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Hedge Fund CIO: Will The Fed Ever Be Held Accountable For Turbocharging Inequality That Poisons America

Hedge Fund CIO: Will The Fed Ever Be Held Accountable For Turbocharging Inequality That Poisons America

“I do solemnly swear that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; and that I will obey the orders of the President of the United States and the orders of the officers appointed over me, according to regulations and the Uniform Code of Military Justice. So help me God,” pledged the 2.7mm young, courageous American soldiers that our Commanders-in-Chief sent to Iraq and Afghanistan Since 2001. Over 6,900 of them died there. Over 52,000 have been wounded. Bush, Obama and Trump spent over $6 trillion. 480,000 Iraqis, Afghanis and Pakistanis died, half civilians. Millions were displaced. Who is accountable? What are the consequences?
 
Overall

“This airplane is designed by clowns who in turn are supervised by monkeys,” wrote one of Boeing’s employees, referring to their 737 Max. “I don’t know how to fix these things… it’s systemic. It’s culture. It’s the fact we have a senior leadership team that understands very little about the business and yet are driving us to certain objectives,” wrote another. “I still haven’t been forgiven by God for the covering up I did last year. Can’t do it one more time, the pearly gates will be closed,” wrote another. Boeing is our mightiest manufacturing exporter. A symbol of American greatness. Boeing’s board held the CEO accountable, fired him. The consequence for the catastrophe of his leadership? He walked away with $61mm in compensation.

Carlos Ghosn held an absurd press conference to clear his name, having fled Japan in box barely big enough to contain his greed and shamelessness. Set against Adam Neumann’s $1.7bln golden parachute, Ghosn perhaps believes Japanese consequences are overly harsh.

…click on the above link to read the rest of the article…

Hedge Fund CIO: “The Biggest Market Player Is 15x Leveraged; That’s Why When It Starts Going Wrong, You’re Out”

Hedge Fund CIO: “The Biggest Market Player Is 15x Leveraged; That’s Why When It Starts Going Wrong, You’re Out”

“Wanted to make sure you’re seeing this,” texted a PM from one of those multi-manager monstrosities.

“8 standard deviation move in the Momentum Factor in 5-days,” he added. I heard his heart pounding all the way from Australia.

“Guys who defended positions in the Q4 selloff all got fired, so the message is real clear – when things start getting weird, take immediate corrective action.” And I imagined the quiet panic consuming firms that leverage their capital at multiples that would make a Lehman risk manager blush.

Hedge Fund Arrowgrass to Return Capital, Close After Fresh Redemptions

“I’m more convinced than ever that one of these days, this kind of 8 standard deviation event is going to crash the market,” he texted, having puked his position without the slightest idea why the move had even started.

  • Factor Definitions (Momentum): Momentum is the empirically observed tendency for rising asset prices to rise further and falling prices to keep falling. For instance, it was shown that stocks with strong past performance continue to outperform stocks with poor past performance in the next period with an average excess return of about 1% per month. Momentum signals (e.g., 52-week high) have been shown to be used by analysts in their buy and sell recommendations. The existence of momentum is a market anomaly, which finance theory struggles to explain.
  • Factor Definitions (Value): The value factor is based on a belief that stocks that are inexpensive relative to some measure of fundamental value outperform those that are pricier. the best-known work on the value factor was carried out by Fama and French in their 1992 paper (The cross-section of expected stock returns), which concluded that low price-to-book ratio was the most predictive definition of value.

 …click on the above link to read the rest of the article…

“Judging By Bond Markets, Economic Armageddon Is Just Around The Corner”

“Judging By Bond Markets, Economic Armageddon Is Just Around The Corner”

“Judging by bond markets around the world, economic Armageddon – or something awfully close to it – is just around the corner.” – SocGen, September 5, 2019

“It’s difficult to describe markets,” said the CIO, reflecting on his decades of trading. “For what seems like forever, markets behaved in ways that reflected shifting expectations about central bank activity, economic trends, and profit potential, but that’s changing,” he said. “Now markets shift direction on a tweet then reverse on some comment. And nearly all of it is political.” But even politics are different now.

“Yet through it all, global interest rates are collapsing like an economic calamity looms.” 

