The CrossBorder Capital Blog

Yield Curve Control (YCC) Or Coming Term Structure Turmoil?   The curious and eerie calm that has settled over World bond markets likely owes more to ‘short gamma’ investment strategies than Central Bank yield curve control (YCC). With implied volatility at record lows relative to realized volatility, this is a dangerous and unstable mix. Not only is bond volatility strongly mean-reverting, but today’s rapid pace of US M2 money supply was the reason YCC ended last time.       See our latest published research, Global View -Yield Curve Control (YCC) Or Coming Term Structure Turmoil? – October 2020       @crossbordercap     CrossBorder Capital Limited are authorised and regulated by the Financial Conduct Authority. Registered in England. Company Number 2687676.       

Which World Stock Markets Will Out-Perform Over The Next Two Years?   Whereas bottom-up stock market analysis focuses on earnings prospects, we look at investor behaviour and liquidity from a top-down perspective. This tells us that aggregate stock market returns are largely determined by changes in investors’ risk appetite, namely their overall portfolio positioning. This knowledge could have timed a large-scale re-entry into equities in late-March 2020. Looking ahead, prospects for the next two years look decent, particularly for the UK, Canada and Italy, among others.       See our latest published research, Global View - Which World Stock Markets Will Out-Perform Over The Next Two Years?  – September 2020          —————————————————————————...

Capital Wars: Killing The Dollar Softly   The 2014-17 ‘safe asset’ capital surge into the US dollar has peaked and is now cooling. Added to this, the Fed’s new excess inflation goal will surely encourage a still weaker US dollar, perhaps by 20-25%? By targeting their currencies and so cushioning a weaker US unit, Asian policy-makers will force adjustment on to the Euro and gold. But can the debt and deflation-prone Eurozone cope with a much stronger Euro? And, what will stronger gold (and liquidity) mean for the Emerging Markets?       See our latest published research, Global View - Capital Wars: Killing The Dollar Softly – September 2020  

Danger?! Is the Y2K Dot-Com Bubble Being Re-blown?   The short answer is ‘no’. We are not saying that liquidity is unimportant. Far from it. But looking inside the standard P/E multiple shows that several other things are going on that look very different to the Y2K bubble. True, liquidity is similarly buoyant, but US equity allocations have fallen from last year and profitability is at a cyclical low. Adjusted valuations show a more benign stock market rally that can keep going.       See our latest published research, Global View - Danger?! Is the Y2K Dot-Com Bubble Being Re-blown? – September 2020  

Will MMT Work And Can the US Fed Control the US Treasury Bond Market?   We have long-standing concerns about the US Treasury market. Bonds are in bubble territory and look vulnerable to the use of MMT and the absence of an effective YCC. 10-year Treasury yields could get forced upwards towards 2% given the scale of the economic rebound and the whopping size of Treasury issuance.       See our latest published research, Global View - Will MMT Work And Can the US Fed Control the US Treasury Bond Market? - August 2020  

Global Capital Is Quitting The Dollar   Evidence from capital flows indicates a sharp slowing and signs of a reversal in capital flows into the US dollar. Capital is swinging towards Europe and at the same time capital outflows from Asia are stabilizing. These outflows do not represent a loss of confidence in US economic prospects. Rather they reflect the changing supply conditions: both the increased supply of dollars printed by the US Fed and the step-up in European ‘safe’ asset supply, as part of the COVID response, as well as the likely slowdown of capital flows from China into US assets following the renewed ‘capital war’. Our conclusion is that at least a 10% and may be a 20% fall in the US dollar is possible.       See our latest published research, Global View - Global Capital Is Quitting The Dollar - August 2020  

What Drives Gold Prices?   We previously targeted gold to hit US$2,500/oz. The target is getting closer. Many investors are excited because they associate falling real interest rates with higher gold prices. Not only does the statistical evidence point to liquidity rather than real interest rates as the causal factor, but, with nominal policy rates already effectively at the zero-lower bound, much higher inflation is anyway needed to justify even today’s gold price. Instead we focus on the effect of a liquidity trend on gold, with cyclical swings explained by investors’ risk appetite, Fed QE policy, and accelerations and decelerations in the rate of inflation. This model suggests gold is currently ‘fair-value’ at US$2,100/oz. and could even test US$3,000/oz. by late-2021.       See our latest published research, Global View - What Drives Gold Prices? - August - 2020