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24 июля, 07:33

The Economist on the Chinese Economy: I Wish I Was Taller

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I've been told the whole world grinds to a halt to watch the new season of Game of Thrones, but I've never given one thin dime to HBO so I've never watched it.   I still think one of the best shows of all time is Seinfeld. One of my favorite episodes was "The Cartoon." Elaine gets a cartoon published in the New Yorker. Elaine says the pig says, “I wish I was taller.”  She comes to realize that she subliminally plagiarized the caption from Ziggy. I’m sure it was the same phenomenon when The Economist published this article on the credit boom in China. The author discusses the BIS research on the history of credit booms, the speed of credit growth, and the gap between credit growth and trend growth, with a wider “gap” tending to expose an economy to greater risk of a crisis. Where have I read that before? Ah, on MacroMan!!Look, I’m sure I’m not the only one that nerds out to “Liberty Street Economics” and the BIS. What I love about The Economist version is, well, how awesome it is. They don’t caption their articles, but this guy is an absolute professional. Check this out: “On a rollercoaster, riders climb upwards slowly, their suspense building, then plunge downwards quickly, their stomachs lagging a little behind. In its deleveraging efforts, China’s government hopes to do the opposite. It has allowed the country’s liabilities to mount quickly. Now it wants them to plateau or drop gently (relative to the size of China’s economy), leaving stomachs unchurned.”Dang. I wish I could write like that. The article goes on to say that growth and inflation have closed a material portion of this gap in 2017, which is a valid point. But it is still well above levels that the BIS would suggest imply economic stability. Top shelf financial writing aside, this did force me to look back on my analysis from six weeks ago. As so often happens, the analysis stands the test of time, but the trades are a little shopworn. I did pitch them as hedges for a larger risk-seeking portfolio, but you are even farther away from low-delta strikes in currencies like SGD, CAD and AUD---and while 5y5y AUD receiver swoptions are probably still skulking around the same area, CAD rates are higher. My outright ideas to short CLP and COP are looking relatively good--CLP only recently made a material move stronger on stronger copper prices, but COP has weakened back above 3000 on continued weak oil prices and the stagnating domestic economy.  It brings up a dilemma in macro trading, tail hedging, or practically anything I guess--if you have a long time horizon, even in a couple of months you can move far enough away from strike prices to take out the gamma you are supposedly paying up for. I continue to like the hedges I brought up the first time around--heck, they may be even cheaper now. The price action of the past couple of months shows that timing is key...but if you are running a large portfolio you are likely not being paid to make decisions about market timing. That is why it is of great importance to find tail hedges at a reasonable cost in the context of a broader portfolio that is seeking long-term excess returns for a unit of risk. Otherwise, The Great Volatility Ambien Pill of 2017 will put you to sleep and you’ll wake up with in a bad neighborhood with your wallet missing. The article closes by saying, “Credit, on the other hand, should be a vehicle of economic progress, not a circular thrill ride.” True...but since the breakdown of Bretton Woods, global credit has undoubtedly been a thrill ride of historical proportions. As China continues to ratchet up towards the next peak, we can only speculate when we will reach the top and how steep the inevitable drop will be. That’s the best I got, Economist writer. Your move.  

20 июля, 06:23

Question for the Class: What Are the Unloved Asset Classes?

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Investing is a little like Lake Wobegon, everyone thinks they're above average. We all know that's impossible in the aggregate, especially after fees. Read any book by the saints of investing history and the same theme comes through time and time again--you have to be outside the herd to outperform. You have to be uncomfortable. You have to see a pot of gold where others see bees and sharks.Again like the residents of Lake Wobegon, we like to say we're contrarian. But often, we're not. We follow trends, chase performance, and fall victim to any number of cognitive biases.  We’re just wired that way. With that in mind--what is the out-of-favor, contrarian trade right now? Shorting FANG doesn't count--if you were a long-term investor, what asset class do you put your money in here to maximize risk-adjusted returns? What asset classes have been left behind by the huge asset inflation experienced in markets across the world during the QE-era?Here are a few options that I believe we can agree to throw out: Domestic stocks, which are trading at valuations never seen this side of the tech bubble, Developed market fixed incomeCredit of virtually any variety I can think ofReal Estate, which is touching all time low cap ratesGoing back to the pension funds I brought up last week, as well as a couple of other big real money investors I have poked at since then, the consultant industry is pushing real money towards greater allocations in private equity, which has seen returns above those of public equity markets in recent years. While consultants are by definition incapable of making out-of-consensus recommendations, I think these three charts argue that private equity is far from "contrarian":#1….2/3s of private equity’s portfolio companies saw margins contract relative to projections...so PE fund general partners didn’t improve the operations of their companies… #2...Yet private equity has done well...why? Multiple expansion#3... there is $1.4 trillion (!) in “dry powder” looking for the next private equity trade. This is money committed to PE funds but yet to be deployed...all chasing performance in an industry that saw margins contract in 2/3s of their portfolio companies...meaning they didn’t improve the companies, they just got in at a good price.  And I’ll spare you another chart---but buyout p/e multiples are at all time highs, and while off of 06-07 highs, debt/ebitda ratios are pretty spicy too.  What does that leave on the menu? (feel free to add your own here)Foreign Equity, presumably emerging marketsEM fixed income, presumably local, not USDForeign Real Estate (cheap markets raise your hand….not so fast, China, Canada and Australia)Smart Beta (?)Robots, AI, machine learning (?)Real Assets...oil/gas, timber, etc.Or...here’s the one that always gets people excited...cash. Or even...gasp...gold. Cash with a touch of gold to protect your purchasing power against profligate central banks will keep you within spitting distance of inflation and is the original long-vol strategy. You have the ability to buy assets at cheaper prices in the future at a time when virtually any asset class I can think of (please chime in with a cheap one!) is expensive by historical standards. You’re going to feel uncomfortable. You’re friends are going to call you insane. You need to withstand more than a bit of career risk. You will be the most boring guy at the next cocktail party. While your friends and colleagues are talking about the next PE unicorn they are chasing, FANG stocks, or dare I say, the pile of money they made in the EMFX carry trade, you’re going to brag about how you squeezed an extra 5bps out of your money market trade by locking in a juicy term reverse repo. Your date might leave with the Argentine guy with amazing hair. Hmm, cash and gold seem to check a lot of boxes. Tell me what asset class you think holds the title.