* * *

“It is a bowl of water that might help put out a fire that has just started,” said young Jimmy Sham, describing Carrie Lam’s withdrawal of Beijing’s extradition legislation. “But it is now useless in the face of what has become a forest fire,” continued Jimmy, one of many leaders in Hong Kong’s burning rebellion. Naturally, the government hopes that by meeting the protestor’s principal demand, cries for further action will soften.

But that’s not how crowds work. Hong Kong’s emboldened freedom fighters have another four demands to go. Behind them lay more still. And far in the distance, beyond the event horizon, lay their ultimate objective, barely spoken of today, democratic revolution in China.

“Public discontent extends far beyond the bill,” conceded Carrie Lam, exuding a manufactured calm, withdrawing the bill, “It covers political, economic and social issues, including problems relating to housing and land supply, income distribution, social justice and mobility.” No doubt she’s right.

 …click on the above link to read the rest of the article…

Eric Peters: “If US Stocks Finally Crack, Most People Will Conclude We’re Headed Into Another Depression”

Hypothetical

“I was asked to lay out the case for the US being mid-cycle,” said my favorite strategist. “Residential housing is 4% of GDP now, that’s consistent with past recessionary levels. So perhaps it jumps to 8%,” he continued.

“Equipment and machinery spending is just 6% of GDP.” Pretty consistent with previous recessions. “So maybe both expand, and incomes rise.” Which leads to higher inflation and shrinking profit margins. “Then perhaps the Fed tolerates rising prices which means that nominal growth remains strong even if real growth rates slow,” he postulated.

“So in that case, workers do better, and companies are worse off on a relative basis. But in that 7% nominal GDP world, inflation might mask the pain well enough to allow stocks to sail through,” continued my favorite strategist.

“You think about that hypothetical and it’s possible,” he said. “But then you listen to what the companies are saying, and you walk away with the sense that there’s just no way.” Homebuilding stocks are -30% from the January highs.

“If you just look across the spectrum, interest-sensitive equities are screaming late-cycle.”

“Making the mid-cycle case raised my conviction that we’re late-cycle,” he said. “America’s fiscal boost masked the natural cycle dynamics.” The US is the outlier. In dollar terms, of the major markets, only American stocks are higher on the year.

So if US stocks catch up and crash from here, what happens next?” he asked rhetorically. “I think most people will conclude we’re headed into another depression. But I think there will be great things to buy. Probably in the places that are already crashing and burning.”

…click on the above link to read the rest of the article…

Hedge Fund CIO: “Some See Parallels Between Today And The Late-1930s, Which Led To World War II”

The future is unknowable. Yet never has capital been so concentrated in strategies that depend on the future closely resembling the past. The most dominant of these strategies requires bonds to rally when stocks fall. For decades, both rose inexorably. And a new array of increasingly complex and illiquid strategies depends on a jump in volatility to be followed by a rapid decline of equal magnitude. They appear uncorrelated until they are not.

Virtually every investment portfolio measures risk by utilizing some combination of volatility and correlation, both of which are backward-looking and low. But the present is knowable. The past too. And the multi-decade trends that carried us to today produced levels of inequality rarely seen.

Low levels of inflation, growth, productivity, and volatility are features of this cycle’s increasingly unequal distribution. But cycle extremes produce pressures that reverse their direction.

On cue, an anti-establishment political wave washed away the globalists, with promises to turn the tide. Such change is nothing new, just another loop around the sun.

Now signs of a cycle swing abound; shifting trade agreements, global supply chains, military dynamics, immigration, wage pressures, polarization, nationalism, tribalism.

To an observer, it’s neither right nor wrong, it simply is. Some see parallels between today and the late-1930s, which led to World War II. We also see parallels with the mid-1960s, which led to The Great Inflation.

What comes next is sure to look different still. But investment strategies that prospered from the past decade’s low inflation, growth, productivity and volatility will face headwinds as this cycle turns.

