The trigger for this was likely the massive June option expiry that happened today. A lot of ITM short calls had to be closed which caused buying pressure and a decent IV spike…

10 months ago · 7 likes · 2 comments · Fallacy Alarm

Gross Domestic Product (GDP) is our primary gauge to determine how the economy is doing. As the the name suggests, it attempts to measure our economy from a production perspective, i.e. what we achieve with our hands and brains collectively in a given period. It consists of the consumption of goods and services, private investment and public spending plus exports minus imports…

a year ago · 6 likes · 6 comments · Fallacy Alarm

Debt Deal Digest

On January 19, 2023, the US Treasury reached their $31.4tn debt limit. As a result, they stopped issuing treasury securities and began drawing down their treasury general account (TGA). This caused three primary concerns in financial markets: Republicans and Democrats might not be able to reach a deal before the TGA is empty…

a year ago · 9 likes · 8 comments · Fallacy Alarm

The perfect storm is brewing.

No overly deep thoughts today, just a few observations to reiterate my current macro point of view. I will likely drop a bigger report on Canadian residential real estate later this week. Stay tuned and recommend me to your friends. :) Inflation is currently falling like a rock. Combined with strong consumer balance sheets and cautious investor positioning, stocks are in my opinion poised for an explosive move. This is particularly true for anything hated out there, most importantly cyclical stocks like automotive, real estate and financials…

a year ago · 6 likes · 2 comments · Fallacy Alarm

May'23 FOMC & CPI Update

We have just had the latest CPI print today and the FOMC meeting last week. This is a good opportunity to revisit my leading macro thesis, which is that a) inflation has become a non-issue, b) monetary policy will incorporate this reality soon and c) this will support asset prices this year for a resumption of the bull market…

a year ago · 11 likes · 2 comments · Fallacy Alarm

When Short-Squeeze?

I am very optimistic these days as you might have noticed in my articles this year. I believe we’re close to the liquidity bottom (if we haven’t passed it already) and markets are in the process of anticipating that. They might just steamroll over short-term challenges and even if they don’t, downside volatility will likely be short-lived. One source of this optimism is the incredibly bearish investor positioning that has built up throughout the correction we’ve been dealing with over the past 1-2 years…

a year ago · 7 likes · 2 comments · Fallacy Alarm

Wirtschaftswunder in Reverse

Before we dive in: I was recently invited to Astrid Wilde’s The Felurian podcast: We discussed our investment approaches and also touched on a few stocks specifically, including , and . I really enjoyed our conversation, hopefully you will, too.Fallacy Alarm is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber…

a year ago · 9 likes · 4 comments · Fallacy Alarm

The next round of QE might happen without an official Fed program.

A lot of the liquidity injected during the last round of monetary stimulus has not yet become effective in the real economy. It is dormant in the Federal Reserve System and will be awakened once the Fed starts cutting rates. Money supply will likely rise rapidly at that point without an official QE program. In this article I will explain why…

a year ago · 12 likes · 2 comments · Fallacy Alarm

The Fed just reversed 4 months QT in 4 days.

The screenshot below shows the weekly balance sheet for the Federal Reserve. It is up $300bn this week. That’s 4 months of QT reversed within 4 days! It’s 10% of the initial Mar-Jun’20 Covid impulse. And it’s 30% of the Sep-Nov’08 GFC impulse. And all of that in just one week…

a year ago · 8 likes · 1 comment · Fallacy Alarm

Enough with the Fear Porn already.

is no more. I am sure you read the news. And perhaps you have even received some initial commentaries via email or you listened to some Twitter Spaces/Conference Calls. The overwhelming consensus ? We’re on the cusp of a mix of the Great Recession and the Great Depression most likely…

a year ago · 20 likes · 12 comments · Fallacy Alarm

Here is why I'm not buying bonds.

