"We had a position whereby the other side - the investment banks - they were desperate. They were dying as this thing suddenly came to my strike levels. Blew through my strike levels, started to create this monster of P&L, which was murdered by a monster loss on the other side. That's macro. That's macro."
George Sokoloff, founder and CIO of Carmot Capital, explains why typical asset allocation strategies, including those employed by most "sophisticated" hedge fund managers, end up getting slaughtered during market shocks despite perceptions of being "well hedged".
With the yen strengthening ~12% against the US dollar and the Nikkei down ~10% YTD, it seems Haruhiko “Peter Pan” Kuroda is having a difficult time working his magic in favor of Abenomics. As the WSJ reports, Kuroda is under increasing pressure from the Prime Minister’s advisers to coordinate efforts to jumpstart the economy. Earlier this month, we first reported of the secretive meeting between Kuroda and Bernanke, where the former Fed Chairman urged Japan to unleash helicopter money.
Norges Bank continues to hold rates at .5%, signaling an upward bias but willing to cut if needed, depending on unforeseen external shocks like BREXIT. In my opinion, they really don’t know what to do while the country heads for stagflation (simultaneous rising unemployment and inflation). They are in a “damned if they do and damned if they don’t situation.”
China's modest GDP stabilization has come at a cost, a big one. Instead of tackling a debt pile estimated by Rabobank at a gargantuan 3.5x of the economy’s size, policy makers are only making it worse with a renewed credit binge. "The amount of cash Beijing is shoveling into the economy is stunning," said Andrew Collier.
The new risk scenario for CNY is 8.0 (20% increase in USD-CNY). The caveat is that the pain threshold for the market appears to be much higher than before and the implications for the global financial markets will primarily depend on the speed of depreciation. We believe that it would take significantly more pressure on capital flows than what we have seen over the past few years, or an economic hard landing, for our risk scenario to unfold.
Risk-on assets (stocks) rising at the same time as safe-haven assets is akin to dogs marrying cats and living happily ever after. What the heck is going on? Why is the market acting so schizophrenic? What’s changed?
“The government is allowing speculation by providing cheap financing,” Andy Xie exclaimed, China “is riding a tiger and is terrified of a crash. So it keeps pumping cash into the economy. It is difficult to see how China can avoid a crisis.”
"I had a fascinating out of body experience meeting with one of the world's top central bankers in a private meeting about three years ago. it was one of those moments where I...it was one of those epiphanies almost, where it's something you and I knew, but hearing him say it, call it one of the four top central bankers in the world, it was a jarring experience for me..." - Kyle Bass