原文标题： Why the Market’s Big Tailwinds Are Coming to an End
原文作者：Matt King
Original source: bloomberg.com
编译：火星财经，Daisy
The Nasdaq is currently in pullback territory, with the S&P 500 down more than 2% so far this month. Analysts blamed the sell-off on a variety of factors, including a slowing economy, a laggard pace of Fed rate cuts, hedge fund rotation positions, and waning enthusiasm for artificial intelligence. But Matt King, a former Citigroup strategist and now · founder of his own research firm, Satori Insights, believes there are other reasons. He argues that central banks around the world are only beginning to extract liquidity from the system, and the market is still sensitive to the push and pull of their large balance sheets. In this episode, he explains how central banks stopped controlling risky assets, why the stock market is falling now, and his general approach to analyzing the market. This record has been slightly edited for clarity.
Key insights from this podcast:
Matt King 目前正在做什么——4:07
What's happening in the market – 6:23
Changes in central bank reserves – 9:05
How Changes in Reserves Affect Asset Prices – 10:55
The impact of interest rates – 15:30
The role of fundamentals and the macro outlook – 17:50
How does liquidity explain the difference in performance across sectors? ——24:42
How Matt Kings developed his approach to market analysis – 27:36
The Pricing of Political Uncertainty – 29:37
Market outlook – 33:05
Recent dramatic changes in the repo market – 34:39
Tracy (00:18):
Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy · Aloway.
Joe (00:22):
I'm Joe · Weisenthal.
Tracy (00:24):
Joe, this is my favorite season of the year. August.
Joe (00:27):
Well, I don't know. Why? Why is this your favorite time of year? I also love August. I love summer. But what's your reasoning?
Tracy (00:32):
Well, that's actually it. I love summer......
Joe (00:35):
That's why we get along.
Tracy (00:36):
But there's one more layer.
Joe (00:38):
I'm just saying I don't like people who like other seasons besides summer? I'm skeptical. I will judge others.
Tracy (00:46):
Okay, that's okay. I used to be like that. However, I've found that as I've gotten older, I've become a little bit – maybe because I've grown up and bought a house without air conditioning – and I've also started to appreciate winter more. Okay, I don't really mean to talk about the weather, but there's another reason why I love August, and that's that I feel like that's the month when strange things start to happen in the market.
Joe (01:10):
Yes, from August to October, it feels like three months where anything can happen. Yes.
Tracy (01:15):
Especially in August, you know, people are enjoying the mandatory two-week vacation, and if you're a professional working in a bank or something like that, you have to take about two weeks off every year.
There is a lot of illiquidity in the market. So you know, small things can end up having a huge impact. I feel like there's going to be some weird market movement in August. Speaking of strange market movements, or at least dramatic market movements, in recent days and weeks, we've seen some interesting things happen in the market that are completely different from the pattern of the last year or so. Completely different.
Joe (01:58)：
First of all, we're a little weak. We've experienced the rotation that people talk about. Some of the hottest tech stocks have fallen. As we write this, we see a lot of fluctuations on the curve. The 10-year yield fell back below 4%. So I just said on the Odd Lots Discord that people should go subscribe and hang out, and I did say this morning that the macroeconomy seems to be getting interesting again.
Tracy (02:24)：
Of course. This is true both macro and market. I must say that there has been a lot of discussion about how much of what is happening in the market right now that is driven by technology. So, you know, maybe some pod shops have to cut some of their positions, and people are really just reacting to changes in the macro outlook. I should say that we recorded these on August 1st, the day after the Fed meeting, and as expected, they didn't cut rates, but they certainly signaled an imminent rate cut. So there's a lot going on there as well.
Joe (02:57):
The day we recorded this was the day before the non-farm payrolls were released. So when you hear this data, we'll know a little bit more about the labor market.
Tracy (03:05):
Yes, we will. So there's a lot to do. It's August and more things are likely to happen, strange things happen at times. I have to say that when it comes to delving into the intricacies of the market and what's going on there, I'm very much interested in talking to a guy who we've had previously invited to the show.
