"Over the past 18 months, we have focused on a particular set of asymmetries, which we are now seeking to exploit. One opportunity in particular has the greatest risk-reward profile we have ever encountered in our decade of being a fiduciary."
As the IMF writes, China urgently needs to tackle its corporate-debt problem before it becomes a major drag on growth in the world’s No. 2 economy. Corporate debt has reached very high levels and continues to grow, as it demonstrates in this chart that keeps it up at night...
China has a window from now to President-elect Donald Trump’s inauguration to halt FX intervention and let yuan depreciate to its equilibrium level, Yu Yongding, a former academic member of PBOC’s monetary policy committee, said, providing one possible explanation for bitcoin's 20% surge in the past week.
"Markets don’t have a purpose any more - they just reflect whatever central planners want them to. Why wouldn’t it lead to the biggest collapse? My strategy doesn’t require that I’m right about the likelihood of that scenario. Logic dictates to me that it’s inevitable..."
"If Chinese foreign reserves continue to fall and the PBOC wants to maintain control of the exchange rate, they will need to face some difficult choices... Investors should be prepared for bigger falls in the Chinese Yuan."
In a recent interview with Macro Voices, Hugh Hendry is asked about the trade he has on in his fund, to which the Scotsman says that his team recently had a “eureka moment” and figured out how to design a trade, which has a negative carry when viewed in simple terms, such that they preserve the asymmetric of risk/reward while converting it to a positive-carry trade by adding another “European sovereign component to the trade”.
"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.”