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REPORTS

OUR REPORTS

Amuletum Invest conducts analyses on topical themes in economics, finance and investments, and publish them in the form of research-based reports. Our analyses are aimed at supporting our clients' investment decisions, as well as the investment decisions behind our portfolios. Find below our previous reports.  

SAMPLE REPORT

The difficult task for monetary policy and the call for a fiscal adjustment

"The difficult task for monetary policy and the call for a fiscal adjustment"
Author(s): Rafael B. De Rezende
May, 2022

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Inflation in the US and other economies continues to climb. I discuss reasons why a monetary contraction will not be enough to bring inflation back to target levels without causing a recession, and that a fiscal adjustment may be necessary as additional measure. The main obstacle for monetary policy to contain the gallop of prices is the resulting highly negative real interest rates and the high debt levels observed, which make the call for a fiscal adjustment. Otherwise, an even higher inflationary spiral may occur, as debtors may wish to take advantage of the highly negative real interest rates and engage in even more debt and spending. One of those debtors is the government, which constant deficits and increasing debt may trigger a loss of faith in the currency, keeping inflation on the rise. A fiscal adjustment is pertinent. I also discuss policy scenarios and implications for investments.

PUBLISHED REPORTS

The current stance of monetary policy: how contractionary it really is?

"The current stance of monetary policy: how contractionary it really is?"
Author(s): Rafael B. De Rezende
July, 2022

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Estimates from real policy rates and real shadow rates for the US, Euro area, UK and Sweden suggest that monetary policy is still expansionary from a historical perspective. As a result, although economic activity has slowed down to some extent, inflation has continued to rise. I continue to advocate that a fiscal adjustment is pertinent as additional measure to contain inflation, where faith in the economy and in the currencies would be reestablished. I discuss the most likely scenarios for the global economy going forward, and implications for investments.

A portfolio of sustainable companies has been favorable during high volatile regimes

"A portfolio of sustainable companies has been favorable during high volatile regimes"
Author(s): Lisa Alexandersson & Rafael B. De Rezende
September, 2022

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We compare the performance of an average portfolio that assigns equal weights to all companies that are eligible for Amuletum Invest AB sustainable portfolio “Amuletum Global Equities Sustainability”, and two sustainable benchmarks, the Dow Jones Sustainability index, and the BetaShares Global Sustainability Leaders ETF, relative to the MSCI World index. Sustainable companies have been less volatile and somewhat more resistant to market crashes than other more common companies. The equally weighted portfolio of sustainable companies generates higher risk-adjusted returns compared to the three benchmarks during all periods studied, suggesting that the companies forming the basis of Amuletum Invest AB sustainable portfolio have been a favorable investment strategy, especially in periods of high volatility in financial markets.

Cost of mortgage and house prices: what’s next?

"Cost of mortgage and house prices: what’s next?"
Author(s): Rafael B. De Rezende
November, 2022

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As monetary policy has been strongly contracted to fight inflation, the cost of mortgage has risen significantly in several economies. I discuss why a rising cost of mortgage aligned with inflated house prices will be the catalyst of a house price correction in various economies in the upcoming years. As interest rates reached record lows and mortgage debt reached record highs in a recent past, the interest rate sensitivity of the cost of mortgage increased substantially, implying that the rapid and sharp monetary contraction seen recently has increased the cost of mortgage strongly. The result is a price correction in housing markets. I show both theoretical and estimated results that support my arguments  for the US, UK, Sweden, and Canada. I also discuss key implications for the future state of house prices in various countries, including expectations of house price appreciation in more favorable markets, and implications for investments.

On the timing and strength of the upcoming recession

"On the timing and strength of the upcoming recession"
Author(s): Rafael B. De Rezende
January, 2023

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As monetary policy has been strongly contracted to fight inflation, the risk of recession has climbed. Using a logit model with Lasso penalization and data for the US and Euro area, I forecast recession probabilities throughout 2023 and first half of 2024 for both economies. I also discuss the implications the recessionary scenario may have on asset prices, such as major stock indices, bond prices, and other recession resistant assets such as sustainable stocks and gold.

