Macro Newsletter May 2021

Welcome to our inaugural monthly market newsletter. The newsletter will summarise our current analysis on the economy and markets from different macro time periods; immediate term, cyclical and secular. Immediate term reports what is happening in the present and recent history, the last trading day, week, and month. Cyclical tracks on a quarterly basis where we are in the business cycle. Secular analyses longer-term trends stretching out to the year, a decade, or even longer.

Another key aspect of this newsletter is that ideas and analysis of the market are tracked between newsletters, particularly on the cyclical and secular time frames. If factors are still persistent they will remain part of the analysis until circumstances change and they are no longer relevant. Examples might include Covid case counts or upcoming stimulus, which will continue to be tracked until it has passed in terms of time or being digested by the market. The makes the newsletter a “portfolio of ideas” allowing the discerning investors to track changes over time, rather than simply have an entertaining monthly tidbit. Newly added factors will be italicised, removed will be struck out, before being removed in subsequent newsletters.


Global markets have been recovering from a brief correction from the 10th-12th of May, as markets digested higher than expected April CPI data. This was lead by technology which some investors value on a long-term discounted cash flow basis, which is most affected by rising interest rates.

Initial speculation in story stocks (e.g. $TSLA), SPACs, and Bitcoin may be shifting to other crypto assets, and maybe the market in general, as investors switch to longer-term allocations.


The Covid recovery which has been going on since April 2020, and came into a real force in November 2020, is still underway, however, we are almost past the lowest base effect comparisons from March to May, and so the outsized figures in the year on year GDP and inflation are like to peak in the next few months.

  • Covid was not a standard recession
  • Existing debt was not deleveraged, in fact, more was added, meaning the next business cycle may be cut short
  • There was artificial disruption to supply chains, which may mean inflation is transitory
  • Government stimulus kept consumption high, as households spent one-off expenditures on work from home electronics and home improvements


The world economy has been in a period of secular stagnation since 2008. A combination of the large debt deleveraging, unfavourable demographics, and banking regulation have caused growth to be below trend for over a decade. Recent Covid related events have caused some analysts and economists to assert that we have finally transitioned from a period of secular stagnation to one of inflation. However, some deflationary headwinds still remain, and so we are yet to see if politicians and central bankers have fully grasped the magnitude of the problem which needs to be solved that would see growth and inflation enter a new long-term regime.

Arguments for and against these viewpoints are listed below:

Secular InflationSecular Stagnation
Inflation has turned and the debt will slowly be inflated away.Large corporate, government and household debt still remain.
There is an expanding millennial generation compared to Generation X.Demographics are a headwind and Millennials are having fewer children especially after Covid.
Central banks are printing money and will cause inflation.Bank reserves are not money, and commercial banks are not lending.
Governments are doing fiscal stimulus.It may cause short-term inflation but actually crowds out the private investment.
Deglobilsation will cause inflation as manufacturing is brought back to higher cost centres.It’s more regionalization and will use local low-cost providers and automation leading to longer-term overcapacity and deflation.
We are seeing a repeat of the 20s and 30s end to the debt super-cycle.Demographics are still far different and even the 20s to 30s saw cyclical inflation/deflation, not sustained like the 70s.


While we may not be transitioning to a decelerating economy yet, discerning investors may wish to book gains in high beta and small-cap positions, as well as those in developing markets that are signalling that the initial acceleration off Covid lows for those allocations may be coming to an end.