The Four Most Important Stories In Macro Investing
As macro analyst Mohamed El-Erian said, “the Fed slammed on the brakes, and the economy is in the process of going through the windshield.”
Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week, with his updated take on the state of macro heading into 2023.
I truly believe Larry to be one of the muted voices that the investing community would be better off for considering. He’s the type of voice that gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely.
You can listen to his most recent public podcast appearance on Palisades Gold Radio, from about 3 weeks ago, here.
But for this week, Larry was kind enough to allow me to share his thoughts heading into Q1 2023. His letter has been edited ever-so-slightly for formatting, grammar and visuals.
MACRO RECAP OF 2022
2022 was another extraordinary year. When we wrote our year-end 2021 report, we made the following observations about 2021:
Covid ran wild
Inflation ran wild
Fiscal and monetary policy ran wild
Markets ran wild
In 2022 we saw extraordinary change across all of these metrics. The Covid problem abated. The US Stock market put in what we believe will be a multi-year top in December 2021and the Fed finally decided that maybe they had been a bit too accommodative with a Zero interest rate policy and QE in the face of exploding prices in everything.
As a reminder of the excesses in 2021, the US Federal Budget deficit was $2.77T, money supply (M2) grew 38.6% in 20 months (a 21.6% annualized rate) and the housing, auto and crypto currency markets were all on fire. In early 2022, the Fed belatedly admitted that they were wrong and that the massive inflation (highest in 40 years) was not simply “transitory”. Recall that inflation was 7.9% and rising when they began their tightening campaign in February 2022.
As macro analyst Mohamed El-Erian said, “the Fed slammed on the brakes, and the economy is in the process of going through the windshield.”
THE FOUR MOST IMPORTANT STORIES IN MACRO
In our opinion, the four most important macro stories of 2022 are the following: