20 bps per trillion dollars is the number most commonly tossed around, but if the promoters of the calculation were statistically honest they would have error bars stretching from 0 to 120 in their graphical presentations. Because the truth is, nobody knows.
From Peter Tchir at Academy Securities, April 10:
I find myself on the other side of another intellectual debate on rates. We started by addressing several war, inflation, Fed, QT, and other rates related issues in Collecting Our Thoughts. The “feud” boiled over in “Oh, Behave” where rather than trying to divine whether inverted curves predicted recessions, we focused on forward rates and concluded that the market was far too comfortable pricing in a soft landing. Now, in our latest rant against the trend, we will argue that trying to convert quantitative tightening into some rate hike equivalent may not only be futile, but harmful to your future investment decisions.
Weekend War Update
Academy published our current thoughts on the “new” strategies being employed by Russia, Ukraine, the West, China, and India on Friday (see report).The conclusions which are relevant here are:
• Expect more supply chain disruptions and an economic downturn in Europe.• Look for China, the Saudis, and others to reduce their exposure to the U.S. (including Treasury holdings).
• Food will be a bigger problem than energy because of the war as early as this summer.[Climateer here, batting 2 out of 3 would earn you $100 million per annum in major league baseball]Our view is that these themes will impact markets and we argue for caution on equities and credit spreads.Horsepower, Rube Goldberg, Translating QT to BPS
Back to the “goal” of translating quantitative tightening to bps of hiking. Yes, I understand the desire to be able to say that “every X billion of QT is equal to Y bps of hiking.” The sheer simplicity of such a formula would be elegant and might even be useful. On the other hand, I’m not sure comparing feet to hands is particularly useful. I believe the following:• We don’t really understand hikes very well, so translating something into hikes has limited use (even if it works).
• QT behaves differently than hikes and trying to equate them takes us down the wrong path.I would have said that comparing QT to hikes is like comparing apples to oranges or chalk and cheese, but I used that title last year regarding COVID data, so I’m going to run with “horsepower” and “Rube Goldberg.”....
....MUCH MORE
So, apple slices and some cheese for the afternoon snack it shall be.
