Look. The idea that the bond market is the “smart money” is a fallacy. It’s just different maths.
Im more of a tourist. A macro tourist. And we have leeway on what products and markets we can put money to work in.
The bond market is a strong indicator. But its the most Schitzophrenic market I’ve ever seen.
The fed will never reach 2% inflation target on (their favorite indicators PCE) without a depression.
The bond market has blown up.
I can’t tell you how many Hedge funds I knew that were short Eurodollar STIR SOFR futures for December 2024.
This makes a lot of sense why we saw a 12 sigma move in a day on the 2 year —-
So many funds were positioned short 2s and the STIR (short term interest rates) through various products.
That’s why the MOVE index exploded above 150.
Look. I’m not saying we will avoid a recession here. I’m not saying the fed will pivot, nor if they do will it be a good thing for capital markets?
I’m not the fed whisperer.
I knew a couple of PhD’s that worked at high level jobs at the fed that became hedge fund STIR traders and blew themselves up being over confident.
What I’m saying is.
I know my market moving size.
I am making 5% on cash and I’ve got collateral, and I’m a trader!
Like Paul Tudor Jones said, “I’m a trader!”
Im a trader too. And traders have to trade.
Is 2023 the toughest year? I honestly don’t know, for me personally, the first half really threw us for a loop.
That said. It’s a tradeable market considering you’re a good active manager, you understand your risk profile, you know how to position with correct size, you follow liquidity markers short term, you watch the data points as they come, and you know when to exit early.
You don’t have to be a rockstar in 2023.
we got a guaranteed 5%. I’m a trader. Know thyself.
This isn’t easy. If everyone who played basketball was Michael Jordan it would still be hard.
It’s not easy to be Michael Jordan even if you’re born with natural talent.
This market is tough. If you have a sense of humor about it and can ride volatility out.
If you protect your funds.
you can play around.
You win some and lose some.
I think Druckenmiller or Soros said something like, “it’s not about if you’re wrong or right. It’s about how much money you lose when you’re wrong and how much money you make when you’re right!”
I probably screwed that quote up.
I know this year will be tough worldwide. But some will do very well. But they need to be flexible and not married to a narrative.
On a given day next week we can have a circuit breaker moment.
Is it probable? Let’s say this. Given the macro conditions and the CB’s positions, the probability is very high you can blow up.
That’s why I say, 2023 could be the year of Tbill and chill and play a little poker if you want.
Just don’t get married to a narrative
CTAs and HEDGEFUNDS will blow up.
More banks may blow up.
The jobs story? I think that’s more of a 2024 story. Where the lag shows.
At the end of the day. The crisis results in the long term, if you ignore the noise.
I’m a trader.
If I were a fund of funds like Bridgewater or long/short, or even a quant ML style fund. I would be careful. I think 5% is fine in a bad year.
Even Renaissance capital medallion fund had 2% years and they had a lot of PhD’s working too hard.
Imagine your worst year is 5% in t bills? I think you can chill out. Because the opportunity clearly is in the waiting here.
If you’re a fund of funds moving around 100 billion or more —yeah, I think if you explain to LP’s you’re in the fund because you know that the big money is in the waiting, and knowing when to act and when to pause is why they invest with you, then you can float this year without redemptions.
Will there be a recession? It’s a random walk!
I just know we’re not going to blow up and we’ll survive.