17 июля, 07:10

Economist Riff of the Week: The Big Mac Index--Buy EUR/SEK

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As vol continues to strangle any substantive macro trends, we’ll get back into the cycle of Economist articles to lead off the week. This week’s article for your macro consumption is the annual updating of the Economist Big Mac Index. I must confess to having a soft spot for the Big Mac Index. During my freshman year of college, my intro economics prof introduced the concept to the class. I found it fascinating, and it really connected the dots for what this whole endeavor is about--the quest to find some common “currency” by which we can assign value, or at least give us some evidence by which to make some subjective judgements. For me, it suddenly all made sense. By the end of the year I dropped my plan to be a political science major and the rest is history. So there you have it--here’s what I see as the takeaways, modest as they might be: Sweden still very high on the “overvalued”, and actually appreciating more. And it’s had a nice run lately, taking EUR/SEK from 9.80 to 9.53--SEK rates have underperformed EUR rates owing to some relatively good data and the potential for the Riksbank to move off of the lower bound of repo rates. That said, 2y2y rate spreads haven’t done much-- if I were to plot this out on a regression the residual is very close to zero. I’ll confess that I haven’t spent a great deal of time thinking about the land of my ancestors--but is there a good argument we’ll see a faster normalization of rates by the Riksbank than the ECB? Unlike with the fed, inflation could arguably be converging towards the 2% target. Sweden CPI and CPIF (CPI w/ a constant interest rate( source: Statistics Sweden Growth? Not too shabby.YoY GDP Growth  source: Statistics SwedenFigures for IP look more encouraging--- likely part of the broader trend in the European business cycle. I’d love to hear anyone with a more educated view here, but looks like eur/sek may have gotten a little ahead of itself. Good spot to take a crack at long eur/sek...9.50 looks likely to provide good resistance and an easy point to walk away if it breaks down and/or there is a persuasive move in the forward rate spread.2) Brazil--BRL has been on a very good run. A very wise friend once told me “when you are bullish, buy BRL. When you are bearish, sell MXN.” Given the political situation in both countries and a convergence in their interest rates, that’s not quite as true as it used to be, but the market sure seems to think so. I continue to like the potential in Brazil, but the politics will continue to be a three-ring-circus--indeed, how many currencies rally when the ex-president is sentenced to almost ten years in prison? Last week I alluded to the Mexican political maxim that “energy reform will be done in darkness.” Well, the metaphorical lights are about to go out in Brasilia...and maybe sooner in Rio. Politicians know what they have to do, they have the goods on the table, and soon they will be forced to do it. Stay long BRL. 3) ZAR...not as expensive as it used to be--and well, if your answer to the above question was “South Africa”, you would be correct. I think the question is when to get long here--rates are still attractive, and the only institutional respite in the whole country right now is probably the SARB... and you have the wild card option that Zuma is finally sent packing, to retirement, jail, or Zimbabwe...anywhere other than the presidency.4) Lastly….I know I am fly-over country, but where in the US does a Big Mac cost over $5? Maybe I buy too many Happy Meals to notice? Who would pay $5.30 for a Big Mac when $7 buys you a burger at Five Guys?Update: FRED led me wrong--in the initial version of this post the inflation and growth data I pulled from the normally reliable St. Louis Fed website “FRED” was wrong. I have updated the post to show the correct data, now taken from Statistics Sweden.

17 июля, 02:08

Repost: Nassim Taleb, Thanksgiving Turkeys, and Inverse VIX ETFs

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*This will be the last repost, I promise - will no longer use the blogger app that keeps deleting this post*We've documented here in the past the dangerous embedded in this current low volatility environment. If there is a volatility blow up, it is easy to imagine how easily things can snowball out of control. With that said, one of the areas not covered in minute detail is the prevalence of inverse VIX ETFs.Before getting into that, here is some free promotion for Nassim Taleb's Fooled By Randomness and Black Swan books.In one of the books (can't remember which one), Taleb pompously explains the simple concept pertaining the flaws of logic, the dangers of using specific incidences to reach general conclusions. One variant of this is using the past to predict the future. Amidst his grandiose and philosophically ridden text is quite a simple and down to earth example.There is a turkey who is fed and taken care of until it is Thanksgiving time. If one was to chart the well-being of a turkey through this course of events, it would go something like so:Now, when my parents heard I was trading my own money (back in undergrad...ah...those were the days), they frequently asked me whether I can lose everything in one day (they've heard the folktales and war stories of market-on-participant violence). I repeatedly said "No!".Even during the most violent market crashes, there are a number of opportunities for non-institutional participants to get out. 1987 is the example of the most violent and immediate market crash I personally know. Even then, market participants with a nose for market timing had a few chances to exit the market with relatively mild losses or even be able to profit.Then came 2017 and the prevalence of inverse VIX ETFs. Let's read a description excerpt from one of these bad boys. The investment seeks to replicate, net of expenses, the inverse of the daily performance of the S&P 500 VIX Short-Term Futures index. The index was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve.That statement brings up some intriguing questions:What happens when, in one session, the VIX increases by 100% or more?Has that happened? What happens to inverse VIX ETFs then?What if the VIX increases by 50% or more - what happens to levered positions on inverse VIX ETFs? etc. etc.First, has it happened?I looked at two different volatility gauges - the VIX directly and the older VXO (volatility for S&P 100) indicatively. Clearly, there is little that bounds these volatility gauges from appreciating upwards of 100% on a daily basis.In fact, here are the times in history (of data available to me) when you would've gone bust holding these inverse VIX ETFs, if they existed in the past. I looked at both daily returns (prev day close vs next day close) and intraday returns (prev day close vs next day high).I looked at scenarios with 0 leverage, 2x leverage and 3x leverage (believe it or not, I know of retail participants trading inverse VIX ETFs on leverage). I crunched some numbers and built a matrix with the 25 biggest return days in each scenario for each instrument. Times, when one would go bust, are in bold. Calculations are indicative as I am looking at spot VIX.So yes, it's possible to go bust when these volatility gauges spikes, especially when levered.What will those ETF instruments do when they should be down 100% or more?From reading the prospectus it seems that an event of a spike in volatility occurs, it would be an "Acceleration Event" defined as:  includes any event that adversely affects our ability to hedge or our rights in connection with the ETNs, including, but not limited to, if the Intraday Indicative Value is equal to or less than 20% of the prior day’s Closing Indicative Value.where the manager of the ETF will liquidate its assets and proceeds distributed.It's almost as if Nassim Taleb specifically built an instrument to illustrate his turkey concept.What about the larger market impact?From my digging, there seemed to upwards of 2.5 billion dollars invested in different VIX funds, mostly short vol in the form of XIV.Although 2.5 billion dollar seems small in the grand scheme of an entire financial market. It is still a sizable amount held by retail that can potentially disappear into thin air.Yield enhancement of a portfolio is all well and fine but there are ways to do it, and ways not to do it. There are also times to do it, and times when you shouldn't. Something to chew on.I assume not too many Macro-Man readers are collecting nickels via these inverse VIX ETFs at this point of the market cycle. But if you are, congrats on the money you've piled up - and you should probably reduce positions to an amount you're okay with, if it evaporates in a day's time.Portfolio Updates:Short oil. There are a few tidbits regarding oil that has prompted me to cover Thursday. First Venezuela is a mess and there is the possibility that no oil comes out of the country. This is a concern for a short like me, as they are a huge global oil producer.Additionally, higher US rates scare me as they can put meaningful pressure on US producers, which can lead to a reduction of supply.Thirdly, the chart's just not cooperating for oil - seems to be making a bottom.Lastly, perma-bull Andy Hall threw in the proverbial towel a week ago. I know it's anecdotal, but I think it speaks volumes regarding this market's sentiment.Even if the oil market goes lower, there will probably be an easier time to go back short - when it feels less like I am fighting the market.Short equities, we have seen the rally that I believed was in the cards - now will tech top out at this potentially lower high? I loaded up on an even bigger position Thursday. Will be either vindicated or stopped out within the next three sessions.Long USDJPY. Unlimited. Bond. Purchases. If JGB yields rise with the rest of the world's duration, then the BOJ has to buy more. The more the BOJ owns, the less liquidity that market will be and the more broken that market will become (just ask any bond trader).A reflexive process can potentially take hold here: the weaker the Yen becomes, fewer participants who are not mandated to hold JGBs will want to own them (not to mention less liquidity in the market). The less they want to own them the more they will want to sell. The more they will sell means that the BOJ will have to print more Yen to buy JGBs and also coincidentally make JGBs less attractive vis-à-vis the currency and also killing the market's liquidity. So how much Yen will the BOJ have to print in order to buy an asset that most will not want to own? I don't know but probably a lot. Probably moar.For all the commodity heads who follow the blog - look out for an upcoming softs post. Soft commodities, especially cocoa, are starting to look very interesting from the long side.Thanks all, as always, good luck out there.

