09/17/2020

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SoFi Blog

Tips and news—
for your financial moves.

The Amazing, Spectacular Euro

Investors are often wrong.  Professional, retail – it doesn’t matter, there is never any shortage of folks on the wrong side of a trade.  No market has confounded the professionals more in the past few years than currencies, and no currency has caused more closure of 2/20 funds than the euro.

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The Fed is Still a Far Way From Tightening

We had a good jobs report on Friday, adding 195K workers in June with unemployment holding at 7.6%.  And we had some good revisions to previous numbers as well, pushing the three month average to nearly 200K a month.  The bond market sold hard on this news, with a quantitative easing (QE) exit all but certain to start in September and tightening being priced in for late 2014.  While I’m not one to catch a falling knife – e.g., stand in the way of the one-way bond market sell-off, I think tightening doesn’t happen until 2017.

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The Return of King Dollar

King dollar is back.  For the last decade, the dollar has generally been inversely correlated to the S&P 500.  When markets were up, the dollar was down versus most other currencies.  Higher markets were associated with lower volatility and greater risk appetite – the “Risk On” trade.  Investors would short dollars and buy higher yielding currencies like the Australian Dollar, Brazilian Real and Norwegian Krone.  On a risk-adjusted basis, these carry trades had an attractive Sharpe ratio and were the lifeblood of too many hedge fund managers (collecting 2/20 on carry is almost criminal, but that’s another story).

It’s good to be the king, while it lasts…

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