Fund CIO Explains "The Only Way To Make Money This Year"

Tyler Durden's picture

Now that everyone has finally figured out that the only way to not get steamrolled in this "market" is to frontrun central banks - something we have been pounding the table on since mid-2009 when we said that the only two financial statements that matter are the Fed's H.4.1 and H.3 - and not just central banks, but central banks who are now so intimately intertwined in capital markets that the moments they adjust one variable, they unleash a torrent of "reflexive" actions which promptly leads to a cascading effect across the markets and promptly undoes whatever it is that they wanted to do in the first place (Yellen's recent failed attempt at hiking rates which unleashed chaos in China being the best example), we are glad to see that what was until recently yet another apocryphal "conspiracy theory" is the de facto norm.

In the latest note from Eric Peters, CIO of One River Asset Management, he cites another CIO who basically breaks down the convoluted pathway in which monetary policy "works" as of this moment, and explains what, in a world in which "central banks are mistaken", is "the only way to make money this year."

From Peters:

"The world doesn’t work anymore when interest rates go up,” said the CIO, explaining his model. “Since the taper tantrum, the S&P 500 has gone nowhere.” Each time bond yields rise, with a lag of 3mth (but continually getting shorter), risk assets have fallen. “At first people felt it was ok, any Fed tightening would be offset by ECB and BOJ easing.” But this simply sparked a dollar rally that in turn tightened global financial conditions. “The issue is that the world is not growing fast enough to service its debt, so if rates rise you get massive defaults.”

 

"The Japanese private sector appears unwilling to increase leverage at any level of interest rates, which is a remarkable fact,” continued the same CIO. At this level of global debt, without new leverage we get no growth. “This is becoming true in Europe too.” And with the US energy sector now unable to re-leverage, the only solution is increased government leverage. “We’re in a temporary reprieve because China stepped up in Q1 and increased its balance sheet.” So where to now? “The world needs to keep re-leveraging or asset prices will go down again.”

And the punchline:

"Central banks are mistaken. They think they’re targeting employment and inflation,” he continued. “They’re actually targeting asset prices and leverage.” When asset values rise, inflation and employment gradually increase. When assets fall, inflation collapses; it’s a coincidental variable. “At these levels of asset prices, it takes a lot of leverage to lift them further.” So the second central banks see a little inflation and curb leverage, rates rise and it all unwinds. “The only way to make money this year is to understand this sequence, and trade it.”

Translation: when the market is broken, and is getting more broken with every passing day as central banks soak up even more of the marketable assets up until the point where, like the BOJ they will soon end up LBOing virtually everything, the only way to make money is to bet that these same central bankers will continue getting everything wrong and doubling down when they do; from a trading standpoint it means running away when CBs are confident they finally have it right, and BTFD when they are once again scrambling to undo the consequences of their actions by doing even more of what got the world into its current debt dead-end state.

After all, the endgame is now clear: a monetary paradrop which will unleash out of control inflation. At that point the only thing that will have value is hard assets and - to a lesser extent - those assets which generate cash flows which rise higher than the rate of (hyper)inflation.

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SomethingSomethingDarkSide's picture

GBTC, NUGT, TVIX (Cost Averaged, not all at once)

slaughterer's picture

"those assets which generate cash flows which rise higher than the rate of (hyper)inflation"

Ain't going to be many of those types of assets once the hyperinflation really kicks in.  

NoDebt's picture

Good article, I think.  Finally somebody puts the pieces in the right order.  Similar logic can explain how negative rates cause deflation and an appreciating currency- opposite of what is expected.  

No matter how much hay you shove in the horse's ass there won't be anything coming out its mouth.

 

quintago's picture

TVIX? Dollar cost average a 2x ETF/ETN. Now I have read everything I need to.

John Kich's picture

Trump Got It Right Again. This Is the Undeniable Proof...

However the mainstream media isn't saying a word about it!

What are they really trying to cover up?

https://www.youtube.com/watch?v=VKBfjdM3AKg

SomethingSomethingDarkSide's picture

Gotta straddle The Boom and The Bust.  Gray areas have been systematically eliminated.

thesonandheir's picture

Assets = all assets apart from gold and silver, we can't let them get too high or the paper game is up.

raywolf's picture

It's really very simple... when you have new technologies, which are produced by innovative, adventerous, creative, entrepreneurs and technically skilled engineers, THEN you have a roaring economy with higher inflation (because people are earning and spending).

You cannot promote employment by jiggering with interest rates to try to create inflation which then makes employment and a strong ecomony. 

If the FED was a doctor they'd be shoving food up the patient's ass, to try and make him eat more. It's a one way function (unless you are into anal), which I doubt Janet is at her age.

Boris Badenov's picture

GASX based on an equal weight index, check it out. (% moves of stocks based in pennies is huge).

nuubee's picture

A strange game, the only winning move is, not to play.

mary mary's picture

There is no way to not play.  You have to buy groceries.  Everybody on the planet is playing, whether they want to or not.

asteroids's picture

No, not true. You don't play by not buying stawks and bonds. Buy and hold asset classes the FED can't fuck with easily.

