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.Read more
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.Read more
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…Read more
I got a request to write something about the recent fall in gold prices. Gold had rallied the last decade through a combination of “it’s the end of the world” buyers and concerns about inflation. These concerns are now getting replaced with expectations for high real rates driven by growth and a Fed exit, and from expectations of low inflation. Consequently, gold has suffered. Oil – another hedge fund commodity favorite – has held on to its gains, showing support for some industrial commodities (and supporting a growth thesis – sort of).Read more