Vincent Yee

=> The U.S. labor market report produced a knee-jerk reaction among major FX – but MXN, COP, BRL, and ZAR are bucking the trend => MXN clearly likes the idea of a stronger growth in the U.S. Further, President Sheinbaum continues to send orthodox policy signals (including the post-election fiscal adjustment), and there is now a possibility that parts of controversial judicial reform might be revised => BRL/COP/ZAR’s outperformance is even more interesting – Domestic factors still getting noticed? (chart’s source - Bloomberg LP)

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WHY THE CONSENSUS ON GOVERNMENT BONDS IS WRONG It is very tedious when ( virtually ) every commentator when asked about Goverment Bonds just repeats the same old tired narrative about strong US economy ( debatable & becoming more so ) and "sticky" inflation ( transitory ?) Since hitting it's major low in October 2023 the Ultra Long UK Gilt rose 26% in 9 weeks ( in Elliott Wave parlance a clear impulse wave ).It then embarked on a Elliott secondary reaction which saw it lose about 16% from the December high traced out over 4 months.ie it took twice as long to give up about 2/3 of the gain.This is a strong signal that the primary trend of the market is up.On the assumption that this secondary reaction is now over it will be replaced by another impulse wave ie a sharp upward move on a par with the Oct-Dec 2023 but probably bigger - starting anytime now.So in the real world what is going to cause Gilts & Tbonds to take off given the consensus view referred to above.Well yesterday the US Treasury announced a very interesting programme involving buying back US Tbonds ( despite the record deficit ) with the obvious aim of getting the entire yield curve lower in the run up to the US election.This monkeying around with the market also involves a facility where Banks & the Fed can swap low coupon TBonds for Higher ( current ) coupon Bonds to help stave off any Bank runs by boosting the cash flow from the higher coupon Bonds enabling the Banks to offer higher deposit rates in order to deter withdrawals.None of this is priced into the market and when it is put into practice it's effect on the prices of Bonds ( especially Long Bonds ) will be explosive as the demand for long Bonds will greatly exceed the supply irrespective of whether Inflation is "sticky ". A (the ?) major component of sticky inflation has been higher Oil prices and as Oil has now gone into sharp decline so Inflation will now become less sticky.Throw in a probable recession / sharply slowing economy with the long awaited effect on the Jobs market and all the ingredients are in place. It is a strange phenoneum in markets that when a strong consensus develops it usually turns out to be wrong - This could be a classic textbook example

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Short paper: "The cross-currency basis spread [which] measures deviations from covered interest parity... is determined by 1) credit spreads differential, 2) output differential, and 3) expected inflation differential." https://lnkd.in/e25AAnuY

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"However, the use of FDPR has two major drawbacks: bad politics and loopholes.  First, the assertion of extraterritorial control is particularly unpopular with U.S. allies and serves to hurt the U.S. in the international political arena. While FDPR is a short-term fix to a lack of multilateral support, it damages the United States in the long term by weakening its alliances. Second, FDPR is not a silver bullet. While the regulations give Washington vast authority over the export of chipmaking tools around the world, they cannot cover everything. In fact, opportunistic multinational companies seeking to continue selling to China can re-tool their supply chains to rid them of U.S. inputs, freeing them from Washington’s oversight." Der Fred. It pisses off allies no end until they decide to no longer be allies. This does not happen all at once. It happens with one citizen after another, in an actual democracy, those with justice and the rule of law, stiffing their middle finger to the arrogant foreign autocracy in #FoggyBottom. Happy to be counted among such defenders of democracy.

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Paper: "Systematic tail risk [of assets]... proxied by a generalized tail dependence coefficient... is compensated with an economically sizeable and statistically significant premium." https://lnkd.in/e4CKna3Y

