MacroKurd
@macrokurd
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HF PM. Emerging and Submerging world. I read between the lines. HF/AM/IB.
Surrey/Koye/Port of Spain
Joined November 2014
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After a great round last year, let's do this again.
You can put one trade on, and can't touch it till Dec 1, 2023.
What is it?
(Winner gets a decent bottle of whisky)
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We spent the last decade flipping houses as a 'business', making digital pictures of penguins to trade over a Blockchain, traded old junk as collectibles, and made digital coins with shitty names we pretended was money.
That's what zero interest rates do.
This is UK data from
@FT
and shows a truth in US and Europe, too: ZIRP broke the real economy by destroying labor productivity.
How? Corporate mgmt used ultra cheap money for risk-free market financialization, not for investment in people, technology and new facilities.
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I am seriously bearish the UK. And I hate to be. And was always a champion for it and it's many positives, often overlooked. But I am stopping out of that view. And now personally hold no UK assets or savings apart from my home. And I may 'lose money' on that position but
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A world where core inflation drops less forcefully than headline cpi whilst growth drops into a recession = steepening of yield curves. Which ironically, will help cure some of the system weakness and improve fwd growth outlooks. Much more acute in EM world.
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Everyone thinking this is just an Israel isolated incident doesn't understand the scale of what's happened
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Everyone came into the year loving Emerging Markets.
But the yield on the local currency bond index is 6.72%, duration of 4.92 yrs.
Compare the index yield with 5y treasury bonds....
This is an fx trade.
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As a rates trader/risk taker, to succeed over the long run you need to be able to be comfortable with negative carry. It's a major psychological barrier to risk takers.
This year's best trade has been to maximise your negative carry.
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1. The US is at war with China. Iran and Russia are allies of convenience with the same aims of benefitting from weakening the US hegemonic position.
Stretching the US (it's inner workings and not just militarily) and it's interests across the globe is part of the plan. You have
Everyone thinking this is just an Israel isolated incident doesn't understand the scale of what's happened
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All of Europe is going to the right over the next 4 years.
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Brazil first hiked in March 21.
Chile in July 21.
Czech in June 21.
Fed in March 22.
Chile and Brazil have now cut rates.
When Czech cuts, that would be my leading indicator for global rates, as they will be (likely) using their model projections rather than spot data.
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US Financial Conditions Index (For yest close, so excluding today's moves).
Covid peak in sight.
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US 10yr yields are up 70bps in the last 10 months.
Brazil 10yr yields are up 80bps today.
#EM
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Brazil looks to be one of the msot interesting EM markets this year. On the one hand the market frets about risks. Its always fretting. Could be fiscal, inflation, elections, government advisors, there's always something...
But is the tightening cycle this year starting to bite?
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I hope the 'western tourists' or the newbies to the complex issue of Palestine-Israel and it's long history take a second to sit down and think things through. Emotions are high, I get it, but there is dangerous consequences they themselves may not realise.
For them, the risk is
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Here we go:
You put one position on here, you can't touch till Dec 1st 2024. What is it?
(Winners get a bottle of my 2024 whisky of the year award)
Rules:
1. No leverage
2. One winner for rates trade, one for asset price move
3. First to declare a trade owns it. Can't copy
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EVERYONE in life has a risk manager. Central banks too. They 've argued their position with the risk managers, ''It's crazy here, we can't stop out, it will come back, why lock in losses here'.
At some point the tap comes, 'enough is enough'.
Risk manager here is the politicians.
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China in trouble, Europe in trouble, total tightening of credit and liquidity everywhere.
We are on the path to a massive macro event unless something miraculously takes us off this course.
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Brazil debt breaking down, with bonds getting bidless.
BCB has some big challenges ahead. Inflation will likely force the hiking cycle to begin today, but with covid worsening, political volatility on the rise, and the 2022 election risk on the horizon.
Biggest risk for Brazil is any reversion of the recent boost to terms of trade.
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Ok, that time of year!
You can have one trade, you can't touch it till Dec 2022.
What is it?
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Rule number 1 for Emerging Markets (Reminder):
Using fair value models as your basis to trades is a road to ruins.
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Before every recession, we always hear "we may get a recession but we don't think it will be deep or long lasting".
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The equity markets can ignore the rate curve, credit markets can ignore the rate curve, but cross-border flows can't and won't ignore the US rate curve.