I'm Matt King, I used to work at Citigroup, and now he starts his own research company. The company is called Satori Insights, and he is the founder and global market strategist of the company. So we're going to talk to Matt about what's going on in the market, what the outlook is at the moment. Matt, thank you so much for coming back to discuss all the ideas.
Matt · King (03:45):
Thank you for having me. You're so nice.
Tracy (03:47)：
Well, we're excited to talk to you again. A lot has happened since we last spoke to you, and I think that was probably last March. Talk to us about what's going on. So you've started your own business, and you have a new thing called Satori Insights. What are you doing over there?
Matt (04:07):
What I'm doing now is pretty much the same as before, which is trying to explain what the market is doing and what the market is going to do, and as far as I know, I'm generally doing it differently than everyone else.
I like your description of August, and in my experience, either nothing happened or, as you said, quite something happened. But I think the biggest challenge that I see people facing right now is to have a candid understanding of how the market is performing so far this year, so that's the context in which you need to see the changes right now. Because on the one hand, yes, the economy is much stronger than everyone thinks, but on the other hand, the market is really doing much better. Yes, and the whole story of artificial intelligence, but it feels like there's more to it than that.
I think the biggest question is why financial conditions are so loose when we continue to QE and interest rates are at their highest level in 23 years. In fact, this is the main thing that I didn't mention at the FOMC meeting last night, where no one asked Jay · Powell what they think of this easing of financial conditions.
Just a few months ago, a Bloomberg report on financial conditions showed that conditions are now looser than they were in 2007. I think you need to figure out the reasons behind all of this before you can go back and think about the outlook and the current market conditions.
Joe (05:20):
Good. What is the answer? Tell us the answer to the financial situation, because it does seem weird, I mean, I think we've probably been talking about this on the show for almost two years. Surprisingly, the Fed's rate hikes and slow shrinking of its balance sheet have not had a more deleterious effect, at least so far.
Matt (05:40)：
So, taking the risk of being presumptuous, it's exactly the same thing that I heard you say about being debunked in a previous episode of the show, when you were with your other guest. So for me......
Joe (05:51):
Well, thanks for listening. I'm grateful. I'm glad and although I personally offended you and I apologize for that, I'm grateful that you tuned in to Odd Lots and that you're back. I say that nothing in the market is debunked, because I don't actually think so.
Tracy (06:09):
Joe is open-minded. To clarify, the debunking argument we're talking about is that central bank liquidity drives up asset prices. Matt, that's how you analyze the market.
Matt (06:23)：
I wasn't angry either. In fact, you became the subject of a footnote to one of my research articles, making a counter-argument, but taking a step back. I think the standard view of what's going on is "Oh, the economy is definitely a lot stronger than everybody thought." It has to be r* and the neutral rate is higher, but then a couple of conundrums arise, like, 'Oh, well, why is the willingness to borrow in credit growth actually very limited.'" The total issuance is huge, but the net borrowing volume is actually quite subdued, why do many of the r* models, the most comprehensive models, really show a big rise in the neutral rate? So how do we make sense of the recent weakness, especially in terms of credit and emerging markets? ’
So, the standard explanation might be that there was a recent excellent academic paper on the subject that argued that QT might not be as strong as QE. There may be some significant asymmetric effects. This is a very convincing paper, I happen to think that it leads to the wrong conclusion, and, as usual, I don't know anything about it.
I just look at the market charts and try to understand them. But it seems to me that the market's sensitivity to changes in central bank balance sheets has not really changed at all. Most of the time, when we think we're doing QE, we don't. In fact, in many cases, this implicit QE effect is almost always happening. Frankly, this is one of the reasons why financial conditions remain so accommodative despite interest rate hikes.
