Macro Dragon WK 7: This Time Its Different - Honest!
Global Macro Strategist, Saxo Bank Group
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.
Dragon WK #7: This Time Its Different - Honest!
Top of Mind…
- TGIM & welcome to WK #7…
- Hope everyone had a restful & well deserved break over the wkd, full of downtime, reflection, fun & time both with loved ones & by ourselves.
- The Limitless Upside Regime continues… the Meta Backdrop is still one of infinite money that is set to continue being printed for what is likely going to be multiple years if not a decade outside the likes of the US, CA, UK & Europe… and yes there will be monetary divergences from the likes of Norway, Australia, New Zealand, Brazil, Indonesia… remember it’s a relative world… sometimes to be hawkish is to just not be dovish.
- The tongue in cheek of the ‘four most dangerous words in finance’ (always be wary of such grandiose expressions, especially from KVP = MVP) is really meant to emphasis at least two things as far as the Dragon is concerned
- Numero Uno: No, its not different in regards to a need for the accountability & mark to market of the consequences of an exponential growth of debt in the world. But…
- Numero Dos: Its likely going to take years, before we come to that triad of debt forgiveness, restructuring & write-offs… It could be 3yrs away or 5yr or even 10yrs. Remember it took the BoJ 8 yrs to go from c. 30% of BS/GDP [where Fed is now] to the current 130-140% ratio, as well as owning the JP bond market & depending on who you ask 25-35% of JP equities. During that same period we had an unlevered depreciation of the yen by over 60% in just 3yrs [i.e. from 77-78 in Sep 2012 to 125/126 May 2015 to the current 103-106 lvls, basically seeing the unwind of Abenomics at least in rgds to the currency & economy]
- Now most importantly for the world & global assets [plus especially Bitcoin + the cryptoverse which are likely still very much at the inception of the biggest bull market yet – KVP will do a piece on this later this wk… plus we got a few folks lined up for future Dragon Interviews], we are not talking about the 3rd biggest economy at $5trn. But the worlds biggest economy from a nominal GDP perspective, with +$22trn (+4x Japan), with the deepest equity, bond, property, PE & VC markets, that also happens to be the dominant global reserve currency.
- Point here being for now, the Meta Trend continues to be for structurally lower yields in the US, as well as lower real negative rates for longer. Don’t mistake a tactical move higher to 1.25 or even 1.50% in the 10s for a change in the Meta Trend (i.e. 2.25% / 2.50% in the 30s) – YCC will be coming in the US, if the MMT / Social Stability / Climate Crisis + Green Tech Infrastructure thesis is to hold.
- We’d been talking about this on the Dragon since summer of 2020 when folks were still coming up for air from the Mar/Apr sell-offs. Implications are even more aggressive asset class inflation (EQ, CMDs, RE) with structurally much lower USD (Back to 70 lvl on DXY from current 90-91 lvls) & volatility in general.
- Look at the majority key asset classes & their expressions globally from SPX, to Russell, to DAX to China-A50, to NKY, To EEM, to Oil to Ethereum (& Crypto, yes Bitcoin still needs to break up through $40L, question of when not if, likely do so in Feb if not this wk) we are breaking out higher folks… this is not a drill. Repeat, this is not a drill.
- So what's the downside on the S&P 500? -5% or -10%, vs. what +30% to +100% over the next 18-24 months? From the Dragon's take - unless we have a massive unwinding of the current regime, which would mean ripping off the Band-Aid all the way back to the 2008 GFC - the structural skew is risk assets continues to be massively to the upside.
- Note our 1Q2021 outlook was out last wk, do please check it out…
Rest of the Week & Other Top of Mind Thoughts
- Generally light wk ahead from an economic, central bank & geopolitical known unknowns.
- CBs: Key rate decision coming out of the Philippines, Mexico & Russia
- BoE’s Bailey – post last wk meeting, that saw EURGBP ..87658 break lower through the key 0.88 lvl – is speaking in front of the treasury committee.
- ECB’s Largarde speaking on Tue 00:00 SGT.