The dollar is going to be the wrecking ball.
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What I've learnt this quarter :
What is my alpha?
1. Macro? No, it's too big a landscape and almost all of us are too small and we have no informational advantage.
2. Timing? No, the vol and vol of vol is too high.
3. Portfolio construction. This is the one. Back to basics.
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True story. I was in Abu Dhabi last week. I met an orthodox Jew walk into a packed Lebanese restaurant to pick up takeaway and a family with kids wearing kippahs on the beach. Unheard of 10 yrs ago. All seemed way more chilled than my Jewish friends in London right now.
“As an American Jew, you’re safer in Saudi Arabia right now than you are on a college campus like Columbia University,” Jared Kushner says
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Next month Chile will most likely cut rates by 50bps.
(Inflation is 8.7% but they trust their model projections).
Brazil will be cutting right after them.
The world will probably start to take notice...
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Not only did he sack him. He replaced him with the columnist himself!
#EM
Interesting to see Yeni Safak, pro AKP newspaper, criticising the rate hike yesterday. Don’t see Erdogan sacking Agbal for this as any such move would surely provoke market and financial sector crisis - he hired Agbal knowing what he had to do.
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7.5% real rates for Mexico is total nuts. And they know it. For them to pay that out to investors becomes contentious.
Cuts are coming thick. They will continue to play 'hawkish' cuts etc..but that's only because they don't want a strong market reaction. Lock 'em in!
Several Bank of Mexico board members insisted that any interest-rate cuts early in 2024 should be gradual, according to the minutes of its December policy meeting
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Since summer last year, Emerging Markets started pricing in the reversal of cpi pressures and growth. Fwd-Fwd rates are very depressed with very inverted curves.
But that means extremely low risk premia for EM.
Currencies haven't woken up to this. Very vulnerable.
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Twitter has become toxic recently on the whole inflation debate.
What's amazing is that it feels like the room is split between fed should not tighten at all (eco gonna crash) vs a huge tightening (runaway high inflation).
The grey area is usually where most life happens.
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Fun fact of the day:
Egypt is expected to be included back into GBI-EM index by end of Jan 22 with a weight of 1.85%.
Turkey's current weight is 1.77%.
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2y2y Poland rates now circa 50bps lower than UK 2y2y rates.
(Poland inflation is and projected to be higher than UK)
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*POLISH CENTRAL BANK RAISES MAIN RATE TO 1.25%; EST. 0.75%
Boom!
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This feels very much like end 2020.
DM were dovish. EM guys said don't care, we paying rates. EM CBs capitulated and started hiking. DM dragged their feet then joined.
Now..
EM market saying don't care, you cutting. EM CBs soon join.
DM CBs will drag feet then start cutting..
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My simple macro view here is predicated on pricing power by corps. They can and are pushing and keeping prices up, because they simply can. Blame it on 'inflation environment. As long as consumers have jobs and income, it continues.
So when unemployment rises = likely bigger
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The first rate cut is in!
Latin America Kicks Off Rate Cuts With Uruguay Surprise Move
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Private banker friend said they are telling clients that 'rates won't stay here for long and will reverse'.
Got me thinking, is the markets suffering from reflexivity? The disbelief rates will stay up for long, leads to 'normal' behaviour.
= this won't stop till it all burns down
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They could, you know...hand over the little children, elderly people and babies they have hostage and are threatening to kill.
Humans can only survive without water for about 3 days. Gaza has run dry.
The blockade on water, food, and electricity is an indiscriminate, collective punishment and a crime.
It is cruel and unjust. To save millions of people in Gaza - nearly half children - it must end. Now.
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At a pm roundtable, the consensus was to be long EUR, short dollar. They claim the US is losing its reserve status.
They then go on to say they love owning duration.
How does that work?
If you truly believe US loses reserve status (pretty silly), US bonds blow up. Properly blow
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Just like we did with Turkey 10 years ago, at some point we will look back at South Africa rates and think.. wow they were single digits.
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EM folk watching the DM folk trying to manage their markets that have turned EM like
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At 5% noone wanted US treasuries, at 4.25% everyone wants em....
At -0.10% everyone wanted bunds, targetting -0.50%.
At 3%, noone wants them.
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Really starting to feel like the "Fed can't hike, growth is about to fall off a cliff, this will be an epic policy failure!" crowd..... are the new version of "stocks are in a massive bubble, the crash will be epic, massive rigged game by central banks" crowd of the last 10 yrs.