The right way to think is not in terms of the security of central bank balance sheets, but in terms of changes in reserves. Once you start thinking in terms of those, you look globally and you're like, "Well, we've added $18 trillion worth of reserves or liquidity since 2009, and we've only reduced about $500 billion." ”
Even if we consider the recent situation, as you said, since the last time I went online, since the last market trough in October 2022, United States reserves have increased even assuming that quantitative easing is underway, instead of a net decrease of $250 billion, global reserves have increased by $920 billion. Not only that, but the timing is also very right, and I think my chart is better than what I'm arguing about here, but whenever the reserves actually go down, so in 2022, the markets are going to go down, as long as they go down in April of this year, the same thing, the risk comes back down again, and that's some of the things that happened in July.
Joe (08:48)：
Sorry, I just wanted to clarify, you said that the reserves did not fall, what are you looking at? Because if I just look at the pure chart of Bloomberg's Fed balance sheet, it's clearly down. This is the lowest level since 2020. So when you say that reserves are not falling, what indicator should I look at?
Matt (09:05)：
So for the Fed, you just have to look at the direct reserve numbers that you're looking at, and you'll see that it peaked in April of this year, and then the level went down. Then I do the same by looking at global reserves. Occasionally it's a little different, but it's basically the reserves of other central banks, and I'm making sure that the foreign exchange effect isn't introduced into the aggregate.
I observed the changes in these reserves. Again, it peaked in April and then fell back somewhat. But most of the time, short-term market movements are very much in line with these changes. Even though we're currently in a phase of decoupling, and the stock market is trying to get out of that decoupling, it's interesting that you look at other asset classes, look at credit, look at emerging markets, and even look at things like Bitcoin. Basically, this correlation with global reserve figures remains.
资料来源：Matt King，Satori Insights
资料来源：Matt King，Satori Inisights
Joe (09:51):
Okay, Tracy, let me clarify, if you look at the total size of the Fed's balance sheet, it's already down, but Matt is right, if you look specifically at United States' reserve balance at the Fed, you'll see that it peaked in 2022, then it went down, then it went back, it peaked in April, and then it went down. So if you look at this indicator, it's correct.
Tracy (10:11):
Okay, I should say that Matt just mentioned his famous charts, and we'll embed some of them in the transcript of this conversation. So if you're listening, please check out the recording as well, because we'll provide these visuals to better illustrate this.
But Matt, in terms of bank reserves, can you explain to us in more detail – preferably in detail – how exactly does an increase in bank reserves translate into an increase in asset prices? Is it that when banks have more reserves, they may be more willing to lend, and maybe this will change people's risk appetite. How exactly does this translate into concrete market actions?
Matt (10:55)：
It's closer to the second case than the first, but in general, I'm not sure if anyone can do it correctly, I'm mostly looking at the charts and reasoning backwards. So the most common explanation you've heard, as well as another recent paper by Nouriel Rubini, tries to relate it to interest rate movements. Again, when the Fed talks about this, they always focus on the level of reserves, and once they think the level of reserves is sufficient, they almost ignore the change in reserves.
I think that while this way of thinking may be intuitive, it is completely wrong. Again, I think it's a mistake to think in terms of influencing interest rates and then expect that impact to spread outward again. Rather, I think you should think of it this way, that reserves are an ingenious way to capture the balance between the amount of money that the private sector has and the amount of assets that can be used to absorb it.
Now, in terms of some kind of standard quantitative easing or quantitative tightening, it's fairly straightforward. You know, you're both giving more money to the private sector in the form of reserves and giving them less government bonds or notes to hold. But I think that's also why reserves, not securities, are the most important reasons, because even if other factors on a central bank's balance sheet, like the Fed's Treasury Master Account or the Fed's reverse repo program, fluctuate up and down, even if those things move up and down seemingly harmlessly, they have the same effect.
So if the TGA goes up because they issue more Treasury bills, and you buy those Treasury bills, but then those money are locked up in the Fed's higher Treasury balance, then that's one thing. You take money from the private sector, there is less private money in the market, more securities that need to be absorbed, and as a result, the price of risk falls. Confusingly, on all of my charts, this isn't necessarily the fall in bond yields or Treasury bill rates that you might expect, but it's most evident in things like stock prices, credit spread prices, and even occasionally Bitcoin prices.
