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Andreas Steno Larsen

lines on the record: 59
first: 2025-02-12
most recent: 2025-02-12
sittings or episodes: 1
sources: podcast

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“So I run State of Global Macro Hedge Fund, and then I'm a contributor at Real Vision. You can find our Macro Monday show on Real Vision and on YouTube.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and actually, utility costs, and that surprised me a lot because I was actually of the view that utility costs were going to increase this year. So there's something going on in relation to these typical January effects. A lot of people expect the January report on inflation to be super hot because of these annual increases in utility costs, the reweighting of the index, putting even more emphasis on services, for example. But I'm not sure watching this very timely data from Tratlation. We, by the way, try and run similar online observations ourselves in the fund. We get kind of the same conclusion, not as firm, but the trend is exactly the same as what we see here. And the whole Q1 effect of higher prices, we've seen that in 2021. 2022, 2023, 2024. I don't think we'll see it this year.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Now, but I'll allow those words to be my famous last word for this show because I've said so a couple of months in a row now. And, you know, I'm finally getting some traction on it. But the beginning of that trade wasn't pretty.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“I have my eyes Glued to a chart that I also sent you before this, Felix, on the so-called true flatlation measure and long-term bond yields. The true flatlation measure has been debated among macro pundits basically a handful of years in row more or less. And some of my good colleagues, for example Darius Dale, find it unlikely that they're able to measure inflation in a better way than the BLS. But I actually think there is some merit to the idea of measuring inflation through the month ahead of the actual inflation releases. And as you can see from the dark blue line here, the true inflation measure is basically on the flow. We're basically back to levels seen in September, October, where the 10-year traded sub 4%, right? So I have a very, very high conviction in long bond yields coming down.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“I just want to end with just getting clarity on the bond situation because, to your point, that one's a difficult one because if you just take the framework that we articulated earlier about where we're at in terms of credit creation and the business cycle, yeah, you'd expect Bondias to go higher. But then you have the Doge thing, which is saying that, you know, if we get a lower deficit, that could also decrease bond yields. Yeah, it feels like there's a lot of different factors. So, you know, is it just something that you just want to set aside and not lock at or do you want to take a directional view on it?”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Right around 060708. And to some extent, we're starting to see some of the early, very early vibes I had back in 06, you know, 05, far from the actual crisis moment where everyone's just like, yeah, let's, hey, let's take up a loan and buy stuff, right? That's the kind of vibe I'm starting to get now.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“To some extent, but I think there will be a slight rotation because of this move from fiscal spending to more private spending. And I think that rotation is best described from a, you know, it's a rotation from a data center economy to a real-life economy, basically. And that's what we're starting to see now. Stuff like materials will likely have a very, very strong 2025 banks, buy banks. Banks will thrive in this environment with a skyrocketing private credit creation. Donald Trump, not even just removing regulation, just firing all people in charge of regulating the banking sector, right? It's going to be the wild west mend in a positive way in the banking system. Again, I grew up in the banking system.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think there's some merit to that story, but it's certainly not the full picture. And if you look at the actual developments in the U.S. fiscal deficit since Trump's inauguration date, we've actually seen a pretty sizable contraction of the deficit. So Deutsche is working. They'll not be able to find all of the needed dollars to balance the budget, but they'll certainly bring it in the right direction. And the momentum seen in this Doge project over the past two weeks has just been incredible. You can talk about the moral aspects of it and all of that, but it's certainly inefficient move. And for now, I'd rather, you know, I'm a European, right? And I would love to see something like that in Germany, in France. It would be even more necessary there. And we're starting to see some momentum behind that idea even here now.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Is this material front running of tariffs? And, you know, I went to the US last week. I know it's common to see like gold and silver commercials every 30 seconds when you drive around town in a taxi, but it was bizarre this time around. It was all I saw riding taxis, you know, only gold and silver commercials airing. So I think, and they all use this excuse, bring it to the US now by now because of blah, blah, blah, right? So I think it's a very idiosyncratic story. And, you know, it will end in tears at some point, but I'm not ready to call this up yet.