14 июля, 23:01

Nassim Taleb, Thanksgiving Turkeys, And Inverse VIX ETFs

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*Sorry, technical difficulties - I think my blogger phone app keeps deleting this post*We've documented here in the past the dangerous embedded in this current low volatility environment.If there is a volatility blow up, it is easy to imagine how easily things can snowball out of control.With that said, one of the areas not covered in minute detail is the prevalence of inverse VIX ETFs.Before getting into that, here is some free promotion for Nassim Taleb's Fooled By Randomness and Black Swan books.In one of the books (can't remember which one), Taleb pompously explains the simple concept pertaining the flaws of logic, the dangers of using specific incidences to reach general conclusions. One variant of this is using the past to predict the future. Amidst his grandiose and philosophically ridden text is quite a simple and down to earth example.There is a turkey who is fed and taken care of until it is Thanksgiving time. If one was to chart the wellbeing of a turkey through this course of events, it would go something like so:Now, when my parents heard I was trading my own money (back in undergrad...ah...those were the days), they frequently asked me whether I can lose everything in one day (they've heard the folktales and war stories of market-on-participant violence). I repeatedly said "No!".Even during the most violent market crashes, there are a number of opportunities for non-institutional participants to get out. 1987 is the example of the most violent and immediate market crash I personally know. Even then, market participants with a nose for market timing had a few chances to exit the market with relatively mild losses or even be able to profit.Then came 2017 and the prevalence of inverse VIX ETFs. Let's read a description excerpt from one of these bad boys. The investment seeks to replicate, net of expenses, the inverse of the daily performance of the S&P 500 VIX Short-Term Futures index. The index was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve.That statement brings up some intriguing questions.What happens when, in one session, the VIX increases by 100% or more?Has that happened?What happens to inverse VIX ETFs?What if the VIX increases by 50% or more - what happens to levered positions on inverse VIX ETFs? etc. etc.First, has it happened?I looked at two different volatility gauges - the VIX directly and the older VXO (volatility for S&P 100) indicatively. Clearly, there is little that bounds these volatility gauges from appreciating upwards of 100% on a daily basis.In fact, here are the times in history (of data available to me) when you would've gone bust holding these inverse VIX ETFs, if they existed in the past. I looked at both daily returns (prev day close vs next day close) and intraday returns (prev day close vs next day high).I looked at scenarios with 0 leverage, 2x leverage and 3x leverage (believe it or not, I know of retail participants trading inverse VIX ETFs on leverage). I crunched some numbers and built a matrix with the 25 biggest return days in each scenario for each instrument. Times, when one would go bust, are in bold. Calculations are indicative as I am looking at spot VIX.So yes, it's possible to go bust when these volatility gauges spikes, especially when levered.What will those ETF instruments do when they should be down 100% or more?From reading the prospectus it seems that an event of a spike in volatility occurs, it would be an "Acceleration Event" defined as:  includes any event that adversely affects our ability to hedge or our rights in connection with the ETNs, including, but not limited to, if the Intraday Indicative Value is equal to or less than 20% of the prior day’s Closing Indicative Value.where the manager of the ETF will liquidate its assets and proceeds distributed.It's almost as if Nassim Taleb specifically built an instrument to illustrate his turkey concept.What about the larger market impact?From my digging, there seemed to upwards of 2.5 billion dollars invested in different VIX funds, mostly short vol in the form of XIV.Although 2.5 billion dollar seems small in the grand scheme of an entire financial market. It is still a sizable amount held by retail that can potentially disappear into thin air.Yield enhancement of a portfolio is all well and fine but there are ways to do it, and ways not to do it. There are also times to do it, and times when you shouldn't. Something to chew on.I assume not too many Macro-Man readers are collecting nickels via these inverse VIX ETFs at this point of the market cycle. But if you are, congrats on the money you've piled up - and you should probably reduce positions to an amount you're okay with, if it evaporates in a day's time.Portfolio Updates:Short oil. There are a few tidbits regarding oil that has prompted me to cover Thursday. First Venezuela is a mess and there is the possibility that no oil comes out of the country. This is a concern for a short like me, as they are a huge global oil producer.Additionally, higher US rates scare me as they can put meaningful pressure on US producers, which can lead to a reduction of supply.Thirdly, the chart's just not cooperating for oil - seems to be making a bottom.Lastly, perma-bull Andy Hall threw in the proverbial towel a week ago. I know it's anecdotal, but I think it speaks volumes regarding this market's sentiment.Even if the oil market goes lower, there will probably be an easier time to go back short - when it feels less like I am fighting the market.Short equities, we have seen the rally that I believed was in the cards - now will tech top out at this potentially lower high? I loaded up on an even bigger position Thursday. Will be either vindicated or stopped out within the next three sessions.Long USDJPY. Unlimited. Bond. Purchases. If JGB yields rise with the rest of the world's duration, then the BOJ has to buy more. The more the BOJ owns, the less liquidity that market will be and the more broken that market will become (just ask any bond trader).A reflexive process can potentially take hold here: the weaker the Yen becomes, fewer participants who are not mandated to hold JGBs will want to own them (not to mention less liquidity in the market). The less they want to own them the more they will want to sell. The more they will sell means that the BOJ will have to print more Yen to buy JGBs and also coincidentally make JGBs less attractive vis-à-vis the currency and also killing the market's liquidity. So how much Yen will the BOJ have to print in order to buy an asset that most will not want to own? I don't know but probably a lot. Probably moar.For all the commodity heads who follow the blog - look out for an upcoming softs post. Soft commodities, especially cocoa, are starting to look very interesting from the long side.Thanks all, as always, good luck out there.

