I think perhaps this is a good time to bring you all up to date with what we’ve been up to the last few months.
If nothing else it’ll serve to answer the many questions I receive on the topic. Questions such as:
“Hey Chris, as a small retail investor it’s hard to impossible for me right now to buy options or warrants to participate from a yuan devaluation. What’s your take on other financial vehicles where a yuan devaluation would have a huge (optionality) impact, that a retail trader could position himself with? Not talking FX or Futures, more like companies or sectors or commodities that would profit, something where it might be easier to find options for.”
Nomad Investment Partnership: Keep An Eye On The Unseen Risks
There are many ways to define risk. Warren Buffett has said that "risk comes from not knowing what you're doing." Q3 2020 hedge fund letters, conferences and more His mentor, Benjamin Graham, believed that risk should be measured as the chance of a permanent capital impairment of an investment. Seth Klarman also holds this view. Read More
Some three months ago we launched a small fund dedicated towards asymmetric opportunities. I run this together with a long term great friend and ex-hedge fund manager. Our target is the sort of opportunities which are akin to subprime “Big Short” type trades. We have been very careful about our positioning, being extremely focussed on many of the trends I talk with you about here.
In addition to the fund launch, I wanted to provide a dedicated service for investors. Investors who, while they may not have hundreds of thousands or even tens of thousands of dollars to invest in a fund or even a desire to invest in a fund… not to mention a requirement to be accredited, actually want access to the sort of investment opportunities which exhibit extraordinary asymmetry.
I feel that when I was younger, had more hair, less scars, and just as much enthusiasm I would have wanted this. I wanted to provide the ways and means of participating available in an easy to understand and easy to execute manner. Even if (and maybe especially if) investors are not sophisticated or experienced.
It’s been a while in coming and this is because I wanted to make sure it was everything I wanted it to be. I’m now proud to say it’s here but more on that in a minute.
What About Those Charts?
Readers of any duration will know that our belief is that the credit cycle has turned, and that the dear beloved bond market reached its fulcrum earlier this year.
The turn has already happened though most market participants are as unaware of this as they were that Trump would be elected. When looking at implied volatility in the futures markets this is clearly evident. How long this myopia lasts is anyone’s guess but the change has taken place.
The most visible example of the structural shift, one which I’ve been writing to you about until my fingers bleed, was streamed live to us as Donald Trump was elected the 45th President of the United States.
Now let me just say that people who brag are amongst the most annoying creatures on Earth, second maybe only to mosquitoes. And so while running the risk of falling into the bragging category, I want to point out that the only thing that should be surprising about Trump’s victory is that people are surprised by it.
To better understand the context of tectonic shifts currently happening on the global geopolitical chessboard, I encourage you to read (or re-read) some of the articles I wrote on this topic over the past few months:
- How a crisis in political correctness in the Western world paved the way for geopolitical changes we see unfolding daily around us and…
- Donald Trump’s stance on China illustrates why a proper understanding of global capital flows is so important (arguably, more important than ever)
- And finally, how the rise of “political strongmen” is the reason traditional investing metrics are increasingly falling flat, and 3 things investors should focus on instead.
Trump’s election, folks, is not surprising.
The qualitative factors together with the quantitative painted quite a clear picture for those who dared look. Quite literally everything I’ve been speaking about here in my little corner of cyberspace should lead any sensible reasoned person to come to the inevitable conclusion that yes, Trump was going to win.
Like Brexit it really shouldn’t have come as a surprise, anymore than the destruction of the EU and the euro shouldn’t come as a surprise when it happens, though it likely will.
But then again linear thinking extrapolated too far in a dynamic world produces this. And thank Zeus for it. Without it there would be no mispricing of assets and without mispricing of assets we’d not have the sorts of opportunities which present themselves for asymmetric returns.
Which brings me to the following few gems which we were looking at the morning after the election.
Below I want to show you the immediate market reactions to what was an “unforeseen” (at least by most) market event.
The Dow after whipsawing, ended UP.
The euro, after having risen all the weeks leading into the
fiasco election, got beaten up, ending DOWN.
