As I noted several weeks ago many turning points were at hand. Bonds are crashing today. The three year cycle top may be in. The implications for equities are clear. Higher bond yields will likely put the brakes on the stock buy back machine as the math stops working to issue bonds and buy back stock. In addition, equities have been bid to the moon as fixed income substitutes so higher yields will send dividend paying stocks lower. My guess is that we will see equities under considerable pressure until bonds settle down. Risk Parity funds worst nightmare is both a declining bond and equity market. The leverage in that trade is likely considerable. Stay tuned.
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Joined May 7, 2014
165 Blog Posts
Nice analysis Blue. I never did like the risk parity trade. Reminds me of the VaR proponents.
Jimmy,
I got a call from an RIA friend of mine who wanted to buy TLT because it was hitting the 200 MA. I told him about the 3 year cycle top and said I would rather buy strength. Also I hear Prechter is saying the Bond market is done.
Oh, I’m sure its only a flesh wound. Not.
Blue – If we are at a cycle top, does that mean the trade is going to be either to buy TBT or short TLT?
$SBND
Cat,
Yes. but pick your spots wisely. not 100% sure yet.
got in TBT at yesterday mornings lows
http://www.zerohedge.com/news/2015-05-14/ray-dalio-if-you-dont-own-gold-you-either-dont-know-history-or-economics
It seems Ray holds at least 10%
thegamethorist,
I was not 100% sure yet. I am not involved in bonds right now. This rally may be counter trend but it could retrace higher in price. If I am right then this rally fails and we make a lower low in the july/august time frame.
rick rule
big wins and losses 11mins
https://www.youtube.com/watch?v=oLNdtvzwv_c
a few month’s old, but very good
kyle bass
https://www.youtube.com/watch?v=DFqTqwmm-2o
its a small position blue, just a starter
Blue, how you doing brotha….no negative karma here, just wanting to know how you’re doing/trading? I must admit, reluctantly, that I think your correction is very much due…but not the calamity that you (I assume) are positioned for. Just a healthy 10% drop, that the market will completely freak out about, but then remember than each company in the S&P 500 can borrow a couple bill in Europe for 3.5% and repatriate that money to buyback stock…sign of our times but I’m not fighting it.
What I’ve realized over these past few weeks, of fruitful travel,is that HF’s, who are arguably the incremental driver of volumes these days (institutions are quiet or on algos and are at least not actively not trying to plow into stocks) are exceedingly on the same side of the same trade. While GS might highlight the HF VIP as a great basket of stocks, the fact that they have for the 1st time since I can remember outperformed the S&P in the T12m on both longs and shorts is actually big news. For the 1st time, in a very long, (excessively long if your LP is still tied to a watermark…which most of them are) HF’s and their long only cousins, may actually beat their benchmarks. While this shouldn’t be an astounding feat, but it is, considering even HF’s, who are the best and the brightest, haven’t been able to produce alpha vs. a TREASURY bond in at least 6 years. As astoundingly stupid as that statement sounds, its completely true, and at the same time, have still convinced the majority of newly allocated assets to be flowed to “alternative funds.” I’m getting off subject, but I figured you might enjoy a rant from a current buysider (starting to see why you left). But if HF’s are finally “winning”, and bond funds are consistenly seeing out flows, will we finally see the wave of flows to equities that used to be talked about? I mean we just went through the biggest bull market for bonds that we may ever see, where is that $ gonna go? It sounds simple, but FI managers have made a fortune over the last 20 years by just being in their seat.
I had an original point to this post, and I think it was just to hear what you thought of the markets here. No ISIS conspiracy theory, just where your putting your money these days.
PS: Yellen is going to make Bernanke look like Milton Friedman.
forget alpha,
I continue to stalk the short side and losing some money but i got my shorts off right about here. I think we are at least making a short term top. The stock market is erie calm compared to the volatility in bonds and FX. I am guessing that should come to equities soon. Bottomline: We are either in 1929 or 1927. Given the length of this advance I am guessing 1929. The reason why alpha is working again is because the end of QE is actually good for active managers. QE has destroyed the active asset management business because it is a one way market. Oh by the way the ISIS stuff is not conspiracy theory anymore, Judicial watch just released documents from the Pentagon about our involvement in the creation of ISIS.