✍️ Maverick Macro Charts of the Week #39: U.S. Neutral Interest Rate, Switzerland Economic & Consumer Sentiment, France VS Greece aka 'Long FETA Short BaguETTA' 😉
Maverick Charts that say 10,000 words
Dear all,
7 cherry picked Maverick Charts of the week say 10,000 words or more = the ‘How’!
Table of contents = the ‘What’:
📊 Maverick Charts: U.S. Neutral Interest Rate (R-Star), Fed Funds Rate (FFR), Fed Funds Futures, Switzerland Economic & Consumer Sentiment, France VS Greece aka 'Long FETA Short BaguETTA'
📊 Bonus: G10 & Global Central Banks in Action
✍️ Incoming Maverick-esque research: +195,000 views for a key Maverick tweet
Objective: both data-driven insights + valuable food for thought = the ‘Why’!
📊 Maverick Charts 📊
One key question in Macro is ‘What is the Neutral Interest Rate’ for the U.S. economy?
Before you get the answer as a best estimate via a typical Maverick Chart that says 10,000 words, a refresher/intro:
👉 also called the long-run equilibrium interest rate, the natural rate & to insiders, r-star or r* = in plain English, it is the interest rate that neither stimulates nor restricts economic growth, maintaining stable inflation (at target) and full employment
👉 this rate is not directly observable, it changes over time due to structural factors (demographics, productivity, global savings/investment trends, risk preferences), and is best estimated using various models, economic indicators & surveys
And now a very rare Maverick chart you see elsewhere with the answer/estimates:
👉 3% FOMC (green) - Longer Run Summary of Economic Projections for the Fed Funds Rate, Median
👉 3.1% Primary Dealers (blue) - Survey of Primary Dealers: Longer Run Target Federal Funds Rate
👉 3.1% Market Participants (orange) - Survey of Market Participants: Longer Run Target Federal Funds Rate
👉 3.4% LW +2 (red) - Laubach-Williams U.S. Natural Rate (R-Star) plus 2
👉 2.8% HLW +2 (light green) - Holston-Laubach-William Natural Rate (R-Star) plus 2
‘What about the practical takeaways for us investors Mav? Will you update this in the future?’
There you go with Maverick’s net takeaway & guidance:
👉 3% is the Neutral Interest Rate 'mas o menos' - see this rate as a gravitational force, a benchmark or a reference point for the FED doing & guiding monetary policy
👉 note the 2015-2018 high convergence, after Covid a high dispersion, lately converging again - when/if they diverge again, I would use the median of the five as a quick rule of thumb - further inspection of the macro & measures could tilt the view
👉 connecting Macro to Equities which is the main purpose of this: very important not just for policy makers, but also for equity & bond investors - recall Buffett’s take: ‘everything in valuation gets back to interest rates, interest rates are 'gravity' on stock prices’, basically the discount rate, hurdle rate, the cost of capital in pricing and valuation
👉 aggregating these key 5 estimates is a gauge for interest rates, understand why & how they went higher/lower across time, and couple current and future inferences for cost of capital and valuation purposes ... and intellectual food for thought … enjoy!
2. The Neutral Interest Rate (R-Star) & the Federal Funds Rate (FFR) + Rates Pricing:
👉 the FED’s current target range for the Federal Funds Rate (FFR) is 4.25% to 4.50% - the Effective Federal Funds Rate (EFFR) which is the actual rate at which banks lend to each other overnight) is around 4.33%
👉 given that all the 5 estimates around 3% for the Neutral Interest Rate (R-Star) are BELOW the 4.33% Effective Federal Funds Rate (EFFR), we can say that the current monetary policy is in restrictive territory - a big reason is to really anchor inflation expectations for the future so that is goes back to target, 2% on average over time
👉 going forward, Fed Funds Futures (green) implies a 3.84% rate for the end of 2025 (2 rates cuts), hence direction is lower - towards the 3% Neutral Interest Rate (R-Star)
All in all, from the past & actual estimates of the Neutral Interest Rate (R-Star) to the past, actual & future implied values of the Federal Funds Rate (FFR), we connected the dots via a round trip in a short amount of space/text and just Maverick 2 visuals!
Going forward, I will update these 2 key charts in the future Macro-Equities reports, especially in the reports covering the State of the U.S. Economy and the S&P 500.