Financials were UP. I’m showing you Bank of America as an example but they were all much the same.
Now let me divert your attention on the next two as they are the most important.
Remember, quite literally every single exogenous market shock or unexpected, “risk off, holy mother of Mary, where did that come from?” event we’ve had in the past 30 years has seen treasuries rally. It has been THE safe haven trade. This was just repudiated as the 30-year was monkey hammered. I can’t express how significant this is. Ok, I can. It’s significant!!!
To properly set the context, let me ask you a question: What was the vote for Trump all about?
Was it even a vote FOR Trump?
I’d say no. It was much more a vote against Hillary, against the status quo, against the political pandering, against the corruption, against the deep state and it was a desperate grasp at something…anything which showed authenticity.
In the article referenced above, when I warned that though Americans were laughing at President Duterte in the Philippines they really needed to pay attention it was because of similar psychological dynamics at work.
“With a 91% popularity rating his outright flagrant disdain for what is deemed politically correct aids rather than detracts from his popularity. He is a foul-mouthed womaniser who doesn’t bother trying to hide the fact and says whatever he feels like saying.
These traits, so completely at odds with the clutch of podium donuts typically found inhabiting the halls of power who, instead pretend not to be womanisers (“I did not have sexual relations with that woman”), act as reinforcements of honesty and credibility, or at least the perception of them.
What can be more “honest” and politically incorrect than this?
“I don’t give a shit about anybody observing my behaviour.”
Trump was seen as authentic and Americans knew that they couldn’t trust anyone that had the look and feel of all the other political hookers they’ve become accustomed to. And so they voted for a wrecking ball to come in and destroy the deep state.
Now consider this. If the political status quo is being thrown out (and it clearly is) then I’d ask you what forms the financial political status quo?
It is my friends, the central bankers’ ability to keep the faith. The faith in the Fed, the faith in the ECB, the BOJ, and the BOE being amongst the most important. As my friend Grant Williams once mentioned. Everything… EVERYTHING… rests on one ephemeral thing: the market’s confidence in the power of central banks to ensure a good outcome no mater what.
Their greatest policy tool? The cost of capital.
As mentioned earlier we believe that bonds turned back in March of this year. This is the first market shock post Brexit which allows us as investors to stress test the belief that the bond market has turned and now the immediate market reaction I’m showing you, I believe signifies just that.
Next up take a look at copper.
Wow, is all I can say.
This folks has inflation written all over it. If we can’t trust the politicians and we kick them to the curb, and we can’t trust the bankers, how much longer before they are kicked to the curb?
Below is a snapshot of all the winner/loser markets for the day. On any other day these charts wouldn’t have the same meaning. I’m showing them to you because together they paint a very interesting picture.
It is a picture which I’ve been writing about relentlessly and it is a picture of capital shifting at the margins. Forget about what the new iPhone can or can’t do for you. This is worth understanding because at some point… possibly not too far over the horizon the penny will drop and things could get very ugly indeed.
My reasons for telling you about all this are simple. As a private investor and as a fund manager I want to make more money. It’s what I do. Leopards and spots and all that stuff.
What this means for you is that if I can make money, you can too.
The service I’ve launched I’ve called the Capitalist Exploits Insider and it caters directly to providing the background and most importantly the “how to” execute on the most asymmetric opportunities I can find in the markets today. Sometimes they’re sourced from my team, other times they’re from my global network of exceptional investment minds, some of whom I’ve introduced readers to, and other times from those who are somewhat more reclusive.
Importantly please realise that I don’t and never will pretend to have all the answers, and frankly anyone who promises you they do is a charlatan, a politician, drunk, high, or hasn’t been involved in the markets for more than a few years.
With all that said I’d love for you to come to the dark side and join us.
Sorry, no steak knives, though I have just released a special report on Bitcoin which sits inside all tied up in a ribbon and bow for you.
Whatever you do, be safe and keep your wits about you. We’re in financial Disneyland and the screws are coming off the rides.
“Those who are easily shocked should be shocked more often.” ? Mae West