Macropotamus ๐ฆ ๐คก๐ ๐
@macropotamus
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Macro observer swallowing all things macro. Views are mine alone, mostly incoherent thoughts. Not investment advice or recommendation.
Joined November 2019
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Pinned Tweet
I have to pin this retweet. Shamefully, I have not done nearly enough about it. Will try harder.
So simple. So Powerful.
Be fully present with the people you are with.
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This is worse than quoting the change in VIX in % term.
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SVB committed one of the most elementary errors in banking: borrowing money in the short term and investing in the long term. When interest rates went up, the assets lost their value and put the institution in a problematic situation.
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I have been asked what reading materials that would prepare students for a meaningful internship. Here is a list of books, primers, and websites that should get you started. This is not an exhaustive list and I very well miss a lot of good ones.
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If you invest or trade for a living and decide not to get vaccinated for non-medical reasons, it will make me question your process and the quality of your analysis.
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The BBB Series โ Topic 3: Yield Curve
Inspired by
@EffMktHype
, I will be laying down the basics of the yield curve. We often hear people talk about the curve, especially when it is inverted. But why is it important? What does a normal curve look like? What drives its shape?
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So a month has gone by, and the consensus view appears to have shifted significantly from "we're in a recession" or "hard landing" to that of a softer landing. Macro data has shown that we are not currently in a recession, and the July CPI shows that inflation has slowed. 1/n
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Higher long-term rates have tightened financial conditions so much that there was no need to increase the policy rate again, which then led to a decline in long-term rates and potentially made further increase in policy rate appropriate.
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Area man pivots from multiple areas he has no expertise in to another unfamiliar area.
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So it feels like the current consensus view is that we will have a recession based on equity drawdowns, credit spreads, STIR futures, etc. However, US econ data remains robust except for the housing & the tech sectors. Inflation is going to slow with lower commodity prices. 1/n
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USD/JPY is one of those trades that you thought you could make a lot of money but end up capturing only a leg of it. A post-mortem review of this specific journey, risk management and conviction.
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Have a junior analyst role open for index management. Exposure to multiple asset classes. High growth potential. DM me if interested.
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๏ฟผ
@MacroAlf
has been very patient.
No, if the Fed balance sheet is expanding at a 15% yearly rate it does not mean your purchasing power is dropping that fast.
It just means the Fed is swapping bonds for bank reserves at a very quick pace - more or less reserves have nothing to do with your purchasing power.
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So if you are short:
1. Tesla,
2. ARKK,
3. US Treasury,
and long
4. A portfolio of value stocks
How many bets do you have?
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Itโs the time of the year. DM me if youโre looking for a buy-side research internship for 2022 summer. Itโs a paid, on-site internship that requires US work authorization. The internship has a heavy emphasis on fixed income and quantitative research.
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Most of my friends are tiger parents and already setting their kids up for success. We are very much lagging (by a mile), but I am going to call it a win if our children can think critically and have empathy, which cuts off the tail of unpleasant outcomes.
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Any equity analyst looking for a new role? DM me.
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The system is working effectively as it should be to address an idiosyncratic banking issue as it has done many times over the year.
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Rates traders who got caught offside in both directions.
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If you are looking for an internship or currently interning in the investment industry.
This thread contains my observations as a hiring manager and a mentor.
I hope you will find it helpful.
1/n
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Fixed Income
Salomon Brothers Understanding Yield Curve โ Ilmanen
Handbook of Fixed Income Securities โ Fabozzi
You should be able to find an older edition online.
Follow
@EffMktHype
for his Bond Basics.
Beep beep trade bonds boop.
Pinning this for anyone who loves the beeps and wants a bountiful breadth of bond basics.
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If you want to break into the buy side. All you have to do is study the industry/firms, work/study, ask questions, and reach out. Most people want to help even if they are busy. $
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Lost my mentor today. I would not be at where I am today without his faith and vision. He will be greatly missed. Rest in peace.