✍️ The State of the U.S. Economy in 75 Charts
✍️ S&P 500 Report: Valuation, Fundamentals & Special Metrics
From U.S. interest rates, to Switzerland Economic & Consumer Sentiment given that U.S. + Switzerland are my main Macro focus! Growth & Safety/Safe Haven for the long term balanced and diversified win (equities I’ll cover also outside these two countries)!
Switzerland Economic Sentiment with recessions and equity drawdowns shaded:
👉 a major rebound from -51 to -2.1, almost back into positive territory
Maverick’s takeaway:
👉 2022 bear market (red shaded) made it for a crazy -72.7 reading, worse than 2020 Covid times and not far from 2008 GFC times - hence, overcooked it badly this time around - staying calm and seeing it as a buying opportunity was again the key
👉 rather a contrarian indicator - the more negative it gets, the more likely the local bottom is around the corner, hence cheaper times to buy the same quality companies or the juicy & long-awaited from the buy & wish list
Switzerland Consumer Sentiment, quarterly and monthly values:
👉 monthly values (green) also rebounding from -42 to -32
👉 quarterly values (blue) shall follow also in terms of an improving trend
Maverick’s takeaway:
👉 2022 bear market (red shaded) made it for a crazy -57.7 reading, worse than 2020 Covid times and even more worse than 2008 GFC times - hence, overcooked it badly this time around - staying calm & seeing it as a buying opportunity was again the key
👉 rather a contrarian indicator - the more negative it gets, the more likely the local bottom is around the corner, hence cheaper times to buy the same quality companies or the juicy & long-awaited from the buy & wish list
P.S. I will cover the Swiss economy also in the future, Swiss single stocks included!
France VS Greece aka 'Long FETA Short BaguETTA' 😉 via 4 Maverick Charts in one single panel! Greece with a phenomenal rebound since 2022:
👉 Stocks: Greece outperforming France big time: 147% spread!
👉 Real GDP: Greece outperforming France big time: expanded by 8.8% vs. 3.7%
👉 Total Non-Financial Debt (%GDP): in Greece is now 72% lower than France, sleek!
👉 Bond yields (borrowing costs): Greece not just converged, but the 10-year Greek bond yield traded tighter & tighter & is now LOWER than the French: 3.39% vs 3.42% - recall the Eurozone Sovereign Debt crisis aka ‘PIIGS’ times - impressive turnaround!
📊 Bonus: G10 & Global Central Banks in Action 📊
G10 Central Banks, latest action:
👉 FED remained on hold at 4.25%–4.5%
👉 ECB also on hold at 2%
👉 SNB (Swiss National Bank) cut rate by 25 bps to 0% as expected
👉 Norges Bank cut rate by 25 bps to 4.25%, defying expectations for a hold
👉 BOE (Bank of England) kept rates unchanged at 4.25%
Global Central Banks:
👉 during 2020 Covid 74% of central banks were easing ultra fast as the global economy was more or less on a halt - during 2008 Lehman/GFC, 85% were easing
👉 after peaking in 2022 with an unprecedented 70% of central banks tightening to curb inflation (basically, a global phenomenon this time around), nowadays most central banks are on hold (81.5%) & some are easing (14.8%) as inflation is cooling off
N.B. when I say inflation is cooling off I refer to the growth rate, not the price level: way more on that in my future dedicated Inflation reports as it drives interest rates
✍️ Incoming Maverick-esque research: +195,000 views for a key Maverick tweet ✍️
What is coming next through the independent investment & economic research here? What’s next for you? Many drafts are work in progress - the next one is a key one!
✍️ Why Independent Investment and Economic Research = Paramount Nowadays!
common sense is mostly common, sometimes not so common - what I am confident to say is that conflicts of interest are too common, hence independent investment and economic research for the win!
+195,000 views for this Maverick tweet which was quoted/commented also by the legendary Nassim Taleb … so great from his side and I thank him a lot!
'If something is nonsense, you say it and say it loud. You will be harmed a little but will be antifragile — in the long run people who need to trust you will trust you.'
Nassim Nicholas Taleb: Commencement Address, American University in Beirut
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Like this, the big positive externalities become the name of the game!
Have a great day! And never forget, keep compounding: family, friends, hobbies, community, work, independence, capital, knowledge, research and mindset!
With respect,
Mav 👋 🤝
Thank you again and again..
Thank you !