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Looking to hire:
1. For multi-strat hedge fund, EM macro business
2. Emerging Markets macro strategist
3. Rates focus
4. Few years minimum experience
5. Quant background and quant input into their processes
6. London office
Pls DM with CV if of any int..
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UK LENDERS REPORT BIGGEST INCREASE IN MORTGAGE DEFAULTS SINCE MID-2009 OVER PAST 3 MONTHS - BOE SURVEY
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There is one message I keep reiterating over and over. It's the most important one in macro.
The last 2 years should have taught us all, that central banks get things wrong and what they say is not necessarily the future.
Trade the data. Don't let central banks lead you.
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Is there a structural change upon us for Emerging Markets and global risk assets?
If so, an important sign of things to come.
It starts with the global economic model we have become used to....
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For all the bond bears in pain, financial conditions easing is a problem in a hot and growing economy.
It's not the same in a weakening and decelerating economy.
5% and above US bond calls for next year seems a bit nuts to me.
EVERYONE (including bears) will be buying before 5%.
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have a gold standard so we measure in dollars. And your UK house measured in dollars hasn't gone up as much." "Meh..I live here I spend in GBP...". Wrong way to look at things imho. The UK is in structural decline. And it's mainly down to a backlog of issues over the decades
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Fun fact of today:
From January 2016 to last month, there is only 1 EM currency that will have given you a negative return.
Turkish Lira.
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Perhaps we should start calling these the 'unfair models'?
The deviation of Turkish Lira from our $/TRY 9.50 fair value is now a massive 42 percent. That sounds nuts, but - as crazy as it sounds - isn't unprecedented in our fair value model. On August 13, 2018, $/TRY intraday went up to 7.80, which was 42% above our then 5.50 fair value.
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From my olive farm (back garden olive trees). After 2 months..the update.... Result! Surprisingly decent.
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30 years flipping houses instead of really innovating and developing. Our culture has deteriorated and society is fractured. We have very low productivity rates. Very possible Labour gov come in next year and try to heal the mess by taxing more and trying to plug holes. That will
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Tip for people new to EM.
Often you will be duped into thinking monetary policy actions will fix a problem.
But when the problem runs deep, you will find the market will price in more...and then more...and then some more...and then more again...then the problem becomes apparent.
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It's done!
Investors might be betting on good times—but inflation will be harder to bring down than they think. Whatever happens next, market turbulence is likely:
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Do not act surprised if at some point we see some shadow banking firms in distress.
It's not all about banks.
Securitisation markets have frozen up, which means deteriorating loans remain on the balance sheets without ability to offload.
As economy turns, these will appear...
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I'm starting to agree with
@BobEUnlimited
.
With long end yields so inverted and risk assets shrugging off current real yields, the only time fixed income markets are going to turn will be when risk assets start to fall.
Till then CTAs continue to pay rates and buy risk assets.
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20 years ago, fundamental macro was a weakness. The edge came from using machine and picking up momentum.
Today it feels fundamental macro will come back as the edge.
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So...like the PKK?
President Erdoğan:
"They want to declare Hamas a terrorist organization. No, it is not a terrorist organization. They are people who struggle to protect their land and fight for their homeland."
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This was my weekend.
One of my favourite cities in the world...Athens
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Being here and looking out at this but having to manage your portfolio's risk around daily events on your phone..is the hardest part of this job
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Those who managed through 2008 will know, it is likely that the hard part starts now.
Markets will create large gyrations over the course of the year, swinging between extreme moods and short/long squeezes become more common.
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The failures of the west
London this evening, Islamists celebrating the deaths of hundreds of civilian Israelis.
#Israel
#Hamas
#Palestine
#Palestinian
#IronDome
#Gaza
#TelAviv
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Guys, IT'S THIS BAD!!!:
*TURKEY'S ERDOGAN: BRITISH POUND HAS BLOWN UP
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*U.K. 10-YEAR REAL YIELD FALLS TO A RECORD LOW OF -3.19%
10y Real Yields vs GBP
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At risk:
All the dollar shorts thinking this is just a US recession looming.
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EM cycles have begun and Chile cut 100 bps (75 expected). A great ground for curve observation when seeing fwd-fwd curves aggressively low, at a time of desynchronization from DM central banks (mainly fed) and not currently recessionary dynamics in US (spot space anyway).