- Fed’s Powell speaking on Wed [0300 Thu SGT] to the Economic Club of NY.
- US: JOLTS, CPI, 30yr bond auction & UoM
- CH: CPI & PPI prints due out on Weds before the Old Kingdom goes into its Lunar Year Holiday
- EZ: GER IP & EU Economic Forecasts
- CA, AU, NZ: Inflation expectations across AU & NZ. Wholesales in CA
- Hols: NZ out on Mon. CHK embarks on Lunar New Year Hols from Thu Feb 11 & does not return until Thu 18 Feb. JP out on Thu 11 Feb. SG is out on Fri 12 Feb. HK will be out Fri 12 & Mon 15. SK will be out on Thu 11 & Fri 12.
- Appreciate the support here, on Dacky’s re-share on Linked-In we quickly got to +15K views a little over a wk after putting up the interview. We have another Dragon Interview set to drop soon…. Stay tuned!
- In the latest segment of our Dragon Interview series, we sit down & sit with the talented, as well as always witty Keith Dack – known as Dacky in the markets.
- Dacky has been trading since the 80s, making tens of millions of dollars for a large number of banks - including legendary firms such as Bankers Trust & Salomon Brothers – in the multi-trillion global currencies markets
- We touch on the change in market regimes over the decades, risk-taking, his approach to trading currencies & how he looks at the market.
- And naturally we make some time for war stories, career progression as a risk taker, as well as some of his biggest winners & losers on the trading floor. Dacky does not hold back on the challenges that come with the craft, that often get glossed over in trading books & with the media.
- It’s rare to come across an individual of Dacky’s deep experience, talent, humility, as well as continued passion & drive for trading the markets.
- For context during the turbulent year of 2016, think Brexit & Trump US election victory surprises among many things, Dacky returned +50% for the year.
- Lastly we close on big picture thoughts going into 2021 – the interview was filmed on 28 Nov 2020 – which will give people some MtM as well as ideas & investment themes to reflect on.
- You can watch the full interview here.
- We hope you enjoy the interview, as much as we had putting it together.
- The Profile of the interview is roughly broken into:
- 01:25 – “Background, Career Path & Changing Market Regimes”
- Amazing to note the regime change & how consolidation & regulatory reach has actually taken out so much liquidity & price discovery in the Currency market over the last few decades.
- 39:30 – “Warstories”
- Here we touch on some of Dacky’s biggest wins & biggest loses, including being woken up being down six million dollars, as well as making c. +50x on FX options
- 48:00 – “Thoughts on Trading Frameworks, Approach to Markets & Style”
- Trying to pin down Dacky’s approach to the Craft of consistently compounding wealth overtime across numerous market regimes
- 54:00 – “2021 Views & Top of Mind Thoughts”
- Interesting to note the high conviction view on the macro picture for Indonesia & its layer cake of tailwinds, that is still likely not quite as appreciated as it should be - given that global investors still seem so focused on DMs opening up before EMs
- Dacky also weighs in on the US dollar, China (only real significant positive rates globally) & other assets
- 01:25 – “Background, Career Path & Changing Market Regimes”
Previous Dragon Interviews
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
- For context, over that period government bonds & equities have had a Sharpe ratio closer to 0.74 (i.e. way more risk for return)
- This was the first in a string of exclusive Dragon Interviews series with exceptional professionals who have skin-in-the-game, across different strategies, asset-classes & backgrounds.
- Singapore Based, AVM Global Opportunity, is run by the talented & always exceptional Ashvin Murthy. Who in KVP’s view is world class in his approach, process & even more importantly trade construction & money management.
- Ash has demonstrated that, if the process is pristine & consistent, the returns will take care of themselves overtime. He has also returned volatility that is lower that government bonds, yet obviously with much better returns.
- The timing of the interview is uncanny as it was at the cusp of the last US presidential elections that AVM was launched. It’s worth noting since the interview, the fund has also been nominated for the Singapore’s Best Hedge Fund of 2020, given its consecutive five straight positive months at the start of this volatile year.
- Please click here for interview link.
- You can follow & learn more about AVM here.
Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea.
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