"The only question that really matters in this business is this: What’s the next big move? It’s probably a continuation of the Trump trade"... But "the thing is, consensus trades have a nasty habit of working, just not exactly when you want them to"
In recent weeks there has been a burst of hope that 2017 will be better for hedge funds as a result of the recent collapse in cross-asset correlation; it is hoped that the resulting returns dispersion would make it easier for hedge funds to stand out in a world in which correlation had been at near record highs. But is that an accurate description of events? To a great extent, the answer is no.
From Donald Trump’s unorthodox but successful campaign for President to the Brexit vote, popular votes shifted the course of global politics in ways very few could have imagined a year ago. Here is a brief quiz that highlights the year’s politics, developments in technology, and changes in the U.S. labor market/economic policy.
The recent appreciation in financials is apparently a response to the new administration’s planned policies that are generally viewed as beneficial for the financial sector. Given the regulatory oppression of the past eight years, this may very well be a sound reason to own bank stocks. However, the R2K index is trading at grossly elevated levels. Owning the index for anything other than pure speculative trading is ridiculous. Owning the index for its bank exposure is insane.
There’s seemingly no stopping the equity side of the “Trumpflation” trade in what may be developing into an epic year end blow-off top. The euphoria which took the S&P 500, Russell 2000 and the Transports to all-time highs yesterday, and the Dow to less than 500 points away from 20,000 carried over into Asian stocks (+0.8%) as they followed bullish trend, while European stocks rose for a fourth day.
European, Asian stocks rise as do S&P futures as OPEC ministers gathering in Vienna appeared to be set to announce a deal to cut oil production and prop up global prices. Oil has surged over 7% as a result, also pushing US TSY yields and the dollar higher.
Everybody’s talking about the feds’ opportunity to “invest” free money. It makes us nervous; we know how hard it is to get a good return on investment – especially when you don’t know what you’re doing.