Commence 'pain trade.' Expect there to be significant buy-side performance pain today with regards to the below key “long USD”-linked “US reflation” trades (as quoted above) seeing real capitulatory / unwind flows.
The US Dollar is the “grand unifying theory asset” for nearly any and all “profile” global macro or thematic equities trades in the marketplace right now, as it represents investors being long this “new” version of “economic growth.” As such, performance is significantly tied to the direction in the US Dollar.
"We will wait for unambiguous signs of bullish investor Positioning, bullish Profit expectations & hawkish Policy from Fed/ECB, as well as outperformance from laggard risk assets in 2016, before calling for The Big Short."
"The reflation trade was strong out of the gate but has reversed a decent amount heading into the afternoon - the question isn’t why stocks have come in from their highs but instead why they were so strong to begin with."
The core thread of next year's relatively downbeat "surprises" from Seabreeze Partners' Doug Kass is that the crowd is wearing Trump-colored glasses and that the single-biggest surprise is how quickly the bloom comes off the Trump flower.
The Bank of Japan is set to become the biggest buyer of exchange-traded funds in 2016 for the second straight year. According to data through Thursday, the value of the BOJ's ETF purchases this year has topped 4.3 trillion yen, up 40% from 2015. As a result, the BOJ "will become the largest buyer of ETFs this year," according to Mizuho Securities.
The "Trump Trade" continued with global equity funds receiving $21 billion in inflows in the past week according to Bank of America, as investors rushed into reflation assets, while money flowed out of bonds for seventh week in a row. For one more week news for the "active managed" community was negative: of the $20.7 billion in equity inflows, $31 billion was in the form of ETFs, which meant another $10 billion in outflows from mutual funds and other active vehicles.
The final November fund flow numbers are in, and as BofA's Michael Hartnett puts it, November was a "watershed month" for fund flows with the largest 5-week bond outflows in 3.5 years (Chart 1), largest 3-week precious metals outflows in 3.5 years (Chart 3) and largest 4-week equity inflows in 2 years.
Mr. Trump rather unfortunately may find that his chief task will not be the management of this Great Re-orientation, but more prosaically, fending off the headwinds which he will face as he hauls on the tiller of the economy. In short, there is a real prospect that his ambitious economic “remake” may well be prematurely punctured by financial crisis. These headwinds will not be of his making, and for the main part, represent the accumulation of an earlier monetary doctrine which will fetter the President-elect into a small corner from which any chosen exit will carry adverse implications.
1) Peak Liquidity: era of excess liquidity is over; 2) Peak Inequality: more fiscal stimulus to address inequality; 3) Peak Globalization: free movement of trade, labor, capital ending; FX wars starting; 4) Peak Deflation: low point in bond yields now behind us; 5) Trough Volatility: era of “flash volatility” and “pain trades” continues; 6) Peak Passive: active investors to outperform passive; 7) Transforming World: robotics, eCommerce constrain inflation upside