14 июля, 07:04

Nassim Taleb, Thanksgiving Turkeys, and Inverse VIX ETFs

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We've documented here in the past the dangerous embedded in this current low volatility environment.If there is a volatility blow up, it is easy to imagine how easily things can snowball out of control.With that said, one of the areas not covered in minute detail is the prevalence of inverse VIX ETFs.Before getting into that, here is some free promotion for Nassim Taleb's Fooled By Randomness and Black Swan books.In one of the books (can't remember which one), Taleb pompously explains the simple concept of past history not being predictive of the future. Amidst his grandiose and philosophically ridden text is quite a simple and down to earth example.There is a turkey who is fed and taken care of until it is Thanksgiving time. If one was to chart the wellbeing of a turkey through this course of events, it would go something like so:Now, when my parents heard I was trading my own money (back in undergrad...ah...those were the days), they frequently asked me whether I can lose everything in one day (they've heard the folktales and war stories of market-on-participant violence). I repeatedly said "No!".Even during the most violent market crashes, there are a number of opportunities for non-institutional participants to get out. 1987 is the example of the most violent and immediate market crash I personally know. Even then, market participants with a nose for market timing had a few chances to exit the market with relatively mild losses or even be able to profit.Then came 2017 and the prevalence of inverse VIX ETFs. Let's read a description excerpt from one of these bad boys.The investment seeks to replicate, net of expenses, the inverse of the daily performance of the S&P 500 VIX Short-Term Futures index. The index was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve.That statement brings up some intriguing questions.What happens when, in one session, the VIX increases by 100% or more?Has that happened?What happens to inverse VIX ETFs?What if the VIX increases by 50% or more - what happens to levered positions on inverse VIX ETFs? etc. etc.First, has it happened?I looked at two different volatility gauges - the VIX directly and the older VXO (volatility for S&P 100) indicatively. Clearly, there is little that bounds these volatility gauges from appreciating upwards of 100% on a daily basis.In fact, here are the times in history (of data available to me) when you would've gone bust holding these inverse VIX ETFs, if they existed in the past. I looked at both daily returns (prev day close vs next day close) and intraday returns (prev day close vs next day high).I looked at scenarios with 0 leverage, 2x leverage and 3x leverage (believe it or not, I know of retail participants trading inverse VIX ETFs on leverage). I crunched some numbers and built a matrix with the 25 biggest return days in each scenario for each instrument. Times, when one would go bust, are in bold. Calculations are indicative as I am looking at spot VIX.So yes, it's possible to go bust when these volatility gauges spikes, especially when levered.What will those ETF instruments do when they should be down 100% or more?From reading the prospectus it seems that an event of a spike in volatility occurs, it would be an "Acceleration Event" defined as: includes any event that adversely affects our ability to hedge or our rights in connection with the ETNs, including, but not limited to, if the Intraday Indicative Value is equal to or less than 20% of the prior day’s Closing Indicative Value.where the manager of the ETF will liquidate its assets and proceeds distributed. It's almost as if Nassim Taleb specifically built an instrument to illustrate his turkey concept.What about the larger market impact?From my digging, there seemed to upwards of 2.5 billion dollars invested in different VIX funds, mostly short vol in the form of XIV.Although 2.5 billion dollar seems small in the grand scheme of an entire financial market. It is still a sizable amount held by retail that can potentially disappear into thin air.Yield enhancement of a portfolio is all well and fine but there are ways to do it, and ways not to do it. There are also times to do it, and times when you shouldn't. Something to chew on.I assume not too many Macro-Man readers are collecting nickels via these inverse VIX ETFs at this point of the market cycle. But if you are, congrats on the money you've piled up - and you should probably reduce positions to an amount you're okay with, if it evaporates in a day's time.Portfolio Updates:Short oil. There are a few tidbits regarding oil that has prompted me to cover Thursday. First Venezuela is a mess and there is the possibility that no oil comes out of the country. This is a concern for a short like me, as they are a huge global oil producer.Additionally, higher US rates scare me as they can put meaningful pressure on US producers, which can lead to a reduction of supply.Thirdly, the chart's just not cooperating for oil - seems to be making a bottom.Lastly, perma-bull Andy Hall threw in the proverbial towel a week ago. I know it's anecdotal, but I think it speaks volumes regarding this market's sentiment.Even if the oil market goes lower, there will probably be an easier time to go back short - when it feels less like I am fighting the market.Short equities, we have seen the rally that I believed was in the cards - now will tech top out at this potentially lower high? I loaded up on an even bigger position Thursday. Will be either vindicated or stopped out within the next three sessions. Long USDJPY. Unlimited. Bond. Purchases. If JGB yields rise with the rest of the world's duration, then the BOJ has to buy more. The more the BOJ owns, the less liquidity that market will be and the more broken that market will become (just ask any bond trader).A reflexive process can potentially take hold here: the weaker the Yen becomes, fewer participants who are not mandated to hold JGBs will want to own them (not to mention less liquidity in the market). The less they want to own them the more they will want to sell. The more they will sell means that the BOJ will have to print more Yen to buy JGBs and also coincidentally make JGBs less attractive vis-à-vis the currency and also killing the market's liquidity.  So how much Yen will the BOJ have to print in order to buy an asset that most will not want to own? I don't know but probably a lot. Probably moar.For all the commodity heads who follow the blog - look out for an upcoming softs post. Soft commodities, especially cocoa, are starting to look very interesting from the long side.Thanks all, as always, good luck out there.

