2- Days like Wednesday pose a systemic threat to the financial world. And the frequency of such days appears to be on the rise:
2020 has already posted 3 days (Wednesday being the third) of heavy blows to the Risk Parity framework.
Risk Parity funds are NOT having fun.
3- Trillions of dollars in highly levered assets are linked to R-P.
The largest example is the neutron bomb that is Bridgewater’s “All Weather Fund”.
If stocks & bonds continue to drop simultaneously, the implosion of R-P funds would reverberate through the financial system.
4- And it doesn’t end with the funds. The traditional 60/40 is based on R-P and is pervasive in the investing world. Everyone and their mother is invested in some form of 60/40.
What happens if bonds no longer offer protection when stocks drop, and instead also drop themselves?
5- Well, it would have immense consequences on the psychology of investors, since capital destruction would be an order of magnitude greater on equity downturns.
If bonds begin to persistently fall alongside stocks, then downturns would sting investor portfolios a lot more...
6- Just picture the average 60/40 investor. If stocks fall 20%, his total portfolio might only fall, say, half of that thanks to the bonds.
Now, the average investor might be able to accept a 10% hit to his portfolio without doing something stupid, but 20%? Or more? Not so sure.
1- Injection into storage last week was only 29 Bcf, an incredible number.
This injection was ~22% lower than consensus estimates for the week (37 Bcf), ~70% lower than the injection in the same week last year (89 Bcf), and ~57% lower than the 5yr average injection (67 Bcf).
2- Not only that, but for the week in progress (report for which is out next Thursday), we’re anticipating a net withdrawal from storage.
That means we’re kicking off withdrawal season two weeks early this year. 🤠
Time for a thread about US NatGas and why it will surprise to the upside...
There’s an exceptional opportunity setting up in the energy space, in particular for US NatGas and related equities.
I’ll explain the setup in this thread and also reveal my top pick. 🤠
1- I’ve been meaning to write this thread for awhile now, but the recent M&A action in the energy space has brought this opportunity to the forefront.
Let’s start simply by charting Henry Hub continuous NatGas prices over the last 20 years:
2- It’s at a generational low.
NatGas hit an ATH of almost $16 in Dec of 2005.
Since then, it’s been a brutal grind to much lower prices, owed to the all-too-easy access to financing as well as the hypergrowth in US shale and associated gas.
Why We’re on the Precipice of Another Bitcoin Mania...
A thread.
Note: it has nothing to do with Bitcoin replacing fiat money anytime soon.
1- We can quibble all day about whether BTC is “the future of money”.
Briefly, I think not, since I fundamentally believe that any money must have “non-monetary use value” in the free market before it becomes money. (Yes, this would disqualify govt-issued paper money too.)
2- But I digress, as debating Bitcoin’s status as “money” is not the aim of this thread.
Rather, the aim here is to persuade you that *institutional buying* of Bitcoin will likely propel the third big Mania at some time in the not-so-distant future.
2- Inflation persists throughout history for a number reasons. One important reason is that the structure of democracy is conducive to it, esp. as people figure out they can ‘vote themselves money’ and the inflation tax becomes a transfer mechanism for public demands.
3- Inflation is also the political path of least resistance, especially when governments around the world are saddled with gargantuan deficits and even larger debt-piles.
Think about it. Much easier to conjure endless trillions from thin air than to default on social security...
1- We’re seeing a massive and unprecedented expansion of the money supply, and at at alarming rates. I don’t care what you think about M2, this sort of growth should not be dismissed.
Longer term, this will shape up to be ‘Project Zimbabwe’, as @hkuppy has coined it.
2- While this sort of monetary inflation first manifests in the capital markets (most noticeably as a boom in stocks), it eventually raises the prices of goods & services too (imperfectly proxied by CPI).
For this to happen, we need higher money velocity, now at an all-time low: