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Alf

@MacroAlf

Feb 15

What if I am wrong in my secular bond bullish thesis?
What if this time is REALLY a ''regime change''?

Running a large portfolio, I learnt that coherently challenging your own highest conviction macro thesis is a great exercise to do: tough, but very useful.

Challenge me.

1/7

Since I started managing money professionally, I had to endure at least 3-4 ''this time is different'' episodes: people would argue rates were going higher, big times higher.

2010-2011 QE = money printing
2013 taper tantrum
2018 rates to 5%+
2021-2022 fiscal paradigm change

2/

I stand behind my bond bullish secular trend until facts change.

What facts?

- Declining rates of potential growth: low population growth and ageing society

- Stagnant productivity: capital misallocation & co.

- Technological trends

- Growing tally of unproductive debt

3/

Read 7 tweets

Alf

@MacroAlf

Feb 11

Your Friday ''wtf is going on in fixed income & macro'' thread.

Here you go!

1/12

One of the most overlooked headlines of the week was:

*BOJ COMMITS TO BUY UNLIMITED AMOUNTS OF 10-YEAR JAPANESE GOVERNMENT BONDS AT 0.25%

JGB yields (and FX hedging costs) are important to find out if the big Japanese fixed income buyers find foreign bonds attractive or not

2/

Japanese investors have very low and sticky domestic yields, hence they have learnt to look for opportunities abroad.

They generally hedge FX risk on a 3-month rolling basis: sell JPY, buy USD, buy Treasuries, hedge JPY/USD for 3 months and roll the hedge.

3/

Read 13 tweets

Alf

@MacroAlf

Feb 4

The bond market is talking. Very loudly.

Let me try to translate for you what it's saying.

A ''wtf is going on in fixed-income'' thread.

1/10

Central Bankers are freaking out about inflation, and they want to be seen as reacting strongly

As a former bond investor, all you hear is ''green light to push short-term rates to🌙and test them''

And indeed: Fed Funds futures now price in more than 5 hikes in 2022

2/10

@MetreSteven

Investors often think in probability terms

While the mean outcome sits at around 5.3 hikes, the hawkish right tail is getting increasingly fatter

Markets are pricing >17% chance the Fed will hike 7+ times (!) in 2022 vs 3% prob. of 0-3 hikes

@MetreSteven any thoughts?

3/10

Read 10 tweets

Alf

@MacroAlf

Feb 2

Portfolio update (+4.9% P&L YTD)

- Long Nasdaq vs short Russell
- Short Bitcoin
- Short Crude Oil
- Long Chinese Real Estate
- Long 10y UST vs 2y UST (flatter curve)
- Short High Yield Bonds

Why this setup?

The overarching macro thesis is that US growth will slow down further while the Fed tightens - a delicate situation for most risk assets.

Bitcoin and High Yield bonds ranked as the most exposed assets to such a tricky macro environment and with plenty of room to reprice.

I like commodities structurally, but I felt like Crude Oil was stretched on the back of geopolitical tensions and due for a correction as aggregate demand slowed materially into Q1.

The trade is not working and rolls against me, will stop out if proven wrong.

Read 6 tweets

Alf

@MacroAlf

Jan 30

A good reminder of the risks of being involved in speculative manias from the CEO of Sun Microsystems, a company whose stock price went 100x between 1994 and 2000.

Yes, 100x in 6 years.

A short thread on what its CEO Scott McNealy had to say when the bubble burst.

1/6

By 2002, the dot-com mania had largely deflated and with it many trillions in ''wealth'' were wiped out.

At an investor gathering in April that year, Scott McNealy gave a glorious short speech that includes his most famous sentence.

''What were you thinking?!?!''

2/6

“At 10x revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends...That assumes I have 0 costs of goods sold, which is very hard for a computer company. That assumes 0 expenses, which is really hard with 39000 employees''

3/6

Read 6 tweets

Alf

@MacroAlf

Jan 26

This is the most hawkish Powell I can remember since late 2018.

There are major implications for asset classes across the board: let's go through it with a short thread.

Ah, and few trade updates!

1/8

The synopsis of the press conference:

Journalist *asks whatever type of question*

Powell *I don't care, I'm gonna tighten*

You name it: growth scares? LFPR being weak? yield curve being very flat? risk assets and financial conditions wobbling?

Zero f*cks given by Jpow.

2/8

He did nothing to remove the most disruptive tail of the distribution of future outcomes.

Asked about 50 bps hike? Didn't deny it.
Asked about hiking at every meeting? Didn't deny it.

So, here is what the market is now pricing by Dec 2022.

Almost 5 (!) hikes as base case.

3/8

Read 8 tweets

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