Weekly Part 1: Echoing Pozsar, Hartnett says "War is Inflationary"
Time For a New Model
The Big Picture: War is inflationary and causes higher bond yields- Michael Hartnett Feb 2023 below
War is inflationary- Zoltan Pozsar Aug 2022
War is inflationary, get used to it- GoldFix Aug 2022
Intro:
The concepts Zoltan Pozsar wrote that GoldFix shared over the last year are now filtering from the Big Structural Picture (Zoltan’s domain) to the Macro level (Hartnett’s expertise1).
Hartnett’s work this week is a thankful transition of the Anti-Goldilocks concepts ( prev. articles here) from pie-in-the-sky to meatier macro stuff2.
Thus it might be good to share that approach with members before looking at the Harnett report. Scroll down if you cannot wait.
The Top Down Investing Model
There are two general approaches when making investment decisions. They are commonly referred to alternatively as Top-Down Analysis, and Bottom-Up Analysis— Broadly speaking Macro and Micro
Macroeconomic » Microeconomic
Generally speaking Top Down means you look at the whole economy first. Then an industry in that economy is assessed; finally you decide on the company to invest in. The analysis typically goes:
Economy » Industry » Company
Bottom up takes the opposite path as the name implies.
Post the fall of the USSR, those were all you had to worry about. The only people who affected our own investment portfolios (and our lives) were the government and us. We had it good relative to the ROW. There were rare exceptions. But those rare exceptions were handled as one-time events of Economy
Big Picture/ Structural?
One exception. Occasionally you would hear terms like: Sea-change, Zeitgeist, and Structural. These are above the Top in Top-Down but rarely even noticed when they did happen3. When they are mentioned, they're usually folded into "Economy". But that is changing4. Prior to now, the US unilaterally determined the Big Picture (USD power). Now we are in the middle of a bona-fide real Sea-Change.
Geopolitical?
Other exception. You also almost never hear about Geopolitical risk. Analysts usually fold it into “Event risk” or call it a Black Swan5. But that is not the case anymore. So-called Events like OPEC ,Ukraine etc, are now ongoing and chronic. More importantly: They directly affect the West like never before.
The world is now encroaching on the US. It is time for equity investors to look at things a little more like Commodity traders. It is time for a new Top-Down model.
Time For a New Model
Many commodity trader-types like ourselves, like to look at things in a Top-Down way. Most lump Big Picture and Geopolitical together using Macro as a catch-all. We don't. We prefer to segment these according to their sphere of influence 6. Therefore, Big Picture/Structural and Geopolitical come before Macro.
Therefore: Macro » Micro becomes
Big Picture » Geopolitical » Macro » Micro
Continues Below…