Macro Dragon WK 10: New Month + New Horizons = Pure Bliss
Summary: Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon: New Month + New Horizons = Pure Bliss
Top of Mind…
- TGIM & welcome to WK #10…
- Amazing discovery over the wkd in the Dragon household, would encourage everyone to go through the following exercise.
- Step 1. Sit somewhere comfy & where you will not be disturbed, be it with a nice cup of early grey tea or hot cocoa, or maybe even a chilled rozeeeeee or clean whisky
- Step 2. Slip on some noise cancelling headphones, get the track ready & close your eyes.
- Step 3. Press play & just let go….
- Your welcome :)…
- This. This. Is. Global Macro Investing. This. Is. Life… with valleys, peaks, wins, losses, victories, defeats, joy, sadness, playfulness, despair… & the same constants… process, the love for one’s craft & the continued work in progress that we all are.
- Here is to a beautiful & limitless upside Mar, lets have an epic close for 1Q21
- Market focus this wk in addition to the classic new month staples - of final PMIs, US NFP / ISMS, month start flows - , will be on the latest US $1.9 trn Fiscal Package (c. +9% of US pre-covid GDP) finally being passed in the House. It is now about the Senate (which has always been the case) & whilst the Dems control the senate with Kamala Harris as a potential tie breaker, its worth noting two democrats in the House opposed the bill (Golden from Maine, Schrader from Oregon) & there were exactly zero republicans that voted for it.
- Worth noting part of the package (Which has to clear the Senate, then potentially go back to the House – as to clear the Senate with a simple majority, looks like there need to be a tweak in the bill) is the +$1,400 stimulus direct checks to Americans. Will be interesting to see how much of that ends up in the WSB/Robihood crowd.
- From the Dragon’s standpoint the key thing to watch is the inception of the move towards YCC. Remain highly convicted of the view it’s a question of WHEN not IF… & bear in mind the convexity of bond prices changes as yields go higher, its not like equities – momentum as a strategy is not symmetrical across life, nor is it symmetrical across assets.
- So watch for a coordinated narrative from the likes of Clarida & Powell when they are getting ready to do implement YCC. As Piznair Capital’s CIO Gez said, “its not going to be digital, they will flag it first”.
- So question is that US 10s at 2.0% from these 1.41% or 30s at 2.50%/2.75% from these 2.18%? Actually the accelerated move up is the best scenario from get a quicker & clearer response from the Fed. A more gradual grind up, would introduce a lot more noise over signals.
- Lastly, regular readers of the Dragon will know of our ultra-high conviction on energy both for oil & equity since one wk before the US elections in 2020. And damn, have we been phenomenally on point there, with some grateful luck on the thesis, given the freeze across the US.
- There is the direction of an investment thesis playing out & there is the magnitude of that move – still remain a high conviction bull on energy, as that a lot of these energy names will still likely pop +50% to +100% over next 12-18m (XLE $48.15, XOM $54.37, BP 291.75, WPS A$24.77) & are well below their Jan 2020 pre-covid lvl. Remember some of these names closed last year down -40% & they are in one of the sectors were valuation are cheap, plus they are also very much in the value bucket & a leverage play on the world re-opening out, vaccines being rolled out, etc.
- Yet tactically worth noting how quickly we have moved in a very short amount of time. We are kicking off this Asia morning with WTI firmly above $60 at $62.65 +1.8% & Brent $65.60 +1.8% & when Texas eventually defrosts, winter in the Northern Hemisphere disperses, we are likely going to see a pretty brutal reversal on oil.
Rest of the Week & Other Reflections
- Yes China PMIs came in worse than expected this morning, all noise as 1Q data always has the Lunar New year effects… generally an acceleration of activity into it & as a consequence of that, a deceleration post that.
- Powell set to speak again this wk – did an interesting job of playing relaxed on the need to move rates up last wk… good Jay, good Jay – on Thu, so again… hints of YCC? Likely will depend where 10s & 30s are… if we are at 2.0% & 2.75%... he will talk YCC.
- Australia GDP on Wed could be a big mover for currency traders on Aussie crosses.
- UK should set its budget release this Wed.
- CBs: Australia 0.10% e/p (remember RBA recently bought an unscheduled few yards of points to keep their YCC in place) & Malaysia 1.75% e/p.
- ECB”s Lagarde set to speak on Tue, with RBNZ’s Orr on Thu
- Hols: JP out on Tues.
New Dragon Interview– Global Macro & Nature Conservationist Geo Chen
We had the pleasure of sitting down & speaking with Geo who is:
Whilst the interview was filmed at the tail-end of Nov 2020, there is something here for everyone to take something away, including bigger picture thoughts on 2021, broader implications of the macro regime that we are in, as well as overall framework, allocation & investment process.
Geo has been running his own capital across both liquid & illiquid strategies since 2017, chalking up world class returns in the process, which more importantly fuels Geo & his family’s passion & calling, for Nature Conservation.
What is impressive outside of the large returns over the period, is that Geo somehow does it all – from trading to investing, to internal capital allocations as well as external allocations across the entire asset class & strategies spectrum. I.e. its tough enough to consistently do well in one area, lets alone across the board.
We cover his come up story, his framework + process & approach, his passion & the importance of the Nature Conservation. Lastly we close with Top of Mind Thoughts & views for 2021 & the general global macro regime that we are in.
We hope you enjoy the interview, as much as we did putting it together. And if there is something that you take away from this, be it inspiration, enhanced framework, investment thesis that resonates, left you thinking, etc…
Do consider making a donation to the Rain Forest Trust – which buys up rainforest land around the world & maintains them within an ecosystem of local residents.
From a markets perspective these are some of the areas we touched on:
- How Geo fared in 2020, given the massive bullishness in Jan, crazy sell-off in Feb & Mar, then once again bullish recovery in Apr & May
- Inflationary regime & the huge fiscal forces that we are seeing
- Precious Metals & US duration
- Bitcoin & Crypto
Previous Dragon Interviews
- Ever wondered what it would be like to be a Proprietary Trader of Global Currencies over multiple market regimes across the world?
- In the our second Dragon Interview series, we sit down & jam with the talented, as well as always witty Keith Dack – known as Dacky in the markets.
- Ever wondered how a Macro CIO would approach the top-down process?
- Discussing Global Macro & the Building Out of a Hedge Fund the AVM Way, with the Class-of-One Ashvin Murthy
- Going into year 5 in one of the toughest & dynamic changing Global Macro Regimes, AVM has returned +42.7% since its Nov 2016 inception, with an astounding Sharpe of +1.7x. Catch the great interview with Ashvin here.
Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.
This is the wayKVP
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.