To me, it's weird the way you understand this because the Fed and other central banks don't buy and sell a lot of credit or stocks or bitcoin. Rather, it's a ripple effect. That is, let's say it's the other way around, and the TGA is going down, and I have more money in my bank account because a Treasury bill is maturing, but there's no new Treasury bill for me to go out and buy, then I'm forced to buy something riskier, and you have this ripple effect, where people who would have bought bonds buy credit, people who would have bought investment grade bonds buy high yield bonds, people who would have bought high yield bonds buy stocks, and you don't see all of these moving parts.
It's a bit frustrating in that regard, but it's the only way I can make sense of these very consistent relationships, even from one week to the next, even if the reserves are supposedly plentiful. It's this shift in equilibrium, and in fact, the chart I'm most pleased with this year is the one that connects changes in global reserves or central bank liquidity with changes in mutual fund flows, mutual fund and ETF flows.
资料来源：Matt King，Satori Insights
This crowding in and crowding out effect is a direct consequence of changes in central bank balance sheets, and I think that's much more important than people generally recognize, even when you're trying to understand mutual fund flows. This year is the second-largest year on record since 2021, with our total inflows of $600 billion. For me, until recently, this was directly driven by the crowding out effect of global central bank reserve figures.
Joe (15:00)：
In your opinion, what is the role of interest rate policy? Because one of the things we're talking about now is the timing of possible rate cuts, which doesn't directly affect certain monetary aggregates, such as balance sheets or reserves. But there is a lot of anxiety in the market, especially today, when there are once again concerns about whether it is too late for the Fed to cut interest rates. What are your thoughts on this? In your opinion, this is completely irrelevant?
Matt (15:30)：
I didn't think it didn't matter before, but this cycle looks like that, doesn't it? Why have we experienced so many interest rate hikes without a significant slowdown in the economy? I think my thinking is that it's always about money creation, it's always about credit creation. Often, this will be driven by the private sector. You and I decide to borrow based on whether the interest rate is strict or not.
On the other hand, this cycle is different. The credit surge we have seen has never come from the private sector. It comes from fiscal policy, and likewise, the surge in money flows, some market effects, and things like M0 or reserve numbers has never been driven by the private sector. It has never been driven by interest rates.
资料来源：Matt King，Satori Insights
资料来源：Matt King，Satori Insights
This is directly driven by the central bank's balance sheet effect. So the flip side of what I would say is that, just as a rate hike can have a negative impact, that negative impact lurks behind the scenes, there's a lag for a while, and then you start to see delinquencies go up. But when we finally ease interest rates, I suspect that won't do much to spur private sector credit growth either.
Ultimately, we may need more reasoning than we think, because we are still extremely sensitive to changes in the balance sheet. Even before the across-the-board increase in interest rates, the private sector has never been more willing to borrow. When we go back to the extra easing, I'm not sure if this will spur a lot of borrowing in the private sector. This is part of a long-term shift in which even though interest rates have been falling for decades, but in fact borrowing and money creation are increasingly coming directly from fiscal authorities and central banks, and interest rates themselves have actually been pushing interest rates higher.
Tracy (17:13)：
Can I play the role of the devil's advocate? That said, this time last year, the world was talking about a potential recession, and one of the things you'd hear repeatedly was an inverted yield curve. We have never had an inverted yield curve without a subsequent recession.
There has been a lot less discussion about recession risks this year. Isn't it all because people's perceptions of the macroeconomic outlook have changed, driving up asset prices? Like what we've seen, can the situation be explained by a very simple Occam's razor principle?
Matt (17:50)：
Probably, and certainly to a point. But overall, the timing wasn't right. Overall, the market rebounded before economic conditions improved. I think you might say that the economic surprise was negative, but overall, it did, and people started to worry about a slowdown.