The US Treasury yield curve is inverted by >100bps. It’s the steepest inversion since the early 80s. And in relative terms, it is the steepest inversion we have ever had. The one (and only) inference we can make from this observation with certainty is that markets are anticipating falling yields. To lock in current yields for as long as possible, investors are willing to pay a premium for long duration even if that comes with higher volatility exposure. I have written about the mechanics in the article below…

a year ago · 6 likes · 1 comment · Fallacy Alarm

Time to Catch Up!

In an economy that sends the weirdest signals to those trying to make sense of it, there is one chart that stands out for me personally. One of the most baffling data points that is hard to reconcile with the narrative that monetary tightening is eating the US consumer alive…

a year ago · 4 likes · Fallacy Alarm

Ten Trillion Dollars

Before we dive in: Fallacy Alarm has now surpassed 2,000 subscribers. Thank you so much everyone for your support. It is very motivating for me to keep going and live up to your expectations. As a result I am actually tackling a lot of the questions I have been asking myself with much more rigor than when I only wrote to myself…

a year ago · 8 likes · 4 comments · Fallacy Alarm

The Great Pandemic Era Option Bubble

This article explains the last 3y from an angle you might not have heard before and the implications are profound in my opinion. While it is quite technical to follow, I encourage you to work your way through even if option trading might not be your forte or particular area of interest. I will try to convey my message as clear and digestible as possible…

a year ago · 11 likes · 2 comments · Fallacy Alarm

S&P 5,000 by Christmas 2023? (Excel Workbook included)

If you are interested, I published my Jan’23 FOMC Digest earlier this week for premium subscribers: In that article, I argued that the Fed’s hiking cycle has likely ended with the February 25bps hike, the realization of which will likely be supportive for asset prices in the near-term…

a year ago · 4 likes · Fallacy Alarm

Jan'23 FOMC Digest

The Federal Reserve issued their FOMC statement today. They hiked 25bps as expected and softened their language on further hikes. I believe they are done with their hiking cycle as of today. There is a lot of uncertainty with forecasting short term stock market movements, but I think the odds are high that the rally will be fueled by the market’s digest…

a year ago · 1 comment · Fallacy Alarm

My Case for a Soft Landing

Objective vs. Subjective vs. Intersubjective Reality As described by Yuval Noah Harari in his fascinating book Sapiens, there are three types of realities: Objective Reality: Something that is true irrespective of how anyone feels about it. Gravity is a suitable example. It does not matter whether you believe in it or not, you are subject to this force…

a year ago · 10 likes · 3 comments · Fallacy Alarm

Dec'22 Inflation Update

Today, the U.S. Bureau of Labor Statistics released their December 2022 consumer price index. Just wanted to share some quick thoughts contextualizing this release for you…

a year ago · 3 likes · Fallacy Alarm

The Bear Case for Oil Stocks

Oil stocks (and energy stocks in general) have had a great run over the past two years fueled by an overstimulated economy and backfiring ESG rules. Investors did not want to touch them for years which led to severe undervaluations. There are quite a few proponents forecasting a longer term energy/oil bull market. A prominent example is Lyn Alden who ha…

a year ago · 5 likes · Fallacy Alarm

The Relevance of Money Supply for the Trajectory of Inflation

Before we dive in: I have published two single stock reports last week for paid subscribers. In this article, I covered ‘s 3Q22 earnings, the impact of their questionable accounting principles and why I see the fair value at $1.40. And in this article…

a year ago · 5 likes · 3 comments · Fallacy Alarm

What story is the Yield Curve Inversion telling us?

Yield curve inversion as a recession indicator The 10Y-2Y yield curve is currently inverted, meaning yields for short term US treasury bonds exceed the yield for long term US treasury bonds. And it is not just simply inverted. Taking the yield spread between the 10Y and the 2Y treasury bond as a representation for this inversion, it is actually the most inverted in 40 years. Whenever this happens, there are many voices out there predicting a recession. This is a valid concern, in the modern era every time the yield curve has inverted, a recession followed shortly thereafter…

a year ago · Fallacy Alarm

Nov'22 FOMC Digest

What happened before? In my Sep’22 FOMC digest, I highlighted that it appears that Jerome Powell… Does not seem to acknowledge the difference between Monetary Inflation and Dearth Inflation: He justified stricter monetary policy with energy shortages due to the Ukraine war, which is a classical example of…