TradingIsLifeBrah's picture

I'd like to buy a home but the Fed fucked with the prices already :(

Government needs you to pay taxes's picture

2 ways to preotect your family and your assets while sticking your middle finger at the system: (1) start growing your own food, i.e. a victory garden.  The corollary to this is learn how to hunt with a rifle.  Most places in the US are overrun with VERY tasty venison.  (2) buy used, and think about buying used productive equipment and use it to generate income with a business model that bends the cost curve down of whatever good/service you are offering.  This should enable you to lawfully avoid sales tax, and take advantage of the zero-percent financing behind the asset bubbles everywhere.  TURN YOUR HOUSEHOLD INTO A DEFLATION MACHINE.  

mary mary's picture

Yes.

A clotheline is another cost-saving move.

Yukon Cornholius's picture

I don't have to buy groceries, my mom buys those, stupid.

Ghost of Porky's picture

Your mom bought my groceries last night.

BeaverCream's picture

Is that why your pee smelled like asparagus this morning?

Theonewhoknows's picture

The important part here is still while knowing how everything is manipulated to make sure you are on the upside. That you with your knowledge make money to be independent and say whatever you want to say while they take savings from the middle-class and make everyone poorer. I think this guy made a good point when he compared different markets according to CAPE and others. On top of that, he pointed to the cycle of capital transfers between developed markets and emerging ones. Worth watching. Especially second half. http://independenttrader.org/trader21-lecture-presented-at-fx-cuffs.html

Joe Cool's picture

Inflate or Die...

The idea of Deflation really tweaks the Fed out...

skbull44's picture

"Central banks are mistaken. They think they’re targeting employment and inflation..."

Are CBs mistaken or are they just selling a narrative that they want the masses to believe?

Kirk2NCC1701's picture

How about we start making (1) Sense, and (2) Jobs?

Real jobs. Livable-wage jobs.

TradingIsLifeBrah's picture

$30 per hour at McDonalds would help

detached.amusement's picture

the disappearance of the massive siphons at the top of the system will help

 

(if the guillotines ever do roll)

slaughterer's picture

CBs should just let everything deflate.  So many problems would be solved this way.  That is what I would do if I were Fed Chair.

Yen Cross's picture

  Thanks for the " heads UP".   </sarc>

LawsofPhysics's picture

So, basically, you will only be successful with inside information on what the fuckers at the fed and primary dealer banks are doing/buying...

Gee, thanks Captain Obvious.

 

The Saint's picture

Just subscribe to the daily Fed newsletter that outlines their current policy.  Easy smeasy.

http://www.fedpolicynewsletter.gov

/s

mary mary's picture

Eric Peters, CIO of One River Asset Management, must have recently discovered Zerohedge.  Good.

cowdiddly's picture

Going forward from today, if you don't have Proven and Probable reserves in the ground, then I don't want to hear about your shitty stock price or your corrupt markets.

And I don't give a rats ass about your Inferred or Indicated BS resources either.

But that's just me. Its time to go back to my roots.

Kirk2NCC1701's picture

You wanna make the Economy boom again?  How about you...

- Fix the tax code, and start making things in the US again?

- Stop bombing and rebuilding other countries, and rebuild this one?

- Given the >95:1 leveraging of the FRB, why not forgive the fiat Debt on the fiat FRB money on mortgages, i.e. on those who have >20% in Equity given that (20% down = 5:1 FRB leveraging)?  If that doesn't jolt Demand for Stuff, I don't know what will. And that's the kind of Helicopter Money we can all believe in.

Wahooo's picture

Your third item discriminates against renters and that's RAYCISS!

detached.amusement's picture

even if the fraudulent tax code were left alone, the demolition of all central banks would plug all but the smallest holes

 

without counterfeiting, there's no blank checkbook for war and ceaseless free shit

Dr. Engali's picture

It's amazing how slow to the game these "experts" are. For those of us who caught on early, it's been a profitable few years.  

PPT Inc.'s picture

Please: These "geniuses" have had only two theories to guide their "trading."

1) Don't fight the Fed

2) The trend is your friend.

Look at Greenlight as an example.

NoDebt's picture

Well, now that they're admitting it openly it means two things, near as I can tell:

1.  They don't care if you know now.  They got us by the short and curlys so they don't have to keep up the pretense any more.

2.  They're likely to change the game soon.

JailBanksters's picture

Think of a Poker table with 5 Bankers.

One Banker sell his belly button lint to the next Banker, that Banker borrows money from the Fed for Nix, and Sells it to the Next Banker then pays back the FED and keeps the Difference. As long as they only sell the Belly button lint to players in the game, they can keep selling to themseleves indefinately, all paid for by the FED. It falls apart when one banker doesn't want pay a Trillion Dollar for some belly button lint.

analyzer_66's picture

Sorry author, central banks are not mistaken.  They are saying one thing and doing something else completely different -  KNOWINGLY.  Anytime you hear the fed say employment or inflation or even productivity - think Red Herring.

PPT Inc.'s picture

It is not necessary for an asset's return to exceed inflation if our consumption is on a declining path, as will eventually happen when even the lower costs of outsourcing and globalism run against the demographic trap. Among others, China's population is rapidly aging.

undercover brother's picture

Who says central bankers aren't politicians at heart?  They are indeed.  

SubjectivObject's picture

The fuck finally; they're not mistaken; they're doing it on purpose.

 

the grateful unemployed's picture

http://www.federalreserve.gov/releases/h41/current/

pardon me y'all i want to know how readin this hayer report on bank reserves is gonna maig me soum money, can y'all help this lil ol country boy

whatisthat's picture

No sensible person is going to buy stocks.  Every one knows the Fed is rigging the market.  Let the market crash and we can hold the Fed accountable for their corruption......