re: Discussion of Fed Liquidity’s Impact on Equity Markets

Chris Cole has a new white paper out thought RBR would be interested in seeing it.

Artemis Capital: Rise of the Dragon Portfolio

I would keep up with Macrovoices he can pull any major player in the institutional and investor class of PMs.

What do you mean by jumping off point?

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Chris Cole has a new white paper out thought RBR would be interested in seeing it.

Artemis Capital: Rise of the Dragon Portfolio

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Awesome. Thanks for posting that. I look forward to adding it to my library of white papers I’ve been churning through.

Now is a great time for his left tail / right tail hedged approach. It’s somewhat amusing to me the same people gnashing their teeth over perceived inflation are also many of the same people who’ve been supportive of this massive overvaluation in stocks. Can’t have your cake and eat it, too. If you’re going to be supportive of the Fed’s ridiculously easy policies when it comes to blowing bubbles in risky assets, you have no standing to whine about perceived cyclical inflation. The two go hand in hand.

I was actually really excited for that report because I thought he would explain what products they trade. I'm sure they have an experienced volatility trader that understands vol surfaces, volatility of volatility etc...I personally like the strangle/straddle strategy on the indices. I'm pretty sure the IV on low delta calls and puts is skewed really bad compared to ATM for the indices which makes it harder due to higher carry costs. If I ever find out how he trades his long vol positions I'll certainly let you know.






Update on hyperinflation

So are they doing this to stoke the notion of inflation expectations? Isnt that a component of inflation or the equation of exchange? Not the original equation but you could bake in expectation within the velocity component I would imagine.

Yes that's what I think. They aren't a very liquid market allegedly so I think most pensions and institutional investors have other means to generate convexity trades on rate volatility. There was a woman on real vision explaining some of these bond strategies yesterday actually.

Just in general when you look at interest rates future pricing the market is essentially saying the Fed is FOS and they will raise earlier than they are indicating.

Tomorrow's print will be interesting because if that rate of change of CPI turns negative that would be a good indicator the market is pricing everything "correctly." I can't remember if last month's print included a stimulus payment or not but we still have supply chain shocks affecting prices so maybe it will hold up.

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Tomorrow's print will be interesting because if that rate of change of CPI turns negative that would be a good indicator the market is pricing everything "correctly." I can't remember if last month's print included a stimulus payment or not but we still have supply chain shocks affecting prices so maybe it will hold up.

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Given my portfolio’s bearish tilt and general concern with the long-term sustainability of the economy, I don’t even know what I’m rooting for tomorrow. If CPI is hotter than expected, it may put more pressure on the Fed to tighten sooner, but could cause the bond market to sell off in protest. If CPI is cooler than expected, it could validate the Fed’s desire to stay easy for longer, but would be laughably pathetic for the economy in that even base effects and a shite ton of fiscal and monetary stimulus have been unsuccessful in overcoming the deflationary dark clouds. Neither scenario gets me very excited. If I had to pick, I’d prefer an in-line report that everyone confuses for structural inflation, which could potentially wash out markets, force the Fed into an earlier tightening, and not be so depressingly deflationary.

Thanks. I saw that interview this morning as well. I’m a big fan of Druck’s. He has about as good a record on Wall Street as you can have (never had a down year; something like a 30% average annual return over his career; 4 or 5 down quarters out of 200 or so). When he said he’d be out of stocks by years end, and that we are in a mania, my ears perked up.

ETA: I also sympathized with his disapproval of the Fed being willing to monetize trillions of dollars of debt just to try and stoke a little inflation. He’s of the same mind I am that inflation won’t be what reduces our debt to GDP. It will be a deflationary bust coupled with massive defaults and restructurings.

How much do you want to bet next month will be just as bad?