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Three Tails Today: Fed, Fiscal and Frexit

If we look for macroeconomic and political conditions today that have the potential to result in large moves in the markets, three interrelated events immediately come to the forefront. The first is the Fed. Looking out to next year, will the monetary policy path end up being too hawkish, or […]

How To Position After This Market Surge? Follow Logic

Why is it that oftentimes markets move first and the economic justification (and punditry rationalizing the outcomes) follows? It is well known in the psychological literature that humans tend to favor consistent narratives. I am not a psychologist so will not dig deeper here. But if you scan the writings […]

How Should We Invest When Forecasting Becomes Tough? A Case For Protected U.S. Dollar Assets

When we look back at 2016, some very strange and counter-intuitive things happened in sequence. We believe this phenomenon will repeat in the years to come, and market participants just have to get used to investing with decreasing certainty in the background. First, both with Brexit and the U.S. elections […]

Is Inflation Really Back? What to Do Now in the Bond Market?

The BIG event in markets that has occurred this year is the massive selloff in global bonds, accelerating since the stunning victory of Donald Trump in the US elections. The common and widely held view, which now seems to be reflected in the bond markets, is this: (1) Fiscal stimulus […]

Why Having a Monetization Framework is So Important for Tail Risk Management

If you had left on the day of the US election at the market close and come back the next morning, you would look at your market screens and see that the equity markets, at least, had done barely anything. This would have completely hidden the amazing turn of events […]

How to Beat the Machines Before They Beat You

Algorithms and trading “machines” are everywhere. Indeed, I have to confess that I have created and managed several investment programs that are almost purely algorithmic, so I feel like I am betraying the confidence of the cult of systematic traders when I write a column on how to tackle the […]

A is for Apple…

It’s the day before the September FED and BOJ meetings. While all eyes are on Central Bank actions and speeches that will be out in the open tomorrow, the lull today should provide a few moments to go back to first principles of investing in stocks, bonds, cash, and on […]

Today’s Bond Market Is Insurance, Not Investment

A few days ago over five billion dollars worth of Zero Coupon German government bonds (“Bunds”) were auctioned at a yield of minus five basis points. For me, as for many others, bonds with negative nominal yields hold a fascination – they are no longer unicorns, but nonetheless a rather […]

Unexpect The Expected To Uncover Opportunities

Since the financial crisis, the two major asset classes — stocks and government bonds — have shown a wonderful diversification effect. When stocks fell, yields on bonds generally fell (i.e. bond prices rose); as stocks rose, yields on bond rose (i.e. bond prices fell). We expect this inverse correlation relationship […]

Positioning For The Coming Capitulation

When I scan the market for “distortions”, nowhere is the situation more odd from a historical context than in the level of global yields.  Indeed much has happened that was unforeseen, even unimaginable a few years ago. Many sovereign yield curves (and even corporate bonds in many countries) are negative, […]