13 июля, 08:22

As the Market Turns II....Time to short AUD?

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I know there are more than a few of you that have been disappointed not to see an Economist piece this week...but crikey, it was a bit of a snoozer this week. On the cover….the German current account surplus? This is breaking news? Next week...Leicester City closes in on the title….I wonder if they kept this one in the hopper for the week when there simply wasn’t anything else to talk about. Getting down to business...Yellen delivered the requisite “kinda, sorta, we mean it, but we are looking at inflation” speech that should be standard issue by this point, but seemed to catch the market a little off guard, or perhaps more accurately, gave a few fast money types an excuse take some chips off the table before that two-weeker in the Hamptons. Meanwhile, Bunds didn’t really decide what to do with themselves...but the day is coming. You don’t see this kind of selloff every day--tough to believe this is going to be the new range. Seems more likely to me we’ll see a consolidation back towards the 40-50bp range until we get a better clue on the next moves for the ECB, or more data on growth, inflation, etc. Meanwhile, Canadian rates followed along reluctantly--tightening 2-3bps in the belly after Poloz went ahead and pulled the trigger on the first rate hike since The Red Green Show was still on the air. The media rhetoric on the statement was relatively neutral, no real smoking guns--no mention of housing prices, and some emphasis on the broad-based nature of the recent pickup in growth.  I haven’t torn apart the quarterly report yet, but I am looking forward to it! In the statement, the fact Poloz wanted to highlight “recent data has increased confidence the economy will continue to grow above potential” is important, since it was the lack of momentum to close the output gap that caused the BoC to keep kicking the can down the road on rates normalization. That gives us a nice segue into FX...CAD continues its impressive run, weighing in as the G10 champion since the global rates selloff began on June 23. Commodity currencies aren’t really moving together--CAD obviously leading after the bike, but some diffusion between AUD, NZD and NOK as well. AUD stands out a bit for me here. The industrial metals Australia cares about aren’t doing much...and are holding in near YTD highs despite the downward pressure in energy prices. Natgas exports mean that fall in energy prices isn’t a big a boon to terms of trade as it used to be, but it is still positive. Given Yellen didn’t really say much to throw cold water on the Fed’s stated plans, and risk markets are as healthy as ever, I’m looking to get long USD. Looks like a nice entry point here vs. AUD, and sets up nicely if you want to get short the China credit story. The toppiness of that chart seems a little overdone given how rates have been moving in lockstep, despite the US engaging in a hiking cycle (such as it is, post-QE)But is the RBA about to throw open the flood gates on HawkTalk 2017? If they are, no sign of it yet. Safe to say there is virtually nothing priced in to the curve for the rest of the year. “Underlying inflation” is checking up off the lows as it is in a few different countries, which could be worrisome for an AUD short...’But growth figures have been lousy...And wage growth has been even worse.  The RBA is going to be in no hurry at all. So in a boring, low vol market, short AUD looks like a good, low carry way to get some risk-off exposure while potentially setting up for a larger move if the Australian miracle is finally coming to an end and/or some air comes out of the China bubble in the upcoming weeks and months....or if we simply see a USD resurgence on the crazy notion that these guys are actually hiking rates, rather than just talking about it. Not a strong view here, but a good starting point. Will dig deeper next week.

10 июля, 07:08

Pension Fund Posts...So What's the Trade?

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I've devoted significant time and space to the investment strategies of US public pension funds over the past couple of days.This blog is called "Macro Man". Not "Shawn's diatribes".So what's the trade?The reason I didn't include any trade ideas in either of the original posts is because it isn't entirely clear to me what they are. Are we at a tipping point, the middle of the trend, or way too far ahead of the curve here? I'm not sure.Here's what I thought as I put this together:1) The one thing I think was clear in the two pieces was that the investment consulting industry is pushing pension funds to take more risk in alternatives. This is absolutely a function of easy monetary policy. Another taper tantrum could turn into a bad accident. The market is very complacent to this risk, even after the last couple weeks of hawkish rhetoric, higher rates, media attention, etc. Buy gamma.2) Inflation. Accelerating inflation would likely help on the asset side (equities, "real return") and limit the damage on the liability side, depending on how each system indexes benefits. Also supportive of buying the dips in linkers. However, as mentioned in #1, higher real rates are negative--fixed income, credit and equities get hurt, with potential disastrous consequences in frothy/bubbly markets.3) Equity names like JP Morgan, Goldman Sachs, Bank of America, Blackrock, and Blackstone are well positioned to take advantage of these trends.3a) The combination of the move towards more alternatives among institutional investors and the broader rotation towards indexing among retail investors is indeed a big threat for asset management firms that are levered to traditional mutual funds. How are these companies adapting to these trends? Are they digging in, circling the wagons and relying on hope? Are they diversifying into alternatives? Will "smart beta" save the day? (I doubt it--ed.) Are all of us PMs and analysts going to be replaced by robots? (will their pieces be shorter than yours? ed.) Long banks, short traditional asset managers? Seems too clever by half.4) Muni curves should probably be steeper. Pension reform will fix these problems, but global experience suggest that means states explicitly taking these liabilities onto their balance sheet. That said, I have very little (well, actually zero) experience trading munis. 10/30s muni steepener, hedged with 10/30 ust? Again, too clever by half.5) All DM governments are insolvent. Buy gold. Hat tip to Albert Edwards.That's all I got. Anyone have anything more persuasive?

10 июля, 01:00

It's 106 miles to Illinois Pension Fund Solvency. It's Dark. And We're Wearing Sunglasses.

