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More from @MacroAlf

Alf

@MacroAlf

Feb 21

Nobody can predict how the Russia/Ukraine story is going to unfold - I don’t have the slightest clue.

But in my career I learnt how to deal with such episodes to skew the odds a bit more my way.

1/5

Ex-ante, this is the typical low probability / high impact event.

In the run up to the outcome of such binary events, people overpay for insurances - the incentive scheme for big real money accounts is to show their bosses “they hedged”, at whatever cost.

2/5

You will hence find most effective hedges to be expensive.

My advice is NOT to move to proxy hedges: this is an expensive lesson I learnt, but when/if liquidity dries up during a major low probability & high impact event, correlations often blow up and goodbye proxy hedge.

3/5

Read 5 tweets

Alf

@MacroAlf

Feb 20

Global macro is a never-ending learning journey.

The 7 books which taught and inspired me the most in my global macro thinking process and portfolio management.

👇

1/9

@cullenroche

Pragmatic Capitalism from @cullenroche.

If you don't understand how our monetary system works and the different tiers of money populating our financial system, you'll miss the very foundation of your global macro analysis.

A short and sweet primer on money from Cullen.

2/9

@FedGuy12

Central Banking 101 from @FedGuy12.

Joseph is a former Fed insider and knows the monetary plumbing in-and-out.

He explains the most relevant aspects in a very comprehensible way in this solid Central Banking book.

3/9

Read 9 tweets

Alf

@MacroAlf

Feb 16

Portfolio update!

Open trades:

- Short Russell
- Long Chinese Real Estate
- Flatter 2y-10y yield curve in the US
- Short Bitcoin
- Short High Yield Bonds

Stopped out in short Oil (FinTwit warned me!)

As already announced, moved the long QQQ/IWM into an outright short Russell

My global macro long/short portfolio aims at generating 10%+ total return per year with annualized volatility in the 10-15% area.
It's hard, trust me.

Every trade is sized to lose max 2% of my capital: higher vol instrument = smaller size.

Hard stop losses, let the profits run.

P&L YTD: +5.2%

You'll see me posting updates also when the P&L is negative: nothing to hide here.
It's a journey we're all in together.

So far, I have been

- Clearly wrong 3 times
- Very, very right 2 times
- Right 2 times more

My long-run average is 53-54%
Yep, not a wizard

Read 4 tweets

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

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