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Equity Distributions with High Cash Flow CLO Equity is having another stellar year. Reported IRRs for CLO Equity: ~15% YTD for many of the top CLO managers. CLOs start with a warehouse line allowing CLO managers to accumulate/ramp their BSL portfolio of performing & highly diversified loans (~200 BSLs when CLO is priced). The most favorable CLO warehouse lines have non-marked-to-market facilities with roughly 4x leverage. Bank facilities provided with favorable terms are about SOFR +125 to +150bp range. During the warehouse ramp, equity seeks to earn 20-30% IRR, but this can vary widely, however it’s for a short period (~3 – 6 months), so the MOIC is low as it’s just a component that drives the overall CLO equity return. The BSL market is performing well. I expect the credit markets to perform well in this environment with default rates for BSL declining in the coming year, which should prove positive for CLOs debt and equity. AAA CLO tranches represent about 60% of the CLO cap stack and AAA’s have tightened to ~+130 from its wide earlier this year of S+150. The CLO equity arb is driven by the difference between the rate earned on the BSL portfolio vs. the liability costs (and admin costs). Holding all things constant, tighter liability costs are accretive for CLO equity investors. Credit selection and asset management is critical to performance as the best CLO managers employ dedicated teams of investment professional’s expert in loan underwriting, building, and managing highly diversified CLO portfolios. Strong credit profile is key to maintain low default rates, and its best to avoid CCCs, as mitigating risk is critical to performance. CLO equity also benefits from reinvestment during the investment period, active management that can add alpha via relative value, and repricing/extensions of CLO liabilities later in the CLO life span. CLO equity holders earn strong current cash distributions for well performing deals, with the potential to earn mid-teens IRRs, strong DPI and MOICs. The added kick is when the CLO manager shares a portion (10-20%) of its management fees they earn from managing the CLO (~40 bps) with the CLO equity investors. This fee sharing arrangement was first introduced post-GFC when CLO managers raised CLO equity funds required under risk-retention requirements as The Volcker Rule was introduced. Since the Volker rule no longer applies to U.S. CLOs, fee sharing arrangements are less prevalent today, but available from select managers. For these reasons and more, I am a proponent of CLO Equity and believe there is a place within in broader portfolio to hold these high yielding assets. Big shout out to Marathon Asset Management's CLO team who just closed Bryant Park 2024-24, a $405M CLO yesterday, bringing Marathon’s CLO capital market transactions to $2.4B YTD.

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Genuine question for fellow QT nerds / financial plumbing experts. The BoE MPC voted to keep the pace of Quantitative Tightening unchanged at £100bn for the next 12 months, c. 90% of which will come through a passive run-off of existing holdings, and c. 10% from active sales. Bank reserves are currently upwards of £700bn, well above the BoE’s own estimate of even the £490bn upper bound of the Preferred Minimum Range of Reserves (which should delineate between what central bankers have started calling “abundant” and “ample” reserves). In other words, by the Bank’s own reckoning, it should have lots of room to shrink its balance sheet before bank reserves start to become scarce. Fine. However, this is happening against the backdrop of exponentially growth in banks drawing on the Bank’s Short Term Repo (STR) facility – not something you would expect in an environment where every bank has “abundant” reserves. If you were sitting on the MPC, would this give you pause? Are there any risks associated with moving out of "abundant" territory too quickly, or are gilt-backed reserves just going to seamlessly get replaced with repo-backed reserves?

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Usually, trendy investment themes or investment fads take more than a few years to rise back to prominence after a period of subpar performance or a fall from grace . https://lnkd.in/eEeP5EXT It seems SPACS are hot on the heels of meme stock resurgences and looking to release version 2.0. With public equity markets again at all time highs with valuations to match, one would think that combined with a  dose of near decade high interest rates would not provide a particularly supportive breeding ground for SPACs.  https://lnkd.in/eX-6J98V If the incoming administration’s nominee for Commerce Secretary thinks they are once again pretty viable maybe the second wave will have a better track record for the investors than the last waves did. I’m sure the SPAC underwriters/sponsors will be just fine either way. #spacs #spac #bubble #markets #investing #bearmarket #speculation #greed #investopedia #bloomberg

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"Looking at the historical relationship between the S&P 500 forward P/E ratio and subsequent three-year returns in the benchmark index shows that the current forward P/E ratio at almost 22 implies a 3% annualized return over the coming three years", writes Torsten Slok the Chief Economist at Apollo Global Management via The Daily Spark. A 3% annualized return from the S&P 500 indicates that the go-forward performance of all of the passive and active public equity strategies designed to mimic the returns of the market index will be insufficiently below an asset owner's minimum nominal return threshold (estimated to be 5% plus CPI). Add the well-chronicled backlog of private companies awaiting exits and the resulting illiquidity travails of private equity funds, how and from where will asset owners source suitable investment results to fund their organization's on-going spending and payout needs? Asset owners should now be untethering their public equity exposure from the anemic expected results of the S&P 500 (3% annualized?). Continued fealty to status quo, tracking-error constraints and style-box fidelity will impede an asset owner's ability to earn adequate nominal investment results. Investors should now consider the merits of liquid, publicly-listed equity strategies that pursue satisfactory absolute returns that reliably exceed an asset owner's minimum spending hurdle (estimated to be approximately 7%-8%). See link: https://lnkd.in/eQseqFHi