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, we run a few fundamental models on gold. For example, using the real interest rates in the US, we also have a global real interest rate model for gold. And the R square is zero right now. It does not explain anything. So something very idiosyncratic is going on in gold. And I think this most recent search in the gold prize has been primarily driven by Westerners, which is a game changer relative to what we saw through the first three quarters of this year, sorry last year, where these buying spree was driven by Chinese high-net worth individuals, Indian high net worth individuals as some sort of hedge against a strong dollar. So, you know, we've been seeing central banks involved in this trade as well, but they're not driving it right now.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, specific to gold, do you think this recent price action has just been this something to do idiosyncratic with this? Because, yeah, it feels like, you know, if you look at it from a real rates valuation or something like that, pretty much any traditional gold valuation metric is like, okay, we're pretty stretched here. And yeah, we just keep searching higher. So yeah, you think it's something like idiosyncratic like this?”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“We've been trading gold on the long side all year. And I'm tempted to say that it looks very, very top-ish now. Again, it seems like everyone is front running this tariff tariff era.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Is being moved to the US in size and with a tremendous speed. And I guess this is all related to terrorist front running, right? Because if you're a wealthy guy living in Boston or New York, I think prior to this tariff chatter, you wouldn't mind having your gold bars in a cellar somewhere in Switzerland or in London or in Luxembourg or in Andorra or whatever. But now with tariffs, it makes sense to ship them to the US before those tariffs are implemented. And for now, we don't have tariffs on gold imports. But I struggle to explain it in any other way. It's just massive. And we haven't seen anything like it since the pandemic where all of us thought that we had to buy canned food and gold to survive, right? So it's a very, very peculiar situation. And in my...”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“To square the deficit via the tariffs channel. So I don't think it's a feasible path ultimately. But it sounds good because it sounds like someone else is paying for it, which is obviously not really the truth by the end of the day. Take is basically that Trump is surrounded by businessmen heavily invested in global supply chains. Behind closed doors, they'll tell him not to go too far on this agenda. I think that's my base case for now. You know, who's able to forecast Donald Trump? I'll not claim that I am. But my best guess is that the administration that he's put together this time around is a lot more anti-tariffs than the one he had last time around, like behind closed doors at least.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“I guess it depends on the response they get from some of these big emerging markets. Because ultimately, if India starts bringing its import tariffs down, if Brazil does the same, and you've told them that the tariff approach is reciprocal, then you have to lower them again, right? I'm not sure that Trump will give any like promises in relation to that. But in any case, the concept is tit for tat, right? If they lower them, you lower them, right? So I think that's, it doesn't square particularly well with this whole notion that you can use tariffs to replenish the coffers of the US Treasury. I basically think that this whole idea is bullshit, if I may, because you'll have to increase. Tariffs to an extent that is abnormal if you want to.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Fair enough, if you want to accuse me of having a home bias here, but it's not, I haven't toured with this story for a long, long, long while, but I'm pretty upbeat on Europe right now, especially because I think you showed the chart on the relative change of goods exports since the pandemic, this one. As you can see, the Eurozone has lost market shares basically since 2020 on a trend basis to China, to Latam, India, you name it, even to the US. The reciprocal tariffs concept is potentially a sweet spot for the Eurozone, since if you go for the tit-for-tat approach, you actually can add a whole lot of tariffs on the Eurozone because the average tariff is lower in the Eurozone than it is in the US, according to the World Bank database on the topic. So it's a much bigger issue for Modi in India. It's a much bigger issue for Lula and Brazil.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“I think the recent feeling is that it's been Widow maker trait to suggest to go along Europe for a decade more or less, right? And this is my favorite shot right now. My colleague Robu Pal and I, we've toured with this chart on the European banking system being stuck at the abyss. And now all of a sudden the European banking index. Broken out and it's on an absolute tier right now. It's the best performing sector on earth. Basically six weeks in a row, something like that. And to me, that's the ultimate sign that Europe is actually moving out of a very bad spot.