But I think the market should always have something to expect, but the recent expectations have been stronger than expected. Even in the case of earnings revisions, earnings expectations are gradually rising, but they seem to have done so in response to the stock market rally, and they are almost chasing the stock market rally, which has risen more than before. As I said, I don't expect any correlation related to central bank liquidity. I continued to rack my brain to wonder if this effect would be reversed.
资料来源：Matt King，Satori Insights
资料来源：Matt King，Satori Insights
It may be that the market has influenced the central bank's data, although the lag has changed somewhat, but basically not, this is not the case. But for me, fundamentals have become a lagging indicator, and for me, it's all part of the long story until around 2012, when I was very serious about fundamentals because it seemed to drive the market to a greater extent.
Since 2012, many of my favorite relationships have broken down. As a result, loan surveys are no longer a good indicator of spreads and defaults. If anything, it's the opposite. Spreads will go up, then lending standards will be eased, and defaults that should have occurred will not happen. Or in the volatility space as well.
In the past, there has been a good relationship between uncertainty and uncertainty, and since 2012, uncertainty in uncertainty metrics has tended to be high, the number of mentions of uncertainty in the news, and so on. However, most of the time volatility is very low, and it seems to me that all of these dynamics go hand in hand with this pattern of money creation dominance, but money creation comes directly from central banks, and this is reflected in my relationship, and the fluctuations that we experience are really large relative to the fluctuations in private sector money creation, and that's why they end up dominating the market.
资料来源：Matt King，Satori Insights
资料来源：Matt King，Satori Insights
Tracy (20:07)：
Since you mentioned timing, let's talk a little bit more. Reserves peaked in April. It's only recently that we've really seen significant market weakness. So why is this gap occurring? Why didn't we see the stock market fall earlier when reserves started to fall?
Matt (20:28)：
There are a few things that are different. One of the reasons Joe sounded so skeptical on previous podcasts is that if you just look at United States reserves, sometimes they're correlated, but not always, and you'll find that they align more with global numbers.
Some of what's happening is that the Bank of Japan and the People's Bank of China have recently increased liquidity, which has had some impact. But the bigger problem, I think, is that money flows are still trying to decouple, even though central bank liquidity has weakened to some extent.
You know, the market often lags, especially when the market is driven by momentum, and like we've been experiencing recently, there's a little bit of a lag before people realize that momentum is gone. Even now, I'm impressed with the amount of money we're receiving, especially into the stock market, and it's likely to continue on its own.
It makes sense that the belief in buying dips is so strong that this will actually continue. Even though we're getting some liquidity leakage from the central bank, even though the Treasury announced a quarterly refinancing yesterday and more notes are issued, it's actually probably another factor that will pull more money out of the RRP and make sure that we don't have too much liquidity leakage.
But overall, I think it's all more fragile than in the first half. I think the whole way I'm looking at this is very different from how you think that fundamentals drive the market and people buy stocks for fundamental reasons.
Many asset managers have told me that, frankly, this is more in line with their long-standing position, and that they are not buying because they think the stock price is cheap, or that the credit price is cheaper than it was in 2007. Instead, the reason they continue to buy is because they keep having money flowing in.
As I said, when you start looking at other asset classes, even assets like Bitcoin, which are much more consistent with central bank liquidity data than the stock market, then you reassess the narrowing of the overall market rally and the turmoil that we're currently experiencing, and the effort to retain that narrowing and volatility is a sign of natural fundamental-driven strength, not a support for Trump's trades.
Or is this actually a sign of waning support, pushing up fewer and fewer assets that are ultimately vulnerable to the deterioration of these flows and the deterioration that hasn't really happened yet? But I think that if that does happen, then lower rates alone won't be enough to keep everyone chasing risk again.
资料来源：Matt King，Satori Insights
Tracy (23:06)：
Joe, Matt just said that the reason the fund keeps buying is because there is another inflow. I feel like I have to mention here that Matt's work was the inspiration for the previous inflows of money for professionals.
Joe (23:17):
Oh!
Tracy (23:18)：
Yes, you know that money flow can drive more purchases, and the market may have been more value-driven in the past, so eventually you're going to say "in fact, this price is unreasonable." "So investors limit themselves to their actions. Now this is not very common.
Joe (23:36)：
So to a certain extent I believe in the "flow first, then profit" argument/theorem/statement, I buy this, it makes sense to me, but that's what I want to know more about. That's how certain sectors are moving, because whenever I hear, okay, the market is out of the fundamentals, or the fundamentals aren't as good as they used to be, I think the big winners in the stock market are the companies that are objectively doing very well.
It's been the same since 2009, okay, we've seen some of the big tech companies make extraordinary moves, they're doing really well, they're really good businesses, they're making a lot of money, and the growth rate continues to outpace anyone's expectations. Earnings are always revised upwards. In fact, no company of this size has ever achieved such a high growth rate on such a large scale in history. So, if it's all about traffic and all that stuff, why do we seem to be seeing this connection between companies that are frankly performing well and stocks that are doing really well?
Matt (24:42):
I think that's a very fair point of view, and in general, I would say it's not that the fundamentals don't have any role, and in general, I would say that my relationship is the most appropriate, or the central bank liquidity numbers are the most appropriate, the broader the number of assets that we evaluate them.
Moreover, the more individual assets we study, the more room there is for its particular technical aspects or its own fundamentals to have an impact. That being said, I've also observed that some of the hottest brands in the market have the best correlation with each other, like LVMH or Tesla, and even asset classes like Bitcoin.
To some extent, this also applies to the Big Seven. Even if we look at the names, the revenue growth, the free cash flow growth for Nvidia is pretty impressive. But you can still compare, for example, a 40 or 50x increase in net income and a more than 100x increase in market capitalization and share price.
Or, you do the same analysis with some other tech companies that aren't seeing the same growth in net income and free cash flow, but they're going up 10 to 12 times in market capitalization and stock price. I think that's exactly what the professionals think is the trend. The momentum effect has dominated the market, and we've rallied more than you can prove on the basis of these fundamentals.
That's why people are starting to worry about the Big Seven right now, the current earnings are great, but in reality most of the growth is not spot gains, but earnings over the next few years. It's easy to question this if we start to wonder to what extent all of the current technology investments are actually generating profits.
资料来源：Matt King，Satori Insights
资料来源：Matt King，Satori Insights
Tracy (26:52)：
I want to take a step back and say I don't remember if we actually asked you this question directly, but we've been talking about your unique approach to analyzing the market. Can you talk a little bit about how you developed this approach?
Because when I think back to the first time I learned about your research, we did discuss this on the show before, but it was a note from the summer of 2008 titled "Did the Broker Go Bankrupt?" It turned out to be very prescient, but very different from what you have written and done today. So how did you come about adopting this particular analytical framework?
Matt (27:36):
I thought as I did it, the difference between me and the others was that I knew I didn't know anything, so I had to look at the charts and reason backwards, while everyone else seemed to start with a theory and then keep whipping that theory on, even if it didn't work in practice.
So you're right, maybe because I used to do credit strategy, so I was always worried that things would fall apart. But in 2000, I focused on corporate leverage, because that's what drives the market. Then in 2007 and 2008, we looked at the CDOs of SIVs and ABS, and then brokers and buybacks, because that seemed to be what really mattered and what was driving the market.
Maybe yes, I was lucky enough to have the timing of that article, but I've gradually changed my approach, and as I said, I've been following all things central banks for the last decade because it's fitting when everything else isn't right, and it's a period when mean reversion and value investing have died out, investors are flocking to already expensive strategies and momentum is dominant.
I hope I don't do this indefinitely, but as a strategist and not an economist, I need to pick the right one, then develop the theory around it, and if the theory sounds sound and the method still works, then keep sticking to it. I'm afraid that at some point I might need to come back and focus on politics and debt levels and something really slow-burning but really scary, but hopefully not yet.
