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

Mar 2
Post QT end - reserves evolutions thoughts 101. The idea the Fed has for the future of bank reserves in an "ample" regime is reserves are correlated to GDP. The basic idea I guess is because reserves are the medium of exchange between private sector banks when customers
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What problem is the MALA solving? The basic idea is that the Trump Administration wants to rebalance global trade to favor domestic production. This is a totally reasonable goal. Let's describe the tactics to achieve that goal outlined in MALA
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Marking Treasury's Gold to Market 101 inspired by @DannyDayan5

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Read 12 tweets
Jan 16
This is an interesting report. I have some comments as having lived through the 95-99 period in a position of very high responsibility and global access at Salomon Brothers which was a massive participant.

I see 95 as consistent with 2021 and LTCM as consistent with LDI/SVB 🧵
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Read 5 tweets
Nov 27, 2024
Fed Policy 101

The job of the Fed is not easy. The tools they have are crude. Predicting the future is hard. The economy is complex and the tools used may have varying impact. Markets themselves often undo policy lever influences or accelerate policy moves in an undesired way
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Read 25 tweets
Nov 26, 2024
An equity security of a corporation values the market value of assets - the market value of liabilities 101

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Mostly one should ignore as market participants are pretty good in aggregate of making this estimate
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Those things diverge radically as the book value reflects the "cost"of the asset roughly. For instance NVDA's BV is 2.69 per share and its MV is 137. Does that mean NVDA is rich? Not at all. It means the BV does not reflect the MV of its assets or its liabilities
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