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Because if his message to the rest of the world is that we'll match your tariffs, no matter how high they are, Will likely see countries like China, India, Brazil. End up having second thoughts around whether it's smart to have such high tariffs. It's not really a big issue for the Eurozone, for the UK. Most G10 countries do not have high tariffs versus the US, but a lot of EMs have. And they will have second thoughts if he decides to go for this tit-for-tat approach. And therefore, I think this is the exact reason why we're seeing Europe performing as well as it is right now. Europe has been the best performing equity market more or less on Earth since this is crazy because I feel”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“So, I guess, first of all, Felix, I remember you and I had a discussion on the dollar and bond yields just after New Year's. And, you know, it felt like huge premium was baked in already then. And I think ultimately that viewpoint proved to be the right viewpoint. I think both of us managed to throw in the towel right of the wrong time. But anyway, you know. I'm still reading that way that the dollar needs to weaken from here, that dollar bond yields will come down alongside a fading tariff premium alongside slightly lower services prices and all of that. But looking at the tariff situation right now, I kind of have the contrarian take that the reciprocal tariffs put forward last Friday by Trump, that whole concept. Concept crack could actually end up with a race to the bottom. tariffs”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Situation how that's impacting other economies because there's a lot baked into the dollar right now where it stands, both in terms of just this outright economic strength and lack of cuts from the US versus weak growth in other countries and more cuts occurring. It feels like what you're saying is that that's about the reverse. At the same time, that there's a lot of what I would call like tariff premium baked into the dollar right now in US yields. When you combine those together, what are you seeing? And also like, yeah, what is your overall tariff outlook in terms of what's actually happening?”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“It will look pretty nasty in many countries with a large manufacturing footprint. Sweden, to take a very good example, Korea, some of those very industrialized nations with a big component in manufacturing in their sort of economic basket, while the US inflation basket will look benign relative to the rest of the world. And to me, that's a pretty solid story for the local dollar market. It's not a good story for the dollar versus other currencies, but that's a story for later. But the Federal Reserve will likely be the central bank. With the best opportunities to keep an easy bias intact through the year, maybe even they'll even keep easing through a pivot from the European Central Bank of Canada, you name it. And that's because of the design of the inflation basket.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Potentially higher car prices, stuff like that through the first half of the year. So if you look at inflation solely in what you could label the necessity basket, it would likely look terrible in 25. But measured inflation, including shelter, including insurance costs, some of those extremely sticky categories will look very benign. because of the way that the inflation is measured in the US. Let me stress that because if you look at the European calculation or basically the way the inflation index is calculated right about everywhere outside of the US, there's a much larger weight on goods. And there's a much smaller weight on housing. So I think inflation will look pretty nasty where I live in Europe.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“It's kind of the same story as we just discussed on growth, right? Because we have this intersection between services and manufacturing. And it's very unusual that they move in almost in opposite directions. But that's basically what we're seeing right now. Service activity slide you down, leading service prices slide you down along with it while we're starting to see that pickup in manufacturing slowly but surely spilling over to higher food prices higher energy prices”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Early in a business cycle here, obviously, that's going to have a positive effect on inflation in terms of like goods and especially things like food. But at the same time, I'm of the belief that shelter will continue to come lower. So I'd love to just, yeah, hear about how you're thinking about all of that as a stance.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah. I think what might be helpful here is to take this context we just outlined and apply it to inflation and CPI print that is coming out this week and PPI as well because I feel like that's where there's some more confusion and uniqueness that's going on because just to set the context of how I'm viewing CPI these days is we've seen significant disinflation from the good sector that it's aligned pretty closely with this stagnant manufacturing situation that we just described. So that's come down and that's been all great. We've even seen a couple months of outright deflation from goods. At the same time on the services side of thing and especially looking at like shelter and lag you know OER and those dynamics that's kept us sticky and above the target. So I would love to just hear about how you're thinking about CPI and inflation as it stands.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Of the investment environment. I'm a little less certain this time around because we enter this cyclical upswing with a slightly odd cocktail of high multiples, higher bond deals than usually going into such a cycle. I would argue, and I suppose you agree, Felix, that, you know, when we enter such a cyclical upswing, it's actually a good bet to bet on high along bond yields. That would at least be the typical pattern. It's a little bit less certain this time around as well since we have these very lacked effects on wage growth and the service sector seems to be responding slower than usual to rate hikes. So yeah, the cycle is not normal. I think that's fair to say as well.