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Investor abuse runs rampant in this largely unregulated industry, which argues for tighter regulations to protect investors.
Every investor, regardless of wealth, should be allowed to invest in any asset they want.
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I love the fascinating conversation between
@jposhaughnessy
and
@Jesse_Livermore
especially about the issue of MMT lacking a testable theory, the risk of aggressive fiscal policy (unequal and likely insidious outcomes), their crypto discussion, etc. ๐ฏ
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Are these idiots trying to cause a widespread run on banks to โforceโ the government into making them whole because some of them rug pulled the others and caused a run on SVB?
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Wife made this cake for our daughterโs birthday party. She outdid herself again.
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@MacroAlf
This is oversimplification with the benefit of hindsight. It was very difficult to characterize the conditions in the midst of things and the market reaction and pricing function was extremely difficult to predict.
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I donโt remember anyone feeling sorry for those shorting VW in 2008. Why is there more sympathy for managers getting short-squeezed this time around?
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I will fade this recession view especially over the next 4-5 months. (1) Overall credit growth is expected to slow, not contract. (2) The LEI has a few subindices that do a lot of โrecessionโ lifting. (3) Housing activity may start to rebound soon with stabilizing ratesโฆ
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@BobEUnlimited
That is correct. What they did also took out the tail risk of disorderly liquidation of assets and shows that there is still a willingness to step in, which should make people become more skeptical about the narrative/thesis of โthe Fed keeps pushing it until everything breaksโ.
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When you look at these data and listen to the colors from banks - some upticks are to be expected from these low levels. Maybe these are famous last words, but we do not have the amount of leverage and imbalances that had been building leading up to the GFC.
While they remain very low, there has been a broad uptick in loan delinquencies across the board in the last quarter.
2007 repeat or just a blip?
Worth monitoring these data from the NY Fed.
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If you have a compelling analysis, based on facts and reasonable predictions, that shows a favorable distribution of outcomes for not getting vaccinated, all the power to you. Not getting vaccinated against Covid in general is like shorting a tail risk for little to no premiums.
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Money and Banking
Central Banking 101 by Joseph Wang. This is a very good book for beginners.
Economics of Money and Banking - Mehrling (Coursera)
Instruments of the Money Market (h/t:
@aRishisays
)
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@Ksidiii
Kris, I think there are three major reasons:
1) Long vol is an negative carry trade. Asset owners do not like to *explicitly* pay for convexity and protection.
2) Short vol is a headline risk for an institution and a career risk for its allocator.
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Derivatives
@bennpeifert
has a great list of reading materials for the topic.
Trading Volatility โ Colin Bennet
CDS Primer - Liuren Wu
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This is going to hurt the students from middle- to low- income families, who may not be able to afford to polish their CVs with extracurricular activities and experiences.
Standardized tests are equalizer.
The end of an era:
@UofCalifornia
permanently ends standardized tests for admission, a half century after it adopted the SAT and propelled it into widespread national use. No alternative exam exists that wouldn't create biased results, UC says.
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Same comment as from a decade or so ago: no monetary union works without a fiscal unionโฆ
One of the most highly indebted countries in the Euro zone - Italy - is also running the widest budget deficit. The underlying issue is that ECB bond buying is keeping Italian yields artificially low, so there's no incentive for Italy's politicians to confront the debt overhang.
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If you are still pressing shorts here (same for active traders), maybe time to tighten your stops and evaluate your exit plans. Volatility has expanded, liquidity is declining (wider b/a), and the risk of intervention has increased as policymakers are getting uncomfortable.
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FX Markets
Lehman FX Manuel
The Deutsche Bank Guide to Exchange-Rate Determination
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Equities
Expectations Investing - Mauboussin, Rappaport
How to Make Money in Stocks - O'Neil
What Works on Wall Street -
@jposhaughnessy
Prof. Damadaran has great resources online
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Brazil's fiscal accounts have been outperforming expectations and the BCB has done well to avoid the Turkish problem. Bullish BRL and local rates as well, but Brazil is BB-rated, so local assets have high vol and vulnerable to shocks, so sizing is key.