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Today I spent some time skimming the annual report of the Illinois Teachers Retirement System pension fund. Because I'm weird like that. While a number of critics have whacked this piñata, I believe they have (rightly) done so on philosophical grounds surrounding fees, taxpayer and employee contributions, and actuarial assumptions. As with many things in life, these issues obscure the real bottom line: performance. Let's take a look at some numbers.As of this time last year, the fund had $124bn in liabilities against $45bn in assets. In the words of the report…”The unfunded actuarial accrued liability was $71.4 billion at June 30, 2016. The funded ratio was 39.8 percent at June 30, 2016.”  Those are some brutal numbers. $71bn!! Let’s get the crack investment staff on the case...we need to make some money! Alas...In 2016 the net return on that $45bn in assets was zero. A scant 240bps south of the benchmark. Yet liabilities went up by about $14bn, owing to demographic changes, a lower assumed future rate of return and lower discount rates of future obligations. Five and ten-year returns are also showing a consistent underperformance--but the liability side of the balance sheet continues its unyielding rise. Results for the fiscal year that just ended aren’t available yet. Judging by results through the 3rd quarter, it looks like they had a decent year of returns...that might keep the plates spinning a little longer...but you can see by the 2016 numbers that the gap is just too big to close with any rational investment strategy.  To ostensibly deal with this problem of systematic underperformance and low returns, the best consultants money can buy gave this fund a new asset allocation plan. Less investment in public equities, and more in private equity. Less in cash and fixed income, more in "real return", which is code for investments that have a return above that of inflation.  Here’s the plan: What does it mean? Less liquidity. More fees. Alright-- I’ll be the last one to discourage alternative investments at large. The bottom line is performance--will this lead to higher risk-adjusted returns? The proof is in the pudding. How has the fund done historically in these asset classes? Illinois TRS has underperformed their private equity benchmark (Russell 3k + 300bps) each of the past five years--which summed up to 4.9% over the five year period. In the “real return” bucket, the fund’s assets have underperformed dramatically in four of the past five years, and a total of 4.6% compounded over the five year period relative to the benchmark, which is CPI +5%. By my back-of-the-envelope math that adds up to about $1.4bn left on the table in private equity relative to benchmark returns, or over 3% of AUM...and $720mm, or 1.7% of AUM in real return. Over $2bn in underperformance and 5% of AUM, just in two relatively small asset classes!   And you can probably slap another 1% of NAV to that in management fees above and beyond long-only traditional equity and fixed income managers. A billion here...a billion there…pretty soon you’re talking about real money. As the fund continues in its quest for investing alchemy, the author of the report describes private equity as such: “Investing in private equity carries additional risk, but with skillful selection of managers, returns can be significantly higher than public equity investments.” Indeed...but the author has no explanation for why they are so fantastically unskillful at it. Over the last five years the Illinois TRS private equity bucket has underperformed not only its benchmark but also the publicly traded domestic equity bucket. The author also fails to address  the reason private equity returns can be higher than public equities: because you can take advantage of small-to-medium sized investments in companies that don’t have access to public markets or have a compelling reason to stay private (venture capital, mezzanine/convertible debt, distressed debt, etc.), or large investments that are often turnaround stories or capital structure arbitrage (LBOs).  Infinite amounts of money don’t have higher rates of return than public equities simply because you wish it to be so. Illinois TRS already has $5.3bn invested in this space. What opportunities are they, or the PE market at large, not already exploiting with that kind of size?  Who are they going to hand a billion dollars to that will do better than their current PE investments? This is the strategy their consultants suggest they double down on--but there is also no explanation in the report as to why they are increasing their allocation at the expense of more liquid strategies, or why we should expect greater risk-adjusted returns in a space that has seen a $1.2trn increase in AUM since 2010, with another $500bn waiting on the sidelines looking for the next unicorn.Illinois TRS isn’t alone...this huge increase hasn’t stopped investors from putting more money into the asset class...and 8x more investors seeking to increase their allocation than decrease it.Despite two-thirds of the very same investors saying they are concerned about valuation. What else should teachers expect, when the fund hires investment consultants with no evidence of success or value added in picking winners.I am a big believer that past performance is not indicative of future returns. Knowledgeable people could argue the “real return” asset class, which is a hedge for spikes in inflation, is unloved after years of below trend inflation. This bucket also encompasses risk-parity, which has done relatively well, so it is unclear that this space is totally downtrodden. Regardless, as these charts show, few could argue that private equity is an under-owned, unloved asset class ripe for a contrarian, strategic allocation. Even if there is opportunity in the PE space, the key to outperformance in alternatives is manager evaluation and selection. If you can’t get that right, and can’t minimize tracking error to something south of 4% per annum over a five year period, you need to step back and reconsider the basic foundation of your due diligence and manager selection strategy.   We may be talking about Illinois, but I’m from Missouri on this one. Show me, guys. Show me where I’m wrong on expected returns for private equity and real return strategies at billion dollar sizes. Show me why we shouldn’t expect continued subpar performance. And I said I would focus on performance, not fees…. but….ugh!! I just can’t help myself!!  I have to throw this quote from the annual report: “TRS remained dedicated in FY16 to the prudent use of the System’s assets to administer required duties and activities on behalf of its members….Total expenses to manage the investment portfolio increased by 7.6 percent to $750 million, or 1.4 percent of all TRS assets.”Wow...I have no words. Well, maybe a few. Governor Rauner...call me!! Governor...together, we can do this. Call me. Let’s do lunch. To illustrate the new low cost culture, it will be Portillo’s, not sushi. Let’s summarize. Illinois TRS wants to increase long-term returns with: 1) more risk, 2) less liquidity, and 3) higher fees…in a fund with a 1) 10 year history of underperformance, 2) fiscal black hole and 3) a morbidly obese pot of fees. This reminds me of some good advice. “Don’t just do something, stand there!!” Illinois TRS, I beg of you...for the good of your hard working teachers and pensioners: Don’t increase risk, sacrifice liquidity, and pay more in fees unless there is a demonstrable, high probability risk-adjusted pickup in long-term expected returns. The fund’s performance in the traditional equity and fixed income space has been ok-ish--roughly in line with benchmarks, and with materially less tracking error.  The teachers and pensioners in Illinois--it is their money remember--would be far better off “standing there” in  a global allocation to stock and bond indices that still exploits long-term risk premia, with vastly superior liquidity, and exponentially lower fees.  Yes, the Illinois pension fund system is a well publicized fiasco. And they are most definitely playing the PR game with no lack of subterfuge...These guys even have the audacity to quote GROSS returns on their website and claim they have outperformed, as if the $750 million they pay out in fees every year doesn’t count. That’s like a golfer that hits the ball on the green and calls every putt a gimme, then tells his friends he shot a 68.This pension system has been dealt a bad hand by the state government shortchanging contributions over the years. Yet many other states that have the same problem have been generating returns in line or better than market benchmarks, and are adequately funded. At least they are good stewards of their clients’ money.  In Illinois, the fund’s managers have even bigger problems and aren’t even doing their investing job right. What’s the definition of psychosis again? Literary: The act of doing the same thing over and over again and expecting a different result. Psychology: a severe mental disorder in which thought and emotions are so impaired that contact is lost with external reality.Both sound about right in Illinois.  

