Andy Constan Profile picture
Jul 30, 2023 9 tweets 3 min read Read on X
The huge "hedge fund short" 101
Many have published a chart that say "hedge funds have the largest speculative short futures position in history". The data is accurate. It also needs interpretation.
Here's my chart it's a few weeks old but illustrates my point Image
The hedge fund short is someone else's long. That long is institutional investors. It's very big. But that is not the important story. This unlike the ES charts which looked the same and were a choose your fighter Long Only Simps vs Hedge funds (which I got completely wrong) Image
Respect Long only Simps 🫡
Hedge funds short ES covered like mad. I was wrong. Image
But fixed income futures positions are quite different. While the long side of the positions are indeed levering up by long only asset managers the short side which is getting so much doomism is more complex
H/T @leadlagreport for this example Image
Why do hedge funds short bond futures
Speculation IS a real thing!

BUT also to hedge out interest rate risk on something they are long in the derivatives or cash market like:
Corporate and High Yield Bonds, Physical Treasury Bonds, Mortgage Bonds, Muni's, Converts, EM debt etc
For example let's say long only institutions bid up futures to lever up a bet. A hedge fund can buy the correspond US Treasury to that futures contract and take out a spread between the futures and cash markets. It's an arbitrage between the cost of leverage in the futures
Markets and the actual cost of leverage the hedge fund is able to achieve in their funding of the UST long position.

Now. It's possible that the hedge fund is purely speculative or it's possible that they own the bond and are using repo to finance the long and are short the
Futures. Let's go to the data. As this "historic" futures short has been built. Levered long positions have grown by half a Trillion dollars. Either that should be added to the long position of real money Image
Or should be subtracted from the short position of hedge funds who are doing the cash and carry arbitrage. I won't show all my data but just say that this is a complex topic and the signal in Fixed Income is pretty weak regarding TFF rates data the doomers are posting

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More from @dampedspring

Oct 15
This chart Should not be new to anyone that has my work since 2022. @SteveMiran used and credited my work to write his paper on ATI which probably helped him get the Fed Governor Gig😅.I have presented my work to many Fed staffers and senior treasury officials many times. BUT 🧵
The Fed bears only partial responsibility to the muting of QT. QT impact is two fold reducing reserves HAS occurred. Though not much and mostly just reduced pseudo reserves in the form or RRP reduction to zero.

BUT by far the biggest impact of QT is the forcing of the private
Sector to absorb duration. As written in my DSR of 3/14/2022 before QT had even formally been announced I described how choosing runoff vs outright sales when implementing QT was handing monetary policy to the treasury. dampedspring.com/wp-content/upl…
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Sep 18
Assets vs cash NOT one asset vs another. 101

I raised cash yesterday by selling 20% of my liquid net worth of assets holdings. I sold gold, long term bonds and stocks without view on one asset vs another. Just raised cash while keeping my asset allocation roughly constant.
I now hold 50% of my AUM in cash. Why would I do that. What makes me want less of an asset portfolio I'll refer to now as Beta and more cash.

Well my decision hinges on various factors and all are based on expectations
For centuries and certainly recently policymakers have debased their currency which makes holding assets more attractive than holding cash currency. But we all know this. So to trigger a change in one's portfolio you have to expect a different amount of debasement relative
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Sep 16
COT Vs TFF.

There is a chart going around using the COT data which suggest non commercial (speculators) are historically short equity futures. Firstly yep they (whomever "they are") are short and medium large but not historic

BUT Far more importantly the Non commerical is a terrible kluge of data including leverage longs and shorts and real investors. We never ever use COT data for equities because TFF is available and purpose built. Those who use COT are dinosaurs.Image
TFF is moderately more useful because the cohorts are more sensible.

AIN is Unlevered long only asset managers. They are pretty long.but not as long as theyve been and I could accept the idea that they need to buy to keep up. BUt they are pretty long just not all time long Image
LFN is hedge funds. They use futures to hedge their stock picking books and to speculate long and short. They are biased short because they are biased long single names and need a hedge. They are medium short today. Notice they were really short in Q1 and covered on the bottom. Now they have been scaling shortsImage
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Sep 4
Lightning network as a way for $MSTR to earn on its BTC holdings 101

I am a sucker. As you may know I have been obsessed with how MSTR or any other BTC treasury company can earn money on its holdings in excess of appreciation.

People including my friend @LynAldenContact
Whisper words that my old brain gives unmediated validity to because I'm a newbie dumb fuck on the topic. The Lightning network was one of those whispers.

My friend Claude and I did some work Image
Turns out the entire lightning network today has a fee generation of 10MN dollars. Maybe Claude is wrong but anyway seems reasonable.
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Sep 3
Fed Bills purchases to add reserves 101

As mentioned in a bunch of my writings Reserves are abundant today. Without changing QT on treasuries of 5BN and QT on mortgages which runs at roughly 20BN reserves will not be scarce for at least a year or more

BUT...🧵
Someday in the future reserves will be ample and have potential to become scarce.

Firstly let's deal with do reserves matter at all. In my DSR from last winter Image
Image
So reserves don't matter except to keep the daily transactions flow moving smoothly. So every bank needs reserves to process transactions and there needs to be enough systemwide reserves such that a bank with a temporary need can borrow reserves intraday from a bank with some
Read 19 tweets
Sep 1
Global Wealth vs medium of exchange 101 - just some thoughts

I've been thinking a lot about my understanding of the value and amount of currencies and their link to global wealth. I am sure there is great research on this topic and would be grateful for sources. Nonetheless
I suspect people are really confused about owning stuff (wealth) and mediums of exchange. I am, hence this writing.

In a world without currencies or any other medium of exchange wealth would still exist. Wealth isn't denominated in a currency. It's what assets you own.
For instance a person can own a property and the buildings built on the property. Another person can own a factory. Another person can own shares in a company that owns a property. Someone else can own debt issued by a property owner which if not paid back can give the debt
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