I don't mean easy money in the sense it is easy to make money. It is never easy to make money, it takes discipline, patience and perseverance

I am referring to easy money in the sense that financial conditions had gotten easier from late last year thru Feb of this year. That is the orange line (inverted). I use the Goldman Sachs Financial Conditions Index but you can use any of the handful out there

This index uses only a weighted sum of a long-term corporate bond yield, a short-term bond yield, the exchange rate, and a stock market variable. The argument against considering in relation to risky assets is the circularity of having the stock mkt as a variable

However, I don't want to consider it in relation to just the S&P 500 because I agree there is circularity. I want to consider it in relation to the riskiest of assets, those with high terminal value, or long duration risky assets

The chart today compares these fincl conditions to the NDX 100 and Ethereum. You can see as conditions got easier back in 2020, both of these risky assets moved higher. In 2022, as conditions tightened, both of these assets sold off considerably

Both have also had a very nice bounce since late last year, at the same time financial conditions began to ease again. The question now is - what will conditions do going forward?

Let's look individually. Short-term bond yield. There are some pricing rate cuts into Fed Funds futures. This means easier conditions, good for risk. I fall into the higher for longer camp because I think the persistent fiscal spend will keep the Fed in play

What about corporate bond yields? Credit spreads tightened noticeably from late Fall thru March but have begun to widen of late. Why? I think the rolling bank crisis, which has only been a deposit crisis so far, but will soon become a credit tightening.

Exchange rates? The dollar tightened most of 2022. This was causing pain globally so much so the Fed needed to extend swap lines to other central banks. This year, the dollar has been moving lower, easing fincl conditions. Some think this could accelerate around the debt-ceiling debate

Finally, stock market itself. Earnings were better than expected (though growth was still negative in absolute terms) and the view is growing that we have seen the extent of the earnings drawdown.

Less than 10% drop peak to trough and that's it. Ill take the other side. I see margins continue to get squeezed as companies are hesitant to fire anyone. Power is moving back toward labor. This hurts earnings near term

Will credit spreads tighten, the Fed cut rates, the dollar ease and earnings move higher? To me, one needs the majority of that to happen to see conditions ease. One needs to see conditions ease to have the riskier assets move higher

Would love to hear your thoughts on this

Stay Vigilant

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