SPX - ODDs Are...Let's Watch

Feb 16, 2020

BLUF: This is a Strong-Market...call it any name you want but it has momentum...But given the recent Rate-Of-Change (ROC) & Steepener of the wave up and the longevity of this run...a 5% pullback would be welcomed and expected...nothing in the macro validates a further drop outside of unseen crisis to include 2nd/3rd order effects of the FookinKungFluVirus...Nature/Markets always have a way of showing us who is in control of reality and that usually involves "Pain"...Not a FookinBear or FookinBull...just What's in Front of Us?

"I don't care what you think you believe...we simply figure out the environment and navigate thru it!"

Process & Manage your Trades…Cheers!

Razor-Focus-Situational-Awareness
Extrapolate Out the BullShit
Assess the Environment We are In
Digress toward Adaptable/Flexible Strategies

When, How Hi or How Lo…WhoFookinKnows…Does it really matter? have a Plan…Raising Cash!

Feb 16, 2020

Note

twitter.com/AndrewThrasher/status/1229037663904288769?s=20

"A near-record stretch of calm has ignited options traders’ desire to buy speculative call options.
Over the past 6 weeks, they’ve bought (to open) 70 million more contracts than they’ve sold (to close).
We’ve never seen this level of speculation before. Not even close."

Feb 16, 2020

Note

Summary
The debate over active versus passive investing can take tones of religious fervor. Investors are voting with their feet, creating $1.4 trillion of inflows for U.S. equity index funds and ETFs and $1.2 trillion of outflows from actively managed U.S. equity mutual funds in the past decade. Whenever the market forms a strong consensus, caution is in order.
Active managers provide the vital functions of price discovery and liquidity, but do so at a relatively high cost. As a consequence, active managers do not generate excess returns after fees in the aggregate. Passive investments have much lower costs, but raise the possibility of crowding.
Not only can active and passive co-exist, they must. The reason is that there is a cost of gathering information and reflecting it in prices, and there needs to be an offsetting benefit in the form of excess returns to compensate. Markets need to be efficiently inefficient. Passive investors, and indeed members of society, rely on the price discovery that active managers deliver.
The rise of passive investing may appear to make active management easier. But that is unlikely for two reasons. First, it is probable that the investors who are moving their funds to passive vehicles are relatively unsophisticated. That means that the average skill for the remaining active managers is rising, making it more difficult to beat the market. Second, because alpha is a zero-sum game, fewer weak players means it is harder to find a corresponding loser if you intend to win.
Small and unsophisticated investors should build passive portfolios with an emphasis on asset allocation and low costs. Sophisticated investors should seek active managers in asset classes with high dispersion. There are ways to assess money managers beyond past performance that may shade the odds in your favor.
Active managers must constantly consider who is on the other side of the trade. Research shows that fundamental money managers who take a long view and are truly active can deliver excess returns. It is essential to identify a repeatable source of edge, and to align the investment process to capture that edge.

research-doc.credit-suisse.com/docView?language=ENG&format=PDF&sourceid=csplusresearchcp&document_id=1069243631&serialid=0hSL/QQ7abnxREyRxfdJprrzcdpMOh+rW05DCccOSvvKdCtOP8ZSpoZZsUnWfTew&cspId=9206372446587

Feb 16, 2020

Note

Another side-effect of the virus is that we will have a substantial disinflationary vibe coming up in March and April. Energy prices will be down at least 20% year over year in April. We will see that across the globe in inflation readings and it leaves a generally dovish taste in our mouths.

e-markets.nordea.com/

Feb 16, 2020

Note

The current regime offers stronger durability

Eventually what broke the imperial circle was excess dollar strength. However, there is something fundamentally different now, the low neutral rate world has been effectively making sure this dynamic of flooding US markets continues. So what happens:

Real money buys US financial assets:
Step 1: credit tightens and stocks go up
Step 2: dollar goes up
Step 3: Even though risk is bid, bonds actually go up in price because they have to price the second derivative, strengthening USD and the negative effect that has on growth.
And step 3 shows how this cycle continues in an immensely durable way. The dollar and the bond market effectively keep each-other in check.


To conclude, to me there are few takeaways from this:

1) The world has a short global growth position on via the US on the financial side, while on the output side is still highly levered to it via high export dependency.

2) There is a massive global asset shortage that is forcing the most money into the place with the most capacity. It is also rewarding it via the currency.

3) This phenomena is creating a self fulfilling loop in which US equities, the dollar and the bond market reinforce each-others strength.

Money comes into the US to buy financial assets => hedging costs become prohibitive so more is unhedged => USD stays strong as their immense demand for it from the massive global savings pool => because of USD strength and the effect that has on the global economy, the bond market stays bid and flat => low and flat curves force money further out the risk curve and this circle starts again.


jonturek.blogspot.com/2020/02/imperial-circle-part-2-long-us.html