06 июля, 09:02

Inflation Pressures Building Behind JPY? Readers Survey

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We've been talking about the Fed potentially becoming progressively more hawkish (maybe at the most inopportune time). This has started to materialize. In addition, subsequent central banks around the world (ECB, BOE, BOC) are echoing the same rhetoric.We are currently witnessing a reflexive process unwind. When countries were engaged in a currency war racing to devalue, one central bank devaluing their currency would in turn indirectly force a relative tightening of financial conditions of another country. In turn, the second country would have to ease monetary conditions, creating a positive feedback loop. Now, we are on the other side, where central banks have realized that financial conditions might be too loose and asset prices are noticeably overvalued.So now what? We now have started an unwind of the reflexive process with a positive feedback loop in the other direction.  One country raises rates attempting to tighten, thus making the financial conditions of the other countries relatively looser - as a result, the other countries must then be forced to tighten.   Of these central banks, the one that has been less aggressive in tapering and hawkish sentiment has been the BOJ.Is that "justified"?Looking at the lagging data, one might answer yes. But as speculators, it's paramount to project into the future.One of the most important triggers for higher inflation is the pressure behind rising wages that will propel core inflation. Looking at Japan, the number of job openings to applications is historically high.That means there is a strong economy in Japan. With the decline in population in the country well documented as a force behind the country's deflation. It is less often argued that a declining population can eventually mean a labor shortage and thus wage inflation (companies have to pay more for the same level and amount of labor)Historically speaking, the gap shown above in the late 60's and early 70's led to huge amounts of inflation. The same thing but on a more muted basis occurred in the early 2000's.In the data above, there was the time in the 80's and early 90's when Japan experienced a rise in inflation that manifested in the real estate and stock bubbles. The eventual popping of the bubble caused large deflationary pressures that overwhelmed any potential gains in inflation then.Then we have the early 2000's when inflation returned in Japan as they seemed to have finally started to fight off the deflationary bogeyman before 2008 threw a wrench of sorts into things.Looking at CPI, there seems to be some bottoming of CPI as it's started to pick up. One can also check the historical prints to reference my allusions earlier.Looking at the historical levels for JPY on a real basis. It seems to me that the currency is off the lows in regards to weakness in real terms (whether looking at it from a PPI or a CPI basis).Ultimately, with most of the developed world's currencies rapidly appreciating as a result of hawkish central banks trapped in a reflexive process of tightening, the one central bank that has been the least involved is Japan. That makes me want to go out and short the Yen against a number of currencies.Additionally, the fundamental inflationary pressures in Japan would concur in the justification of a weaker yen.Historically, the Yen has been a "safe haven currency" with flow into it when equity markets and risk sold off. It wasn't always so. The correlation back in 2011 between the SPX and Yen itself was actually positive.I'm looking at the 50 period moving average to smooth out a 10 day return correlation between JPY futures and E-minis.I am very interested to see if and when this correlation breaks down. With large negative delta in my portfolio towards equities and risk, I think shorting JPY is a good proxy hedge in case I am wrong. In addition, if that correlation of JPY outflow when risk sells off materializes, I will have even more conviction of a JPY short.The chart for the currency seems like it is setting up for a good entry point on the short side (long USDJPY) as well. I would look to buy it around now and hope to pick up some more around 111.50. Putting a stop at 109.Positioning wise, using CFTC IMM positioning as an indicative, people are without a doubt short the Yen. With that said, the amount short is not nearly as extreme as in 2013 or in 2007 (read, trade is not that crowded yet).Readers, what are your thoughts on JPY amidst the current macroeconomic/financial market backdrop? Is it going to strengthen or weaken? Vote in the comment section below.Thanks guys,(DR)

05 июля, 22:06

Yield. Hungry. Yield Hungry.

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I’m learning to be more blogg-y and less deep dive-y...so a quick blurb on what caught my eye in this week’s Economist. I read it nearly cover-to-cover out at the lake over the long weekend--and while I would love to pontificate on Pakistan and the IMF, the macro story of the week was in the excellent Buttonwood column about the return of easy money. “Analysis by Moody’s shows that the proportion of the loan market that is “covenant-lite” (brilliant, that is the phony “lite” way) has risen from 27% in 2015 to over two-thirds today.”We know investors are “yield hungry”. But what does that mean? Why are they so hungry? I wouldn’t ask you to read the investment plan of a standard issue US public pension fund, but if you did, you would read statements like this: This is about a $70bn fund--with a shortfall of $4bn per year. For round numbers lets call that a shortfall of 6% on AUM per year. The pension fund has a funding ratio of roughly 70%, which is certainly a long way from a margin of safety. Over time, the annual nut to crack is going to get bigger and bigger. What’s the asset allocation plan that will increase liquidity while closing the funding gap?  CurrentNew TargetCash2%1%Equities65%58%Fixed Income16%21%“Opportunistic/Diversified”7%10%Real Estate10%10%They need a greater return on assets to plug the funding hole, despite the current level of yields and spreads. But they need safety and liquidity as more and more baby boomers retire. The solution is to move a healthy chunk of dough out of equities and cash and into fixed income. Drilling into this fixed income bucket, this pension fund is planning to increase exposure to US treasuries in the short-term, the medium-term plan is to reduce UST exposure while increasing the overall fixed income allocation. What does that mean? Less equity exposure. More non-UST fixed income exposure. More duration. More yield. More cov-lite loans. More risk. Feed me, Seymour. It is tough to blame the pension fund managers--it’s a sticky wicket. They know the politicians and markets have painted them into a corner. This is the best negotiable solution so long as changes to contributions or benefits are politically radioactive. And if I had to guess, this consultant, along with half a dozen others like them, gave this re-allocation plan to the vast majority of public US pension funds. An old Mexican political proverb once said, “Energy reform will be done by candlelight.” While it didn’t turn out to be true of the Mexican energy sector, the metaphor might fit the US pension fund system if credit markets again hit the wall.