On the stress of US regional banks

"On the stress of US regional banks"
Author(s): Rafael B. De Rezende
March, 2023

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Financial markets have been shaken by the surge of a banking crisis during the last weeks, raising concerns about the health of various financial institutions, and the stability of the financial system in a period of rapid monetary contraction and high interest rates. I discuss the stress levels of sixty US regional banks, by proposing a “regional bank stress indicator”. The new stress measure suggests six highly stressed regional banks in the US. I discuss their likelihood of failure, following the collapse of Silicon Valley Bank and the Bank Term Funding Program launched by the Fed as a source of liquidity for distressed banks. I also provide a new assessment for the probability of recession in the US and tips for capital allocation across assets. Subscribe to gain access and know more!

The long run effects of de-dollarization on financial markets

"The long run effects of de-dollarization on financial markets"
Author(s): Rafael B. De Rezende
May, 2023

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I discuss the implications of the phenomenon of de-dollarization for financial markets in the long run. An important background for the analysis is the fact that the world reserve currency status of the US dollar has given the US the advantage of being able to run large twin deficits without major adverse effects on its economy. The big picture will change as the US government continues running consistent fiscal deficits and the process of de-dollarization carries on. I discuss the long-run effects of this scenario on currencies, and US Treasury rates. Subscribe to gain access and know more!  

Macroeconomic risks in the US: a tale of distributions

"Macroeconomic risks in the US: a tale of distributions"
Author(s): Rafael B. De Rezende & Lisa Alexandersson
July, 2023

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As the labor market and consumption so far have shown some resilience to the aggressive interest rate hikes, a discussion on the possibility of a soft landing for the US economy has emerged. We discuss that the US recession is yet to be seen in the data. Using quantile regression methods, we provide forecasts of conditional distributions for a set of macroeconomic variables for the upcoming year, from 2023Q3 to 2024Q2, and discuss the likelihood of a downturn and persistent inflation. We also discuss the implications for the performance of a number of assets including major stock indices, bonds, among others. Subscribe to gain access!

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"Ex-ante macro-financial tail risks: what do they reveal?"
Author(s): Rafael B. De Rezende
September, 2023

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Estimates of ex-ante macro-financial tail risks reveal substantial macroeconomic tail risks in the US, at levels that are comparable to or higher than previous recessionary periods. Although tail risks in international stock markets have not emerged yet, they could be on the verge of appearing due to the emergence of systematic macroeconomic risks. In this scenario, stock markets shall fall, due to the rising and strong stock return correlation across economies in downturns. I discuss investments across asset classes, including bonds, currencies, and metals, where there is some likelihood of a recessionary scenario with inflation persistently above the target (stagflation).

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"Fed funds rate predictions: what are the odds?"
Author(s): Rafael B. De Rezende
November, 2023

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The current macroeconomic environment, with high interest rates, low unemployment and falling but sticky inflation, has raised discussions among market participants on the odds of interest rate cuts. Using machine learning methods, I generate point and distributional forecast for the Fed funds rate throughout 2024 and first half of 2025. Single model forecasts and forecast combinations indicate substantial downside interest rate risks, and indicate more aggressive interest rate cuts than fed funds futures, suggesting the repricing of major assets in the near term.

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"On the response of stock returns to monetary policy:
a new tech-bubble story?"
Author(s): Rafael B. De Rezende
January, 2024

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The tech sector has experienced a rise in stock prices not seen since the dot-com bubble. Using a price ratio analysis across sectors, I show that the AI sector has been the main driver of such rise, turning on a red alarm light over the idea that a new tech-bubble could be in formation. I also show that, in a scenario of declining cash-flow expectations, rising risk and crashing prices, expansionary monetary policy would help to push stock valuations up, avoiding stronger price crashes in the tech sector.

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"Beta risk in the tech sector and the AI stock inflation"
Author(s): Rafael B. De Rezende
March, 2024

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I analyze risks around the rise in stock prices in the tech sector. Using a time-varying CAPM model, I show sectors that have experienced substantial beta risks ultimately as well as outperforming (beta-)risk-adjusted alphas. High beta risks together with elevated price ratios in relation to major indexes, at levels surpassing (by far) the peak of the dot-com bubble, suggest an increasing risk of strong price reversions in the AI and the tech sector. That would be especially true in a recessionary scenario, where declining cash-flow expectations, rising systematic risks and broad stock price crashes are typically observed, and where I advocate central banks to intervene.

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