a year ago · 8 likes · 2 comments · Fallacy Alarm

Deconstructing the growth rate of the US economy in Q3

The components of GDP As the name says, GDP attempts to measure the output of an economy, i.e. what we achieve with our hands and brains collectively in a given period. It consists of the consumption of goods and services, private and public investment, exports and imports. Inventory changes play a role, too. It attempts to explain our economy from a pro…

a year ago · 3 likes · 3 comments · Fallacy Alarm

Here is why I am so adamant that (real) interest rates will fall

From an asset pricing perspective, the true big story of 2022 is not the inflation spike. It is the brutal real interest rate shock, which is driven by the conflict between deficit addicted fiscal policymakers and legacy focused monetary policymakers…

2 years ago · 1 like · Fallacy Alarm

How hot is the labor market really?

Today, initial unemployment claims, one of the key metrics that has been supportive of the strong labor market narrative came in at 219k, ahead of 203k consensus. Could be nothing. But could be something. And job openings are dropping like a stone. I have mentioned in a…

2 years ago · 7 likes · 3 comments · Fallacy Alarm

Sep'22 FOMC Digest

Listen now (14 min) | September 21, 2022 was quite the day for monetary policy. The Fed raised interest rates by 75bps as expected, but Jerome Powell’s subsequent press conference had some hawkish touch for the history books. In this article, I am going through what I view as some of the key statements he made, which were really puzzling to me. My comments are structured in …

2 years ago · 7 likes · 6 comments · Fallacy Alarm

How might the Fed pivot?

Two quick announcements before we dive in: 1. I have recorded podcast versions of the following articles: The Demographic Deflation Bomb is ticking From BioPharma to Industrial Biotech Both of these are freely available on Spotify for now to give you taste. Going forward, I will likely offer podcast versions of my articles as premium features. Here is a man…

2 years ago · 2 likes · 6 comments · Fallacy Alarm

What's the Score between Transitionistas and Inflationistas?

This article is also available as an audio version here. I am currently experimenting with ideas how to add premium value for paid subscribers without limiting access to the core content. Please let me know if you like it. I am considering to add audio versions for a more articles in the archive going forward…

2 years ago · 8 likes · 4 comments · Fallacy Alarm

Are we in a recession or not?

My unofficial target is to provide you with a differentiated take on a controversial topic in financial markets once a week. I believe that to be a good cadence for both what I can put out sustainably and what you can reasonably read without feeling spammed. Hence, apologies for the increase in cadence with this article. There is just so much buzz in my…

2 years ago · 4 likes · 2 comments · Fallacy Alarm

5 reasons why USD interest rates will plunge

A story on good analysis and poor implementation In October 2021, I wrote this to a friend who was wondering about the next moves markets would be making from here: Long term trends are still favorable (innovation cycle, demographics) to be bullish. But in the short and mid term, there are two false narratives that need to be proven wrong before the bull …

2 years ago · 5 likes · Fallacy Alarm

It is about long term real interest rates, not spot CPI prints

Most people are looking at the wrong metrics in the current inflation spike When I scroll through Fintwit or consume other news these days, I often see comments like this from Bill Ackman…

2 years ago · 2 likes · Fallacy Alarm

Is this the dawn of the Anti Carry Regime?

What is a Carry Regime? In this article, I am borrowing from the book ‘The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis’ written by Tim Lee, Jamie Lee and Kevin Coldiron. I will only touch on their ideas at a very high level and complement it with my own views and …

2 years ago · 8 comments · Fallacy Alarm

9 reasons why we may not be in a housing bubble

The housing market is an extremely important lead indicator for economic health and financial market performance. If it coughs, the rest of the economy gets a cold. On the other hand, if it performs, it can fuel consumer sentiment and propel other asset prices higher. That is why I believe it pays off to study it to develop a view on it. Housing prices …

2 years ago · 2 likes · 2 comments · Fallacy Alarm

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