Global Macro

The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside and that the risks around the inflation projection were skewed to the upside

pipbel написа:

pipbel написа:Съгласен с разсъжденията и котировките де си дал в поста си. Надали ще слезе до 1.10, по скоро до 1.12 макс.
Но при всеки случай не и до 1.03-5 както бе преди години.

Зеления хич не си поплюва...с тия вируси из ейропата вече и за 1.10 не съм особено сигурен.

FT написа:I’m not sure what Bridgewater means by “nominal demand” (they could not make anyone available last week to talk to me about the paper) but if it corresponds roughly to disposable personal income (as suggested to me by Skanda Amarnath at Employ America), it looks like that is going to roll over soon, because there is not going to be another round of stimulus cheques and enhanced unemployment benefits. 

FT написа:Similarly, metals prices are not heading straight north. It is surely important to the inflation debate that, for example, aluminium prices have fallen by 14 per cent in less than a month; copper prices have been flat since May; and iron ore prices have fallen by half since this summer. Prices did take a big step up during the reopening, but it’s not clear to me that the supply demand imbalance is set to get worse from here, as Bridgewater believes. 

Блумбърг написа:
China’s V-shaped economic rebound is fading faster than expected, catching analysts off guard and posing a new headwind for the already uneven global recovery.

That’s the emerging consensus as falling property prices, nervous consumers and a cooling manufacturing sector all point to slowing momentum in the world’s No. 2 economy. A surprisingly restrained policy response from Beijing has dampened hopes for more support, at least for now.

Bloomberg написа:For the world economy, the development threatens to strip away a key ballast of support. China’s hunger for raw materials and its quick reopening after the initial pandemic wave helped to fuel the global rebound too.

Money написа:Защото приемам, че инфлацията в случая идва предимно от supply chain disruptions и че е supply-side проблем. А дигането на лихвите няма как да помогне да се отстранят тези проблеми, даже може да ги задълбочат.

Може да се мисли също и че проблемът идва от променения патерн на търсенето. Хората сега изведнъж са почнали да потребяват много повече стоки, отколко услуги заради пандемията и инфраструктурата не може да насмогне.

Но ти би ли казал, че американската или другите големи икономики са прегряли в традиционния смисъл на думата? Според мене изобщо случаят не е такъв и затова инфлационният спайк е по-добре да се остави да си отшуми от само себе си отколкото да се охлажда една (като цяло) и без това не чак толкова прегряла икономика (с уговорката, че някои сегменти вероятно наистина са прегряли).

pipbel написа:

Я заеби онова глупаво П мерене с ЕД-то и дай малко по подробна обосновка на горното, защо мислиш така ? Ще ми е интересно.

pipbel написа:

Money написа:Според мене хайковете в случая са безсмислени и ако ги направят наистина пазарът ще реагира доста негативно.

Я заеби онова глупаво П мерене с ЕД-то и дай малко по подробна обосновка на горното, защо мислиш така ? Ще ми е интересно.

Money написа:Според мене хайковете в случая са безсмислени и ако ги направят наистина пазарът ще реагира доста негативно.

World's Most Bearish Hedge Fund Shuts Down: Here Is Russell Clark's Farewell Letter

Clark's final message to investors is below:

The fund lost 5.30% this month, mainly from the short book.

After a couple of years of turbulent markets and the increasing influence of politics rather than economics on the markets, I have come to the decision that the best way forward is for the Fund Directors to wind up the fund and return capital.

The success I enjoyed from 2011 through to beginning of 2016 largely stemmed from asking the question that no one seemed to ask – why does the Yen and Japanese Government Bonds rally whenever there is a crisis? The obvious answer was capital flows from Japan would create a bull market in the area they flowed to, and then when the Japanese pulled capital back, it would create a bear market, often with significant currency volatility. Armed with that observation, and combined with analysis of the commodity markets, we build a portfolio that was largely short emerging market and long bonds.

Since 2016, using the same analysis as above, Japanese capital flows have almost exclusively been to the US, and are an order of magnitude larger than anything seen before. And yet, US equities still power ahead, Yen remains weak, and currency volatility has been consigned to the history books. Of course, I asked myself why this is. Why did a model that worked so well, for the best part of 25 years, stop working?

The obvious answer is that central banks led Quantitative Easing (QE). But that answer alone seems insufficient to me. Japan has had low interest rates for years and was still racked by bouts of extreme equity and currency volatility. The other problem with that answer is that the big inflation spike seen this year should then lead to greater volatility in equities, especially as central banks dial back QE programs.

The answer for me comes from China. China wants a strong currency, and to keep consumption strong. It seems to me that the Chinese government uses it extraordinary control of the economy to control activity and the currency through the commodity markets. To elaborate, I expected China to post a weak trade surplus in October, and for currency devaluation fears to spike (particularly after the recent Evergrande selloff). Chinese trade surplus was actually very strong. And it was strong because Chinese imports of oil and iron ore were down significantly. Chinese steel production was down a stunning 20% year on year, a number you would typically only see in a bad recession.

China has effectively taken control of key commodities, and now adjusts volumes to suit its own needs. Taking all this volatility through physical markets, has essentially collapsed financial market volatility, and also led to commodity currencies being significantly weaker than commodity prices – which has been a problem for me this year.

Now I understand this, non-obvious trades at the beginning of the year such as long oil, short iron ore now seem obvious. The surprising weakness of gold and other precious metals can make sense in this analysis. It also explains why the extraordinary fiscal and monetary policies of the US have not been met with greater commodity or bond turbulence. It is very hard for me to get bearish US treasuries when I see Chinese steel production down 20% year on year.

The big question then is whether this Chinese policy of absorbing financial risk in the physical economy sustainable? History suggests not, as most countries prefer to devalue than slow economic growth. However, I can see reasons why China may continue with this policy. The most powerful is that with US policymakers seemingly unable to raise interest rates, or balance budgets there is a gap in the market for a credible currency. Is China making a play for reserve currency status?

And this is why I am returning capital. Markets have now become a political choice. US markets are essentially a bet on the Fed unable to raise rates, and congress unable to regulate big tech or raise corporate tax rates. Commodity markets have now become a bet on Chinese policy objectives, and currencies have become a bet on what Chinese policy objectives are too.

Give me an economic problem, then I can properly gauge risk. Give me a Chinese political problem – I am taking a guess as much as the next person. Did I think Alibaba was going to fall 50% this year? No, not until the Chinese government told me to think that way. Is Alibaba a good short now? I have no idea, and like everyone else will have to wait to see what the Chinese government says.

So, I think it time to step back, have a think about where we are going, and then come back when I can see an opportunity for my skill set. Perhaps that’s never, but I doubt it. The only constant in life is change. This will be my final newsletter and it just leaves me to thank you for your support and wish you all the success in the future. From a personal perspective I plan to keep producing research, so keep an eye out for my future notes. Russell.