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𝗕𝗿𝗶𝗱𝗴𝗲𝘄𝗮𝘁𝗲𝗿 𝗼𝗽𝗲𝗻𝘀 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆 𝘁𝗼 𝗿𝗲𝘁𝗮𝗶𝗹 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝘁𝗵𝗿𝗼𝘂𝗴𝗵 𝗦𝘁𝗮𝘁𝗲 𝗦𝘁𝗿𝗲𝗲𝘁 𝗘𝗧𝗙 https://lnkd.in/dCYdE-zK   Risk parity funds for retail investors have not worked well over the past decade or so (and Bridgewater’s All-Weather strategy has also underperformed for some time): the pioneer in the industry (Wealthfront Risk Parity Fund with $1.3bn in AUMs) is going to be liquidated in January https://lnkd.in/dya2H6SZ , and other products have also failed to beat a simpler 60/40 strategy.   This despite the carnage in bond markets in 2022 and the elevated asset correlations (or, more likely, because of…).   I guess it all boils down to the specific strategy used: this product will also use leverage in an ETF, so it will be interesting to see how it plays out. 

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You should listen to Nathan Geraci and I leverage VettaFi sentiment data to talk #ETFs for ‘25. But it’s ok to read the recap Nicholas Wodeshick from the show too. . - Use case for defined outcome, structured protection, and covered calls from NEOS Investments Calamos Investments Innovator ETFs® - Growing interest in CLOs and bank loan #ETFs from Janus Henderson Investors Invesco US Panagram BondBloxx - #Dividend strategies from SS&C Technologies and ProShares - Plus Ben Johnson, CFA commentary Zachary Csillag Troy Cates Tim Urbanowicz, CFA Andrew Nelson, CFA Matt Kaufman, CETF® Frank J. Tirado, MS Jessica Fernandez Michelle DeWitt, CIMA® Rob Stewart Danielle Gilbert Christopher Murphy Paul Baiocchi, CFA Steve Munroe JoAnne Bianco, CFA Joanna Gallegos Colleen Kapoor Cole Feinberg

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Another downgrade from Audinate $AD8 which we value at less than $5.00 (not held) Downgrade is circa 30-40% below expectations

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The chart in the video below plots Earnings Revisions Breadth (blue line) against the rolling annual return of the S&P 500 (gold line). Earnings revisions breadth is a metric that tracks changes in Wall Street analysts' earnings estimates. The metric gives us a sense of whether those analysts, taken as a whole, are either raising or reducing earnings estimates for the stocks that they analyze. Rising revisions breadth often precedes rising earnings and stock prices; falling breadth suggests the opposite. Recently, earnings revisions breadth has turned downwards (red circle) while S&P performance has stayed relatively resilient. It remains to be seen if this is a temporary dip or start of a longer trend. As such, we will continue to monitor this data point in conjunction with many others and will adapt our defensive positioning accordingly.

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Check out my macro notes just released:) Some interesting insights from the Snb and Norges decisions today along with thoughts on the S&P 500's outperformance in the last month against global asset classes. Enjoy:) https://lnkd.in/gcaEFYje

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JPY/$ and the battle of interest rates – what will matter more for JPY (with its still sizable net speculative shorts) going forward: (1) the fact that Japan’s real policy rate might remain meaningfully negative 12m from now, or (2) BoJ’s hawkish relative policy bias vs Fed?

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New Whitepaper from Caron's Corner: In this paper we discuss new management techniques required to capture higher returns in a higher inflation regime. A new market regime is upon us catalyzed by rising inflation risks. This presents a challenge to investors seeking to compound returns at target levels with stability because it increases correlation risks. Effectively, it pushes the efficient frontier inwards and reduces risk-adjusted return potential. In this paper, we explain how we counter this adverse impact to returns in this new regime through a new management approach with the goal of achieving stable target returns. https://mgstn.ly/3QNuw0f

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Empirical paper: "The simple difference between the current earnings yield on the S&P500 and the long-term real TIPS yield has significant forecasting power for excess returns." https://lnkd.in/e2k_QHWq

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