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, Russell is a special case because it's so sensitive to inflation and bond yields and maybe especially wage growth, actually. So it was a bit of a setback for Russell this relatively hot wage growth report we saw alongside the non-farm payrolls. But I'm actually pretty upbeat on the cocktail ahead for the Russell index because wage growth is coming down. We have very solid say two to three quarter leading indicators on wage growth. For example, the quits rate from the Jolts report. It leads wage growth by nine months roughly and wage growth is going lower. The flip side of that is obviously that the real spending power likely goes slightly lower as well. And typically I'd argue that the manufacturing cycle is the best gauge.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“You look at the client base of meta, to take one example, meta has been on its tier basically over the past 14 days. Is it possible that every single person on earth ends up being a client of meta? Yes, that's very possible. That was not the case in 2000 when you sold civil evaluations. It was not a feasible scenario to expect some of these players to have every single person on earth as clients. I think that's a feasible scenario for meta. Of course, I'm exaggerating this, but the concentration of power is extreme relative to what we've seen at any point in history. So buffet indicators, all of that boomer shit, throw it in the garbage can. It's not designed for this era.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Course, when you look at multiples from Tesla and the likes, it seems like we're very late cycle, right? But I'm also of the view that we keep underestimating The value of these MAC 7s. And let me try and explain why. Because, you know, the concentration of power among these seven companies has never been more immense than right now. We even have a couple of them in government, right?”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I guess what's also confusing is okay, if we, and it sounds like we both agree on this, is that, you know, we're actually more early cycle than late cycle and the credit cycle is only just getting going, but we're going into that point with valuations quite stretched. So my question to you is how do you contextualize that with what we're seeing in terms of equity valuation? Because I feel like that's maybe the part that's freaking people out and not getting fully on board with this idea being early cycle.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“You know, everyone I talk to, they sound like they're living the last day, right? It's very weird. But I think it's due to the manufacturing cycle not picking up speed, but we're actually very close to seeing that in practice now. When it comes to fiscal, I don't think there's any doubt that Joe Biden postponed the crisis and basically saved the US economy from cratering via the Inflation Reduction Act, via the Chips and Science Act. Ultimately the headache after the pandemic had to be absorbed one way or the other, either via inflation or via recession. And they chose, sorry, the inflation path.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“I think it's very fair. And if you look at the forward-looking indicators from manufacturing, I would be surprised to see the manufacturing PMI is above 60 this summer. I think it will be a very, very fast move from here. We're starting to see the first signs of a pickup in new orders. We've seen some of the regional PMIs through the roof, for example, the Philly Fed. The last ISM report was also pretty decent, especially when you gauge the forward-looking components of it. So sure, we are starting to see a pickup in the manufacturing cycle, but it's very early days. And I think that's why we are stuck with such a gloomy sentiment, especially in crypto. I know that everything outside of Bitcoin Not doing well at the moment, but anyway, you know, we've seen pretty solid returns 12, 18 months in a row.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“So we've seen a massive credit creation from the public sector through that period. And obviously, if the public sector competes with the private sector on providing credit to everything related to data setters, raw materials, such projects. See a pretty lackluster development in private credit. So I actually think this is a mix of a lacked response to monetary policy and a symptom of the public sector actually withdrawing from the credit market.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“So, first of all, I think this is a lacked response to the cuts we saw last year, the easing of financial conditions into the summer and all that. It roughly takes 12 months before we're starting to really see the credit pickup after such a move in bond yields. On the margin, there's a lacked response to the monetary policy from last year. But on top of that, I also think this is a response to the public sector withdrawing from the credit market. And let me add some color to that because through 23 and to some extent also 2024, Joe Biden was the bank in the US. Some of the measures that he implemented, not least the inflation reduction act, Isn't one big credit scheme.