Below are some of the most interesting articles, quotes and charts I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.
This week, yet another legendary hedge fund manager added his voice to the growing chorus of those warning of a debt crisis.
"You get in this vicious circle, where higher interest rates cause higher funding costs, cause higher debt issuance, which cause further bond liquidation, which cause higher rates, which put us in an untenable fiscal position." -Paul Tudor Jones https://t.co/j2Yo6n4m0M
— Jesse Felder (@jessefelder) October 10, 2023
As Paul Tudor Jones explains, it’s not a difficult concept to grasp; it really just comes down to the growing divide between the supply and demand for treasuries.
'Treasury supply has risen sharply, and will keep rising. Foreign Treasury demand is not rising. At least, not at a pace that can offset the surge in supply.' https://t.co/cSVGqYCwGv pic.twitter.com/K8hSafS8b3
— Jesse Felder (@jessefelder) October 9, 2023
When rising interest rates (driven by both demand failing to keep pace with supply and rising inflation) meet rapidly rising debt issuance (which is in itself inflationary), you start to get all sorts of feedback loops.
'This is no longer about when the peak will get here – it's about where inflation is going to decline to. From 6.6% to 4.1% was the easy part. From 4.1% to 3% is going to be difficult. From 3% to 2%? So far, I don't see anything that gets us there.' https://t.co/KmL3rYOszw pic.twitter.com/KErZsM0peX
— Jesse Felder (@jessefelder) October 12, 2023
For now, stocks are trying to pretend interest rates will soon revert to their pre-pandemic trend but, given the dynamics above, that may be wishful thinking.
This Alpine Macro chart shows that since the 1970s, rising interest rates have always caused equity P/E to contract. Not this time around. Equity multiples for SPY have been expanding for more than a year while rates have been lifted aggressively by the Fed. pic.twitter.com/duw711Ddrq
— Alpine Macro (@RealAlpineMacro) October 12, 2023
Speaking of wishful thinking, that is probably a good characterization of the monetary policy that helped to lay the foundations for these deleterious trends in the first place.
Law of Unintended Consequences Caused the Great Bond Rout https://t.co/ePsvV9s3M4 pic.twitter.com/DHMVLsWYRF
— Jesse Felder (@jessefelder) October 9, 2023
Thanks for reading and have a great weekend.
