It has been many months since I have sent out a note. Happy Christmas, New Year and Birthday etc.

This reminds me of Steven Pinker's "Enlightenment Now", where he quotes Max Roser "that if news outlets truly reported the changing state of the world, they could have run the headline
NUMBER OF PEOPLE IN EXTREME POVERTY FELL BY 137,000 SINCE YESTERDAY every day for the last twenty-five years."

That would be about thirty-five million people since I resigned from CS in July.

In that context, the macroeconomic and investment highlights are seriously dull. Nevertheless.... Thirty-Five million people emerge from extreme poverty / Goldilocks determines interest rates are lower for ever / Beware Greeks bearing gifts

Goldilocks determines interest rates are lower for ever

Macro forces continue to impose downward forces on interest rates in an environment of middling positive growth and nascent signs of inflation.

In Australia, we face a "risk free" interest rate environment that fails to meet inflation expectations.
RBA Cash is 1.50%, 3mth Bank Bills ~1.73%, 10 year Government Bonds  ~1.75%.
We must expect lower returns on all assets and be careful to understand those offering higher returns,  or, loosely translated from Virgil, "beware Greeks bearing gifts".

The latest catalyst lower was the FED last week.
As Hasan Tevfik, Senior Research Analyst MST summarised in his note:

Interest Rates:

  • Fed sticks to 2.25-2.5%. In the statement the central bank acknowledges some of the recent slowdown in activity.

Dot Plot:

  • The board has cut their near term forecasts for GDP, PCE Inflation (but not core inflation) and the Fed Funds rate.
  • The Feds Fund rate projection has come down by 50 bps and expectations are now for it to end at 2.4% by year-end i.e: no rate rise (Previously expectations were for two rate rises)

Balance sheet: [or "unconventional monetary policy becomes conventional"]

  • Fed will slow the reduction in its US Treasury holdings from a maximum of $30b per month to $15b per month from May.
  • The Fed will stop shrinking its aggregate balance sheet (MBS and Treasuries) in September.
  • In October the Fed will reinvest the principal payments of securities back into US Treasuries up to $20bn per month. If there is more than $20bn of principal payments the excess will be reinvested in MBS as well.
  • Holdings of MBS are expected to decline over time. The Feds balance sheet is expected to stabilise at just over $3.5t and more of it will be made up by Treasuries.

Fed holdings of US Treasuries (% of stock of Treasuries outstanding)


  • Greece has sold its first 10-year bond for nine years raising €2.5bn of paper priced at a 3.9 percent yield.
  • The order book topped €11.8bn.
  • This is Greece’s first 10-year bond issue since March 2010, weeks before it was shut out of international capital markets and forced to seek the first of three bailouts from the EU and the International Monetary Fund.