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“I just want to set the context here of something that I've been thinking about, which is that, okay, you look over the last couple years, and we've had pretty robust GDP growth. We have risk assets at all-time highs all the time. You would think that credit is surging right now, but it actually, and we can also tie in the manufacturing sector in what we're seeing there, but it feels like the core components of the economy actually haven't been as robust as it might seem from the top line here. So, you know, when you look at something like commercial credit here in this chart, you can see that it feels like it's only just starting to get going. So I'm curious if you could just unpack that idea and further hone in on like, why is it that we're only starting to see this uptake now? Is it just where we're at in the business cycle? Or what do you think will stop this from really getting going until right now?”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it feels like overall, you know, like the biggest losing trade is thinking that the Fed is cornered and that they can't kick that can down the road. There's always a way to kick that can and they'll make sure of it. I want to shift gears a little bit more towards private credit. You mentioned how credit activity is starting to come back here.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Things that are very far from QE. But ultimately, the effect is almost similar, but there are differences in terms of how much duration they absorb. And they'll come up with some sort of officialise way of adding liquidity, if you know what I mean. They'll not call it QE. They'll try to avoid discussing it too much in public. And they'll just say that it's technical in nature. See how Bank of Canada communicated the restart of some sort of like QE. They just say, okay, we need to expand the balance sheet in a measured way that compares to the GDP development going forward. You could argue that GDP developments have been net negative in Canada, so they will unsip at the end of doing QT anyway. But joking aside, that's one option as well, right? Saying we'll buy bonds to an extent that. The growth of the economy.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“To use the discount window on a running basis, basically force them to via some sort of legislative change. You actually get a liquidity edition and at the same time you get a bit for bonds because banks will have to post, for example, treasuries at the discount window to get a loan in return. So I think that's one of the options on the table. The other one is the SLR exemption that you mentioned. So we're talking”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“They'll need Find a very creative way of adding liquidity this time around because QE smells bad when inflation is above target. It smells bad when interest rates are not zero. And therefore, they cannot do QE and they will not do QE. But they can do QE, not QE setups. One idea that I've seen floated as well is that they'll basically ask private banks to use the discount window on a running basis. So remember the discount window is typically a borrowing window that is put into use during times of stress, for example, just after the Silicon Valley Bank failure. Banks took out loans from the discount window and that added liquidity to the banking system. But if you ask banks,”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“But there's a certain dynamic every time liquidity is added to the system because A bank treasurer will typically look at a liquidity window of plus 30 days due to legislative designs. And if the assessment is that the GGA will run close to zero for more than 30 days, there is a positive impact on interest rates, meaning that interest rates will come down. But it's module.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“I think you're spot on. First of all, there's obviously an interlink between the Treasury General account and this overnight reverse repo facility. Because if they decide to bring down the amount outstanding of T-bills this time around, we'll likely see a small spike in the overnight reverse repo facility as the TJ moves towards the zero lower bound. And therefore there is sort of an offsetting effect liquidity-wise from the two programs moving in the opposite direction. On top of that, it is temporary by nature when the TGA is put into use. And therefore, the medium-term signal value of adding liquidity via this measure is not particularly strong. It's absolutely non-existent. And therefore, as I said, this is the least efficient form of liquidity additions. And you could even argue that you shouldn't care.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I've always sort of felt like we know that markets are forward looking. And this specific rundown here, regardless of what, like, yes, the TGA will go down to zero, but we know that once the debt ceiling gets resolved, they're going to have to build it right back up. And so not only that is that the last time that... I just don't know if you've looked into this as much, but shouldn't markets just look at this and say, oh, it's just temporary. We're going to look past it and we're going to look past it to the point where, oh, crap, when we get onto the other side of this where these bill, where are these bills going to come from this time? The reverse repo is sub 100 billion, right? So, you know, then it's like, okay, well, where does this come from next?”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Replenish this liquidity pool, right? They'll issue again and then they'll put it on that account in the Fed system. So we know that it's temporary. We also know that the typical issuance pattern from the US Treasury once we get to the point where the TGA is in play is to bring down the amount of T-bills outstanding. Therefore, this liquidity addition does not help private markets absorb duration. If they bring down the amount of T notes or T bonds, Instead, use the TGA, then there is obviously some positive duration effects as well. But in contrast to, for example, outright QE, where the Federal Reserve A long-term bond, this liquidity addition does not facilitate a duration absorption to the same extent as QE. So it's okay on the market. It's positive, but it's the least efficient form of liquidity traditions.