Tracy (29:02)：
Good. So, let's talk about politics and how I guess uncertainty, geopolitical uncertainty might appear in the market. There seems to be some debate at the moment. In fact, we recorded an episode with Macquarie Bank's Victor Shvets last week, and we asked him, for example, whether some of the concerns have been reflected in the Treasury market, and perhaps in the futures market, as the market now seems to have priced in expectations of a 70 basis point rate cut this year. But where do you think the political risks will emerge?
Matt (29:37)：
Overall, the market does underperform in pricing in political risk, especially regime change risk. This powerlessness has gotten worse over the past decade, and we simply can't properly price any of the risk premiums. Not to mention the political risk premium.
So, the standard view is that theoretically the market should price based on the average expected outcome, taking into account all the different possibilities and reflecting them in the market price, but in practice, this is too difficult for people. Everyone deviated from the model predictions. If you've been systematically hedging all the downside risks, which you probably have done given growing geopolitical concerns and mounting global debt, then frankly, you're now bankrupt, or at least going through a very difficult period because all of these risks have been suppressed, but that doesn't mean they don't exist.
I think all of this is worse than usual because of the rise in debt levels, and even though the private sector has deleveraged a little bit, the total debt levels have mostly risen, especially in the United States, but also in places like China.
You do see this worrying mix: asset prices are rising, while debt is growing. To put it bluntly, the range of extreme regime change or loss of confidence is hardly going to affect market prices. Historically, even if this has been the case in the market, it has not been slow, steady, and rational. Even if a new government is elected, we can only say that this is only the result of a loss of confidence in the market itself. We have had this situation in the first place, and historically, the United Kingdom Leeds · Truss government has been in this situation. It's only then that you realize it's not a tail risk, it's really happening, and no one else is actually buying, so I shouldn't either.
That's why there was a sudden repricing. So people are starting to look at issues like the lack of term premiums in the United States, and how that might change, maybe it should increase, especially when we're worried about future interest payments going up, but for me, the question isn't about the calculation of interest payments and the appropriate compensation, but whether you're really irresponsible on fiscal policy? Are you really deliberately interfering with the independence of the Federal Reserve? That's when you suddenly reprice, and the market has to go from completely ignoring politics to finding that politics is the only problem. I hope we don't get to this point, but some long-term historical research that I have a lot of respect for does point out that these risks are indeed increasing.
资料来源：Matt King，Satori Insights
Joe (32:19):
I've been thinking about this a lot lately, you know, there are all sorts of reasons to be politically anxious. I am not only referring to this election, but also to society and the lack of trust. But I've been thinking that as long as it doesn't break, then everything will be fine, but maybe one day it will break and it will be difficult to recover again, and then things will get really bad.
In any case, are we buying or selling? Where is the market headed? For example, we've had this rally, and now we've pulled it back, but we've still been pretty good this year. As of now, I've seen the S&P up 14.44% and it's going to be a great year if we can keep it that way. No one will complain about this. What do you think will happen now?
Matt (33:05):
I'm almost as sure about this as Jay · was last night. I do think that if you need to look at the numbers for our central bank liquidity flows, I can confidently say that I think the huge tailwinds that we had in 2023 and at the beginning of this year are largely gone.
If anything is likely to reverse slightly, I think the balance of risk will shift to higher volatility, at least not to let equities rise, and I'd be happy to prepare for further rotation in equities. Again, it seems to me that the tech industry as a whole is really stretched thin at the moment. But even then, I'm not entirely bullish on the value sector and the banks and the sectors that are doing well at the moment, which could benefit if Trump trades further. It seems to me that everything has become more fragile than before because of this incident. This tailwind no longer exists.
Tracy (33:57):
I realized that we would be negligent if we asked Matt · Kim to talk on the podcast about the impact of central bank-driven liquidity and balance sheets on the market, without talking about the current repo situation.
For example, we have seen a significant increase in the Secured Overnight Financing rate (a Libor alternative) recently. There has been a lot of drama in the repo market, and there has been a lot of discussion about whether some of the things happening there will cause the Fed to have to rethink measures like quantitative tightening, or at least adjust this approach. Is this your concern?