30 июня, 03:13

Oh How The Market Turns

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*Disclaimer: I am really bad at putting out posts in a timely manner - I first started drafting this one Sunday night*Back from vacation and a break from the financial markets. The world seems drastically different than where I left it two weeks ago. Still in a vacation mood, I wanted to take a break from the macro aspect of things and view the recent developments from a trader's perspective.A few quick hit points this post will explore (looking at both market and economic stuff): -Have a hunch that this market is topping out-Seems like the Fed is hiking into a recession...-Are we at a reversal for the rates move?-There has been a divergence of gold and nominal rates-Some portfolio house cleaning stuffLet's get to it. Have a hunch that this market is topping outI think most of us would agree - maybe even with Harry H included - that speculation and overvaluation have become pretty rampant in some assets in the last year or so, especially in recent months: FANG, cryptocurrencies, Canadian real estate, subprime auto loans, etc.Cryptocurrencies, a form of speculation IMO, have clearly made a top for at least the time being.FANG stocks had led the market on the way up. They will lead the market on the way done; and at this point, it's possible that the process has started.Vehicle sales had been fueled by easy credit via the form of auto loans for years. However, recent prints show that this has started to peak.As a result, it felt to me that equities are getting a bit toppy to me - when futures opened gap down this past Sunday night. After Monday's  price action by the close, I felt enough conviction to build a punt from the short side.I already have sizable negative oil delta in the portfolio - the fact that it's worked out thus far is yet another conviction in favor of recessionary pressures that might just beyond the horizon. To make things work, I covered a little bit of that short oil delta. Additionally, I was a receiver of the US long-end of the curve - exited that to make room for the short equities punt.Call it trader instinct. Call it a blind shot in the dark. Just a hunch.Seems like the Fed is hiking into a recession...Okay, so auto sales seem to be topping out - we've seen it in the chart above.Commercial paper growth and credit, in general, seem to reflect that as well. Anyways, all this seems to be occurring as Yellen along with other central banks around the world (Draghi on Tuesday) are stepping up the rhetoric of tightening faster whether via hikes, balance sheet reduction or asset purchase tapering.Taking a look at US consumer credit, we've started to see a contraction - it is yet to be seen whether this contraction is an aberration or the beginning of a trend. However, with equity valuation where it is (current PE of 21+ and PB over 3), and the Fed tightening, we might finally have enough driving factors to push the stock market to the precipice. We talked about potential drivers keeping down the VIX via indexing and beta funds that are vol targeted. Is today's move in equities and the VIX enough to start the process of an unwind? We shall soon see.... On Tuesday, we saw long end duration get slammed. Which leads to the next two points.Are we at a reversal for the rates move? and There has been a divergence of gold and nominal ratesGold is more of a currency than a commodity. It trades off real rates of the specific currency that it's denominated in - so gold in US dollar terms usually trade off US real rates. It was interesting that nominal rates and gold decoupled for a little while there. I no longer have a Bloomberg terminal handy, so I had to wait a couple of days before I had a chance to see this:Gold and real yield have been reacting to tighter financial conditions from Fed action and Fed talk as well as similar things from other central banks. Initially, nominals seem like they did not get the memo. There was a notable/tradeable divergence between nominals and gold that started to close this week. Long end duration finally got the clue and sold off sharply this week, starting Tuesday - so sharply in fact that 2s10s actually steepened!Another point of interest here is that the inverse correlation between US govie returns vs equity returns moved sharply positive this week. I know enough market history to know that back in the Paul Tudor Jones' Trader movie days, bonds and equities traded together in positive correlation instead of the current risk on/risk off regime we are in now. Could this change in correlation lend credence to the idea that the Fed is tightening is hurting the equities market at a time of economic vulnerability? True, the yield curve has flattened tremendously over the last couple of years but is still far from being inverted. But do keep in mind that an inverted yield curve is not necessary for a recession, and definitely not needed to spark a meaningful sell-off in spoos.Some portfolio house cleaning stuff- The large negative oil delta I have in my portfolio has worked out well until this week. I still maintain my thesis that oil can go markedly lower from purely a production and OPEC market share view. Now that market participants might start anticipating for a recession, we can get a move from the demand concern side of things too. More conviction.- US duration trade - closed the trade at the beginning of the week - saw this sell off coming. No strong convictions here but gun to my head, the curve continues to flatten but we get higher rates via an overall sell off along the whole curve.- Took the money from US duration and some of the short oil profits and built a short tech equities punt at the EOD Monday. As you could've guessed, I'm feeling like Johnny Hekker today, aka LA Rams' pro bowl punter.If we are indeed heading for a large correction/bear market, I expect another few percent lower here before a sharp rally in equities that will make a lower high. Then the real fun can begin. Even if I'm wrong and we haven't top ticked, I feel like we are pretty damn close. (Believe it or not, I don't punt on Spoos often - I've actually been a Harry H type of passive investor from 2011 to 2016)- CAD has been a mess for me. Fellow contributor Shawn made some really good points regarding Canada - check it out here. I conceded the point in my own CAD post that the currency definitely looks undervalued in real terms, which was a concern. The bubble is largely concentrated in a few cities and Poloz is stuck between a rock (letting the bubble run) and a hard place (raising rates which would hurt the economy). But the economy there is doing okay, so I'm going to take my losses and wait to see how Poloz reacts if and when the bubble pop. Maybe CAD depreciation would occur after he raises rates to pop the bubble first...As far as HCG goes, apparently they did have Buffett on their Batphone speed-dial! Eh. Buffett is still a market participant - he can easily be wrong like any of us - he just gets some unbelievably good deals whenever he buys something. Buffett essentially borrows at 0% and lends it out at 9% (fully secured I might add) and garners shares at $10/share when the stock was trading 50% higher. In one fell swoop, Buffett basically destroys any chance HCG has to be profitable by choking off their future cash flow. If I was a shareholder, I would fade this pop, because this investment isn't exactly bullish for the company going forward.- EUR and GBP ripping - rate differentials had to catch up and we are seeing it now. Europe has been chronically underinvested over the past decade. We talked about this before too: here and here. If and when equities sell off meaningfully, I would be a buyer of Europe and in EM as well.- Wheat! Don't say I didn't warn ya. Wheat soybean ratio up 16%+ since March...Ripping almost as if there has been massive overplanting of beans and underplanting of wheat for years...oh wait. Wheat itself up 5% outright since March.That's all I got for now. Can you believe the NYC business library only allow 1 hour sessions on the terminal? What a travesty!Happy summer and 4th of July weekend! Good luck out there folks.