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Almost $800 billion there. And they'll spend that during late February and March. And when they spent those dollars, private banks will be on the receiving end of the deposits. So it basically means that private banks will receive dollars and it will put a downward pressure on short-term interest rates. It will likely lead to slightly larger risk taking in the banking system. And it's on the margin decently good news. But I'd also like to stress that this is probably the least efficient liquidity addition of all of the liquidity measures that we've mentioned. First of all, when you add liquidity via the Treasury Journal account, you know that it's a temporary liquidity edition because ultimately if that ceiling is raised again, they'll”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“A war chest. It's idle liquidity designed to be there in case of emergency. So the larger the debt, the larger this war chest of liquidity at the Federal Reserve, they've been constantly raising the bar for this Treasury General account over the past five, six years in conjunction with debt levels being higher and higher. But ultimately, this pool of liquidity is there should it be needed for example because of the debt ceiling that's basically not the intended design but in other use cases you could for example mention in times of extreme stress and treasury markets they can use this facility instead of issuing and allow the market to calm down before issuing again we've seen that for example during the stress early stress in March 2020 so they have yeah”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Soon as the debt ceiling is in place The Treasury will have to use so-called extraordinary measures to fund itself. And as long as they use these extraordinary measures, they can actually issue still. So as of today, they've probably exhausted around 65 to 70 percent of these extraordinary measures. And we're talking measures that are pretty normal, as you say, because they're using pockets of liquidity available in the treasury system. And they have various measures that they can take into use every single time. But of course, there's an end date on these measures. And we're approaching that end date quite soon. It basically means that the final funding source left for the treasury is the Treasury General account, an account they hold at the Federal Reserve. And it's basically...”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“So, I want to hone in on what feels like the next trick is likely coming up. And you have this chart here of the TGA. So to your point, reverse repo as quantitative tightening has been occurring. It's been largely offset by the high balances that were in the reverse repo. We're now sub $100 billion there. So that is largely tapped out. And so now we're shifting towards looking at what is the next trick that is on the horizon. And just to contextualize the situation here is that we've reached the debt ceiling and what happens there is first off there's this sequence of extraordinary measures, which I'd love for you to explain. What does that actually mean? Because, and under my understanding, nothing about it is actually extraordinary. They do this every time we get to the debt ceiling. And then what is the sequence that comes next here and why is it relevant for the TGA account, which is what we have here in this chart?”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Did not breach the law pain threshold. And I think we're relatively close to that pain threshold right now, but they're safeguarding that level very fiercely. And we've also seen that in both the minutes, but also in some of the speeches from the members of the committee, that they are aware that we are not too far away from some sort of pain level in the official slash narrow liquidity measure.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“Out of thin air, even if the Federal Reserve is trying to tighten liquidity conditions. And on top of that, we've obviously seen a whole range of liquidity tricks from the Federal Reserve to try and contain the downside pressure in the very narrow liquidity measures. So basically since 203, we've seen Federal Reserve using both this overnight reverse repo facility. We also saw liquidity additions around the Silicon Valley Bank failure in this bank term funding program, BTFP, which was basically QE, not QE. And they've used a bunch of tricks to ensure that the amount of dollar reserves in the financial system”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT
“And that is the relevant measure to look at right now because it basically explains why we've seen all-time highs in equity markets over the past couple of years. It explains why we've seen a very positive development in crypto over the course of the autumn since we had almost an explosion in the broader money supply due to the private money creation. And I tend to look at measures like M2 and M3 and try and deduct what's driven by the Federal Reserve and what's driven by the private system. And if you look at the private money creation over the past couple of years, it's basically through the roof while we've seen QT from the Federal Reserve. So I think that's kind of a surprise to many, but it's also a testimony to the fact that private banks can actually create liquidity and can create money.”
2025-02-12 · Forward Guidance · The Credit Cycle Is Just Getting Started | Andreas Steno Larsen · IDENTIFIED FROM THE TRANSCRIPT