Tyler here with this week’s Macro Musings.
Recent Articles/Videos —
Blockchain — We discuss the real value of cryptocurrencies like Bitcoin — blockchain. We explain how blockchain works and its potential transformative uses.
Lee Ainslie's Maverick Capital had a difficult third quarter, although many hedge funds did. The quarter ended with the S&P 500's worst month since the beginning of the COVID pandemic. Q3 2021 hedge fund letters, conferences and more Maverick fund returns Maverick USA was down 11.6% for the third quarter, bringing its year-to-date return to Read More
Articles I’m reading —
Our favorite macro investor, Ray Dalio, has some sobering thoughts on how financial assets will perform over the next 10-years.
The problem is that with interest rates and risk premia near all-time lows and debt and asset values near all-time highs, there’s little fuel to repeat the process. Just as the Fed can’t cut rates much, it can’t raise them much either, or debt servicing would swamp cash flow and asset prices would sink. Thus Mr. Dalio sees years of low interest rates, and while he thinks stocks are fairly valued, returns to a typical stock-bond portfolio over the next decade will be around zero after inflation and taxes. Whatever you need to retire, save it now: Don’t count on portfolio returns.
We agree with his long-term outlook. The FED has to battle the end of a long-term debt cycle which is incredibly hard to do. This reality is a tough pill to swallow for passive investors — but as macro traders we look forward to the opportunity that a deleveraging cycle will bring.
Video I’m watching —
Bitcoin has officially entered the manic/euphoric phase. It seems like every single article on yahoo finance is about ‘crypto’ instead of stocks.
I’ve been trying to limit my crypto media consumption because it can easily waste your time away, but this comedic video from Seth Myers is well worth the 5 minutes. It’s friggin’ hilarious and perfectly describes the type of mindless buying we are seeing right now in the crypto space.
Podcast I’m Listening To —
If you want a break from the bitcoin bullish chorus take a listen to Patrick O’Shaughnessy newest podcast on crypto — A Sober View on Crypto.
In this episode he interviews Adam Ludwin founder and CEO of Chain, a blockchain technology company targeted at large enterprises. Adam is long the space but with a healthy dose of skepticism and caution. His background is in venture capital so he knows how the game works — it isn’t all about instant riches and 100% wins.
I found it refreshing to hear a balanced take on bitcoin and crypto from a professional investor. His sentiment mostly aligns with ours — the underlying technology in crypto is super exciting but the actual value of the coins/tokens is questionable.
Chart(s) I’m looking at —
Jeremy Grantham’s latest note included the chart below showing a possible blow-off top scenario in the S&P 500.
We agree with Jeremy in that the market is likely to accelerate higher in the short-term. We have synchronized economic strength coupled with easy central bank policy. This sets the stage for financial assets to rally considerably until the Fed and the other CBs get further down their hiking cycle.
Trade I’m looking at —
The Nikkei has started off 2018 with a roar. Price has completed an upside breakout of an ascending triangle pattern.
We’ve been long since before the holidays and have recently added to positions.
We’re across the board bullish on stocks (in the short-term) but the Nikkei has the most attractive setup from a technical perspective which is why are are putting on exposure here.
Quote I’m pondering —
The central truth of the investment business is that investment behavior is driven by career risk. In the professional investment business we are all agents, managing other peoples’ money. The prime directive, as Keynes knew so well, is first and last to keep your job. To do this, he explained that you must never, ever be wrong on your own. To prevent this calamity, professional investors pay ruthless attention to what other investors in general are doing. The great majority ‘go with the flow,’ either completely or partially. This creates herding, or momentum, which drives prices far above or far below fair price. There are many other inefficiencies in market pricing, but this is by far the largest. It explains the discrepancy between a remarkably volatile stock market and a remarkably stable GDP growth, together with an equally stable growth in ‘fair value’ for the stock market. ~ Jeremy Grantham
We should see even more investment managers and individuals buy the market out of FOMO during this final ascent. If you’re going along for the ride make sure to keep your stops tight. There’s no long-term value at these levels.
That’s all for this week’s Macro Musings.
If you’re not already, be sure to follow us on Twitter: @MacroOps and on Stocktwits: @MacroOps. Alex posts his mindless drivel there daily.
Your Macro Operator,