We never changed our fair value for Brazilian Real, which remains at $/BRL 4.50. Good things in the balance of payments are happening to underpin that, including a narrower current account deficit than pre-COVID (blue) and first signs that portfolio flows are coming back (red)...
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Is this the final form of all financial writers - Armageddon + love for precious metals and now their digital equivalents?
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Tomorrowโs CPI prints are important, but unless the core print suggests that prices are slowing very quickly or heating up again, they ainโt gonna matter much beyond the next three FOMC pricingโฆ
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Hoping to hear everyoneโs ideas and processes:
1. What is your top idea? Reward/risk?
2. Why do you think it will work, why now?
3. How can you tell if you are wrong?
4. How will you structure it? Why?
5. How do you come up with ideas?
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This is the must-read fixed income primer with real life examples with Bloomberg <GO>.
You should definitely give
@EffMktHype
a follow and thank him for putting this together.
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Macro
Macroeconomics for Professionals - Lipschitz, Schadler
IMF, BIS, and central bank websites are great resources. IMF Article IV reports for country analysis.
Economic Principles by Ray Dalio is one of many frameworks to understand macro, and it's free and public.
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Carry is powerful. Going short duration on a steep curve when volatility is low is a bad trade unless you have a strong reason (and better yet, catalyst) for the magnitude and timing of the move, or if it fits into your portfolio nicely.
Why are yields rallying despite a 5% inflation print?
The incentive scheme for risk-takers in the financial industry (think traders and hedge fund PMs) is very important to grasp some of this move.
It's expensive to be short bonds over the summer.
A short thread on this.
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Consensus: the Fed is gonna push & push until things break (as
@SamuelRines
noted). Stocks & credits are pricing in a shallow recession, rates are discounting aggressive front-loading & subsequent easing. Commodities are rolling over. Cryptos are crashing. Vols are bid. 1/n
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I see a puppy...
Apparently, if you can see two people hugging, you're left-brained, and if you can see a dinosaur, you're right-brained. What do you see in the mountain?
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Fixed income folks:
TYIA ๐๐ผ
1. Where do you see values given the current levels of rates and spreads?
2. Any obvious mispricing? Relative to macro, defaults, liquidity (public vs. private), idiosyncratic risks?
3. Overall portfolio: correlation/diversification benefit?
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Being long the Turkish Lira and the Brazilian Real is likeโฆ
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Damn it. Pushed myself too hard training for the race. Took another fall today just before 4 miles mark. Have to slow jog 4 miles back home now.
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Credits
Citigroup Credit Primer (2005). This primer is very hard to come by these days.
Distressed Debt Analysis: Strategies for Speculative Investors - Stephen G. Moyer
Rating methodology documents from S&P and Moody's
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โYou eat whatever I cook for you. Period.โ
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Based on my conversations over the last 24 hours, people are drastically underestimating how much damage has been done this week to institutional interest in both bitcoin and the broader crypto ecosystem.
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A couple thoughts on Aussie macro:
1. 4% terminal rate is too much to handle for the economy, so unlikely that we get there. The housing market is cooling.
2. The RBA will do 50bps next week, and go for 25/50 pace after.
3. China is picking up but still a net downside risk.
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The most exciting part of this week is my daughter turning 10! Into the double digit world, and like Erdogan said, โthere is no turning back.โ
And I get to eat a lot of cakes.
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The tide of professional opinions is changingโฆ
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Dropped >10 lbs in a month from going to bed half an hour early and ditching snacks after 9pm. Huge.
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Informative about what happened on Friday. Some thoughts about the forecasts / views:
1) If the Fed does pivot, the need for FX intervention declines, and we have a FIMA facility if they need more $ to sell.
2) QE works and the Fed can come in to cap the long bond yields.
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Bond vigilantes are truly back.
The bond market already strong-armed the UK.
And if this ''pivot'' chatter is to be believed, the bond market will also strong-arm the Fed.