…click on the above link to read the rest of the article…

Eric Peters: “People Assume That Stocks Always Rise Over Time. They’re Wrong”

This week on the MacroVoices podcast, host Erik Townsend welcomed Eric Peters, the CEO and CIO of One River Asset Management, for a discussion about the long-term future of the US economy, and how demographics, the expanding US debt, and the waning influence of central banks will impact growth, inflation and – most importantly – markets.

Peters

After a brief discussion about the future of USD hegemony, and the factors that could lead to the dethroning – so to speak – of the dollar, the two plunged into a discussion about one of the most vexing issues of the modern US economy: Why sub-4% unemployment hasn’t driven a runup in inflation back toward levels witnessed before the financial crisis.

We’ve all looked at the stats, and we’re now at an unemployment rate in the US of sub-4% – 3.8%–3.7%. I think what a lot of people focus on is if the participation rate were back where it was pre-2008 you’d end up with an unemployment rate that had an 8 handle or something like that. So that’s what people are referring to. But making comparisons like that is difficult because a lot of things are changing. The US labor force is shrinking because people are getting older. There is the opioid issue. And this disability issue. Which are difficult to really handicap in terms of how big an impact that’s having on the US labor force.

Up until recently, the actions of central bankers have been much more important to markets in a general sense than the behavior of politicians. But that’s about to change…

…click on the above link to read the rest of the article…

One River CIO “We’re Willing Participants In Our Own Demise”

One River CIO “We’re Willing Participants In Our Own Demise”

With the world’s focus falling on Beijing this week, where president Xi Jinping give a glowing account of China’s future during the 19th Party Congress, boasting that “the banner of scientific socialism with Chinese characteristics is now flying high and proud for all to see,” not all are impressed by China’s vision of the world in which China sees itself as increasingly taking over from the US as the world’s superpower. And it’s not just stories about China’s neverending behind the scenes bailouts of anything that may telegraph a hard landing for the economy (as decribed in “China’s Government Is Expected To Buy 24% Of All Residential Real Estate For Sale In 2017“); it’s the country’s entire financial system, which Kyle Bass has been shorting for nearly two years now but which he has failed to recognize now holds the entire world hostage: if it goes, so does the global financial system, unleashing a worldwide depression the likes of which have not been seen.

Here is Eric Peters, CIO of One River Asset Mgmt, explaining why everyone is wrong about the $35 trillion Chinese financial system, and yet how Beijing has figured out a way to become a parasite on the global financial system, resulting in an outcome in which “we’re willing participants in our own demise.

Excerpted from One River’s latest Weekend Notes:

“It’ll Be An Avalanche”: Hedge Fund CIO Sets The Day When The Next Crash Begins

“It’ll Be An Avalanche”: Hedge Fund CIO Sets The Day When The Next Crash Begins

While most asset managers have been growing increasingly skeptical and gloomy in recent weeks (despite a few ideological contrarian holdouts), joining the rising chorus of bank analysts including those of Citi, JPM, BofA and Goldman all urging clients to “go to cash”, none have dared to commit the cardinal sin of actually predicting when the next crash will take place.

On Sunday a prominent hedge fund manager, One River Asset Management’s CIO Eric Peters broke with that tradition and dared to “pin a tail on the donkey” of when the next market crash – one which he agrees with us will be driven by a collapse in the global credit impulse – will take place. His prediction: Valentine’s Day 2018.

Here is what Peters believes will happen over the next 8 months, a period which will begin with an increasingly tighter Fed and conclude with a market avalanche:

“The Fed hikes rates to lean against inflation,” said the CIO. “And they’ll reduce the balance sheet to dampen growing financial instability,” he continued. “They’ll signal less about rates and focus on balance sheet reduction in Sep.”

Inflation is softening as the gap between the real economy and financial asset prices is widening. “If they break the economy with rate hikes, everyone will blame the Fed.” They can’t afford that political risk.

“But no one understands the balance sheet, so if something breaks because they reduce it, they’ll get a free pass.”

“The Fed has convinced itself that forward guidance was far more powerful than QE,” continued the same CIO.

“This allows them to argue that reversing QE without reversing forward guidance should be uneventful.” Like watching paint dry. “Balance sheet reduction will start slowly. And proceed for a few months without a noticeable impact,” he said. “The Fed will feel validated.” Like they’ve been right all along.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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