You cannot miss @rektdiomedes' top recommends on macro video for the month. And this is one of it.So I gone through 76 minutes of this interview.Here‘re the top 5 macro insights into 2023 you want to know (part 1 only)🧵👇1/

Interview participants:Host of this interview @JackFarley96 - JackChief Strategist Simplify Asset Management @profplum99 - Michael Green (MG: Mike Green)2/

Questions asked (part 1)1. Strength of Labour Market2. Where We Are In The Economic Cycle3. Commercial Real Estate & Auto Market4. Recession Looming5. Explaining The Recent Rally3/

Questions asked (part 2) - Will do this in another thread6. Is Liquidity Rising?7. The True Cause Of Inflation8. "Debt Is Just A Tool"9. Outlook on Stocks And Bonds10. What A Bear Market Dominated By Passive Flows Looks Like11. Zero Day To Expiry Options (0DTE)4/

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1. Strength of Labour Market

Current dynamic: We are in a situation where the increases in unemployment and the decrease in real wages that are occurring at record levels5/

Those with less than high school education have fallen sharply in the labor forceLabour surplus are happening amongst information workers; those with college degrees who would historically have been protected from this type of dynamic6/

ConsequenceMedian duration of unemployment have been rising over the past 40 yrsWhat it means is:▪Labour surplus of knowledge workers leads to longer periods of unemployment▪It's becoming harder for people with knowledge jobs to find replacements at equivalent levels7/

2. Where We Are In The Economic Cycle

We are in a recession and it usually starts with low unemployment rates of 2 to 3% rangeWe see effects associated with recession like:▪Increase layoffs▪Rise in bankruptcy filings8/

But current data such as nominal spending, inflation reports shows a opposite sentiment; no economic slowdown.Clearly there is a slowdown, in particularly, economically cyclical and interest rate sensitive sectors9/

Employment is a lagging indicator and figures are showingReal estate sector and Commercial Real Estate begins to see some distress10/

3. Commercial Real Estate & Auto Market

Baseline: Residential construction is bigger than commercial and auto markets combined. This will be a key market driver🏠 Real estate starting starting to deteriorate🚗 Car loans are facing credit deterioration11/

🏠Residential properties

Lagging deterioration in residential construction, new housing permits for single and multi family.Right now, if permits and financing obtained residential construction will still go on.12/

🏠Commercial properties

Getting less attractive as businesses do not want to renegotiate for new leaseDon't know how to repurpose commercial estates. Beginning to convert them into residential use but still a long way.13/

🚗 Auto

Auto loans were largely a protected asset class as it represents for the American public, the ability to hold a job. So they, rather lose a house than a car2008 - low auto loans default rates, lending standard deteriorated14/

4. Recession Looming

MG believes that there will be a recession but unsure of severityHe then lays out some of his observations and views.15/

📉 Economy weakened in early 2022 with credit spread widening & slowed growth.Low oil prices mean less spending on gas and food (8% of household budget). In summer 2022, these costs unexpectedly rose to 15%, causing a significant increase in spending.16/

Similar to what we saw in 2005 to 2007 where we went from 10% level to around 15%From that point, we saw a decline in oil and gas prices and slowing of food inflation while income increases.17/

😢 Dotcoms were money losing entitiesEven with high interest rates, the dotcom industry thrived with record high real interest rates.Similar to today's rates, and experienced a booming market.18/

But why would we see a booming market with high interest rates?MG suggests that we think under a put call parity modelIt is the valuation of stocks not just by discounting future cash flows, but also accounting for the value of the option against those cash flows.19/

Higher interest rates increase the value of call options relative to put options.This is beneficial for companies like Tesla that operate like call options, as their valuation appreciates relative to the low cash flow component.20/

5. Explaining The Recent Rally

MG thinks that the rally is caused by the portfolio rebalancing behavior of funds.Rather than the traditional bear market where equities fall relative to bonds.21/

When FED hikes rates, bond prices fallPortfolios would mechanically sell equities to buy bonds (buy low sell high)26/

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