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Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Cross Asset Strategy

Given the looming end of lockdown measures, the valuation of leadership companies in the S&amp;P500 should come under scrutiny, irrespective of the behaviour of US Treasury yields. Valuation upgrades for companies that were unable to operate normally last year due to the pandemic could be in the offing as conditions return to normal due to vaccine rollouts.
The inability of the Fed since 2008 to escape the clutches of a near-zero policy rate has depressed both short-term interest rate volatility and real yields. The estimate of the neutral real federal funds rate held by Federal Open Market Committee (FOMC) members has fallen to just +0.5% from +2.25% in 2012, significantly below the current +1.9% estimate for potential GDP growth.
In recent years, both bond investors and FOMC members have played an almighty game of chicken about the appropriate neutral policy rate, whereby the former has embraced a far more pessimistic view of the secular growth outlook. The Fed has been forced to counter a number of deflationary shocks since 2000 by aggressively reducing real yields against a backdrop of lower estimated potential real GDP growth.
Weaker US potential GDP growth has reduced real yields due to lower demand for capital, while the shift in employment towards services has reinforced the reduction due to lower total factor productivity compared to either manufacturing or information technology. Lower demand for capital and weaker productivity have been underpinned by ageing demographics. Meanwhile, demand for safe-haven and liquid assets has significantly increased since the financial crisis due to tighter regulation, risk-aversion and quantitative easing, all of which have conspired to lower real yields. 
In contrast to equities, US bond investors have historically been reluctant to embrace "new era" theories supporting faster potential GDP growth, but deflationary shocks since 2000 have produced a positive correlation between bond yields and equities for the majority of the 21st Century. The arrival of rising real yields is not necessarily bearish for equities if market returns become predominantly driven by earnings growth as opposed to P/E multiple expansion as more companies benefit from a return to normal conditions following the pandemic.

Given the looming end of lockdown measures, the valuation of leadership companies in the S&amp;P500 should come under scrutiny, irrespective of the behaviour of US Treasury yields. Valuation upgrades for companies that were unable to operate normally last year due to the pandemic could be in the offing as conditions return to normal due to vaccine rollouts.
The inability of the Fed since 2008 to escape the clutches of a near-zero policy rate has depressed both short-term interest rate volatility and real yields. The estimate of the neutral real federal funds rate held by Federal Open Market Committee (FOMC) members has fallen to just +0.5% from +2.25% in 2012, significantly below the current +1.9% estimate for potential GDP growth.
In recent years, both bond investors and FOMC members have played an almighty game of chicken about the appropriate neutral policy rate, whereby the former has embraced a far more pessimistic view of the secular growth outlook. The Fed has been forced to counter a number of deflationary shocks since 2000 by aggressively reducing real yields against a backdrop of lower estimated potential real GDP growth.
Weaker US potential GDP growth has reduced real yields due to lower demand for capital, while the shift in employment towards services has reinforced the reduction due to lower total factor productivity compared to either manufacturing or information technology. Lower demand for capital and weaker productivity have been underpinned by ageing demographics. Meanwhile, demand for safe-haven and liquid assets has significantly increased since the financial crisis due to tighter regulation, risk-aversion and quantitative easing, all of which have conspired to lower real yields. 
In contrast to equities, US bond investors have historically been reluctant to embrace "new era" theories supporting faster potential GDP growth, but deflationary shocks since 2000 have produced a positive correlation between bond yields and equities for the majority of the 21st Century. The arrival of rising real yields is not necessarily bearish for equities if market returns become predominantly driven by earnings growth as opposed to P/E multiple expansion as more companies benefit from a return to normal conditions following the pandemic.

Rising Real Yields Need Not Unravel US Equities as End to COVID-19 Restrictions Loom