Next month Chile will most likely cut rates by 50bps.
(Inflation is 8.7% but they trust their model projections).
Brazil will be cutting right after them.
The world will probably start to take notice...
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Countries most at risk of social upheaval:
Germany, Sweden, UK and France
Decades of immigration from Muslim countries. They are scared of what can come about, so they say what the Muslim population wants to hear. That's all.
Amazing. Macron had a sudden change of heart over Gaza, again!
He first said there was "no justification" for bombings killing civilians in Gaza.
This morning Netanyahu accuses him of having “made a serious factual and moral error”.
This afternoon Macron told Herzog that he
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*CZECH CENTRAL BANK RAISES KEY RATE TO 2.75%; EST 2.25%
Czechs hike 125bps!!!!!
BOOMMM!!!
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Fun chart of the day:
India and Chile now have the same 10y swap rates.
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Course they want UAE and Saudi Arabia. With their dollar pegs they will all de facto trade in riyals and dirhams as their bullshit way to pretend they leaving the dollar without actually leaving it. Will never fly.
#NewsAlert
| BRICS announces new members: Argentina, Iran, Saudi Arabia, Egypt, Ethiopia and the UAE
#CyrilRamaphosa
#BRICS
#BRICSSummit2023
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Like I said..this is a deep cultural problem. This isn't anti Israel. It's worse.
Chants of "Khayber Khayber ya yahud jaish al Mohammed Sa'ar Yaud" in Trafalgar Sq, while carrying a fake dead baby.
'Khayber Khayber O Jews the army of Mohammed is coming'
This is an anti Jewish hate crime
@metpoliceuk
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Want to wish you all a HNY before I get on the sauce.
If you had a good year..🍻.
If you had a poor year, just remember it's part of the process. It will come.
If you had a horrendous year, "If you're going through hell, keep going".
Thanks all for your interactions this year!
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How long till we look at European institutions with all those long dated negative yielding bonds on their books?
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For years we made the mistake of keeping rates at 0%.
That meant we spent those years faffing about flipping houses and creating jobs for people to trade digital pictures of penguins.
We offloaded all the messy stuff of producing stuff to the 'third world'.
Now we pay the price.
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Don't worry guys, Europe going to stimulate with 7bn euro fiscal package
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Ladies and gentlemen, 5y Israel rates:
A sell off in Israel assets is understandable.
But the notion of an 'emergency hike' is hard to understand for me. The economy has almost certainly entered recession and tourism has collapsed to zero. With disinflation trends, we should be thinking of the cutting cycle coming.
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First round Turkey elections will show opposition leading.
Erdogan let's the lid off USDTRY.
Erdogan says 'See? This is what happens if the opposition wins. The Lira will plunge. You will all be poorer'.
Make sure they vote for Erdo second round.
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Guys...read the articles. All this talk of Dimon expecting 7% shows the headline skimming nature of commentators today.
Stress testing and being prepared for a tail risk event of 7% is not the same as expecting 7%.
🚨 $JPM CEO Dimon believes the Fed can go up to 7% with the terminal rate…
Imagine fintwit at those rates 😂 $SPX
Source:
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Twitter used to be a source of sharing information and usefulness. Not so much these days.
In the spirit of old twitter, here I share the best oven chips you can get out there (UK):
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We are going to start shifting from inflation focus to growth focus. Cycle shift.
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Emerging Markets need to pay attention to these 2 factors: fuel and food prices.
Away from fiscal, the man on the street feels these the most.
These are the type of moves that have caused social unrest over the last decade, through strikes and protests.
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People still asking and nervous around an Israel strike on Iran....
Guys, its just an episode of Middle-Eastenders.
It's all scripted.
Retaliatory strike(s) won't be anything of conflict significance.
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It's been a while...so in case you forgot what a rate bull market could look like:
Czech policy rate at 6.25%
5y swaps at 3.30% and going...
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We are entering a new phase. Central banks are on pause but maintaining a bark, trying to sound hawkish and express willingness to hawk further if need be.
We've seen this week with Brazil, Hungary yesterday, Czech Republic today, ... Mexico could be joining soon.
Next phase will
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Powell is in the know, he understands the growth data is somewhat bs at headline level, he's given us hints ('talked to business leaders' etc..), laying up early his reaction with greater weight on inflation, and will be cutting with run way for elections.
Will cut in May.
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