Matt (34:39)：
Yes and no. So yes, in terms of the change in the RRP level, the Fed's reverse repo program is a direct driver of reserves, which has a direct impact on my view of where the market is headed, so I do pay a very close attention to what I think is driving the RRP, which is the recovery in Treasury bills.
Yes, these levels are generally private sector buyback levels, but I'm not as worried as others are about things collapsing, especially if some new contingency tools are available. That's because for me, there's not a magic level where there is plenty of reserves, and if we fall below that level, then something bad is going to happen and you're going to see interest rates skyrocketing. For me, it's about the balance between the amount of money in the private market and the assets available to absorb it.
Even when liquidity is abundant, changes in reserves reflect the continuity of such changes. So yes, I'm monitoring all of that, but I'm not as worried about things as everyone else is about things breaking out out of nowhere. If anything, my guess is that they have scaled back the rate of quantitative tightening, which means they could last longer, and eventually all else being equal, this could deplete reserves and could lead to market weakness.
But I don't think they want to abandon QE altogether unless there is quite a bit of weakness, especially after the tapering of QE. In fact, I think, frankly, in a broader sense, the problem that we're facing right now is too much of a bubble in the market and too much inflation in asset prices, and I'm worried about the opposite, they're turning a blind eye to that. If we can remove some of the market bubbles, yes, this could weaken the outlook in the short term, but in the long term, it will lead to a more stable outlook.
Tracy (36:40)：
Okay, Matt Kings of Satori Insights, it's a pleasure to meet you again. Thank you so much for joining the show again.
Matt (36:49) ：
I'm honored. Thanks for having me
Tracy (37:02):
Joe. I really enjoyed talking to Matt. I should emphasize again that throughout the conversation, although we couldn't see him, he did mention the charts because he always mentioned his charts and I liked that and I would include them in the transcript of this conversation so that everyone could see them.
Joe (37:20):
Yes, we should release the transcript as early as possible when the show is released so that people can download the show and then pause and wait for the transcript to come out and listen to it again.
I've always loved Matt too. I respect how he describes the evolutionary nature of his approach to the market, which is to stop paying attention to something if it doesn't work and start looking for something that works. If there is a correlation between liquidity indicators and the state of risk assets, and they continue to work, working in both backtesting and forward testing, then it certainly makes sense for me to continue to focus on them.
Tracy (37:57):
I do think he's pointing out something important and fundamental, and I'm sure I've said this in some way on the show before, and I know I wrote about this in the newsletter, but it feels like we've really seen the price of money go up through higher benchmark rates, but that doesn't mean the availability of money is limited.
So you know, liquidity is still quite abundant. It seems that people can borrow money when they need it. So I think it's a reasonable question as to why there seems to be such a disconnect between interest rates, money prices, and the money supply.
Joe (38:39 ):
No, I mean it's really crazy, right? Even if the price of the currency seems to have risen, it remains a mystery. I mean, you can argue that yes, the money price has gone up, but the inflation rate has gone up, so maybe it hasn't gone up that much.
I remember this was certainly the focus of discussion for some time, maybe in 2022 or 2023. But look at the last four years when no one has achieved great things, or for the most part, no one's theories hold up, and the market and the economy continue to surprise people. So I think it's important to look at things from other angles.
Tracy (39:09):
What's really interesting is to see if the recent pattern can really hold up when we finally cut rates, or if the situation will change again.
Joe (39:18):
Well, it's actually interesting because theoretically the market wants to cut rates, right? Like we all started, it's just. But during periods of rising and rising interest rates, the stock market has performed very well. So you'll end up wondering if there's going to be a major shift in the direction of the Fed soon.
Now, of course, the Fed will say, you know, it's changing direction because the underlying macroeconomics have changed. But that's fun, right? We've always had this straight line, and now it seems likely that we're at some sort of macro tipping point. So you have to wonder if this line will turn somehow as well?
Tracy (39:56):
Yes. All right. Shall we stop here?
Joe (39 : 58)
Let's stop there.