An important thread on bond markets and systemic risks ahead.
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โI am short vol.โ -Most hedge funds
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50 large from the RBA, more than expected on inflation pressure. โWhatever it takesโ in reverse to bring inflation down to target. Hawkish.
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As
@mark_dow
has alluded to earlier, we are likely out of a bear market. The market sentiment remains poor with folks continuing to fight the uptrends. Positioning is likely still light relative to both fixed and risk-based allocation. 3/n
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All these โpersonal responsibilityโ, โmaking good decisionsโ, and โno taxpayer rescueโ get thrown out of the window when shit hits the fan for these people. Hypocrites.
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All these sufferings for this madmanโs ego boost. What a POS.
After 100 days of war Putin drops the whole โNATO threatโ, โbio labsโ, โneo-Nazi threatโ, security or Donbas and openly claims that he alike Peter the Great โreturns the lands that are oursโ. That this is in fact about โland and gloryโ and nothing complex or unique.
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If you are looking to learn more about bonds and fixed income markets in general, my buddy
@EffMktHype
has written an e-book and it is free.
The bond market is the most important and yet misunderstood market out there.
A short thread.
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A factory in South Korea is now making 350,000 COVID-19 test kits a day - almost as many as the country has used in the entire outbreak so far. Daily output will increase to a million next month.
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โYouโre not really helpingโฆโ Regional banks to the Fed.
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Type your profession in the gif bar.
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I found myself plotting % change in VIX and VIX futures against % change in SPX in my old research. ๐คก
Glad I grew out of it.
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This is awesome for those who want to learn about the basic of STIR trading. Fun, long read. Thanks for making it freely available.
๐๐น๐ผ๐ฏ๐ฎ๐น ๐ ๐ฎ๐ฐ๐ฟ๐ผ ๐ง๐ฟ๐ฎ๐ฑ๐ถ๐ป๐ด ๐ณ๐ผ๐ฟ ๐๐ฑ๐ถ๐ผ๐๐: ๐ฃ๐ฎ๐ฟ๐ ๐ง๐ต๐ฟ๐ฒ๐ฒ
Let
@SirOfFinance
and I take you on a STIR punting odyssey from SOFR to XCCY.
Totally free & half of any new paid subscriber fees are donated to Doctors Without Borders.
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The BOJ is keeping macro vol alive.
Bank of Japan raises upper limit of 10-year yields to 0.5%, from 0.25% previously.
Yen strengthening, global rates and Japanese stocks selling off.
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Clearly I've been wrong about the market recovery since Aug. The questions here are (1) what are the key drivers for forward returns over the next 3-6M, (2) what are priced in, (3) where will surprises come from, (4) the general conditions (trend/vol) & potential changes?
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Things have been moving so quickly this past 8 months that it is difficult to form a strong opinion on how asset prices and the economy would evolve going forward. I am writing all my scattered thoughts out to see if I can, through this process, piece together a coherent view.
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That 1% seems so close, yet so far.
๐จ BREAKING ๐จ
BANK OF JAPAN ANNOUNCES UNSCHEDULED BOND BUYING OPERATIO
BOJ OFFERS TO BUY 300 BILLION YEN OF 5-10 YR JGBS
BOJ OFFERS TO BUY 100 BILLION YEN IN TBS OUTRIGHT FUTURE DELIVERY
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Dovishโฆ
*BOJ MAINTAINS POLICY RATE AT -0.1%
*BOJ MAINTAINS 10-YEAR JGB YIELD TARGET AT ABOUT 0%
*BOJ VOTES 9-0 ON RATE DECISION
*BOJ LEAVES FORWARD GUIDANCE UNCHANGED
*BOJ SEES FY2024 CORE CPI 2.4% VS 2.8% PREVIOUSLY
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When do people start living a little, not giving a damn about how others think of them, or asking "what am I doing with my life"?
When you have the means/money, or when you start feeling the inevitables of life?
These questions really started to hit me hard lately.
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