Capital Flows’ primary focus is global interest rates, FX flows, and macro liquidity, the forces that cause the flows of capital in the system to change. The degree of uncertainty that exists in the system is only going to increase in the future.
US interest rates are at decade highs, the war in the Middle East continues to push an inflationary shock through the system, and the Eurozone is experiencing a sovereign debt crisis on a scale not seen since the 2010s.
These events are only the beginning of the volatility that is going to take place over the next 18 months. The problem that compounds this volatility is that the entire financial industry is set up to be long stocks and bonds without managing interest rate risk. If you talk to anyone on the institutional side or in the private wealth space, there is no playbook for when stocks and bonds go down together as they did in 2022.
Interest rates, FX flows, and macro liquidity sit at the center of the risks in the financial system today because ALL of the debt is on the government balance sheet.
The capital flows in France are showing a crisis where investors are forced to sell both stocks and bonds, which results in equity markets falling at the same time that interest rates rise. The implication of this is that THE main thing Eurozone investors need to manage is interest rate risk.
If you have been following the work I have been putting out on the Eurozone, France, and global trade imbalances for years now, you will know that this crisis in France is only the beginning, and it will eventually manifest in a different form in the United States. I wrote an entire report on it here:
Over the last month, I have been doing a lot of traveling for in-person research and meetings for the next stage of Capital Flows. I will resume sending out the daily models mapping HOW flows are taking place across rates, FX, and equities. You can find the most recent one here:
