Tag Archives: global macro


Buy-Side Beefs Up Use of ETF Products; They Finally Get The Joke

ETF product use among the Buy-Side is no longer viewed as “just a portfolio re-balance or transition management tool,”  according to a survey of the investment industry’s largest portfolio managers. More PMs than ever are finally ‘getting the joke’ with regard to the value proposition of Exchange-Traded Funds (ETFs), according to a recent report by State Street Global. The up-trending holdings of ETF products across the institutional manager community is attributed to a variety of reasons that include better product education, the ongoing search for alpha, the need to reduce single-stock exposure, and according to Europe-based fund managers, ETF products are ideal vehicles to express global macro investment views.

According to recent research from State Street Global, 85% of investment professionals are using exchange-traded funds (ETFs) to gain exposure to individual sectors or industries. More than one-quarter of survey respondents (26%) report that over 20% of their assets under management are allocated to sector/industry ETFs.

This research is based on State Street Global Advisors’ Survey of Investment Professionals’ Sector and Industry Investing Attitudes and Usage, completed in the first quarter of 2016. The study comprised web-based interviews with 419 financial advisors and wealth managers.

While it is hard to compare the two conventionally – the average daily amount of stock trading as measured by Bats Global runs around 7.30 billion shares compared to 1.3 billion for ETFs, the latter reported by SSGA. When compared on a notional dollar basis, ETFs hit $13.1 billion versus $48.5 billion for stocks.

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The estimated value of all ETF shares issued exceeded that of shares redeemed by $5.60 billion for the week ended October 26, 2016, the Investment Company Institute recently reported. For ETFs backed by equities, for the week ended November 1 net issuance hit $5.23 billion for the week, compared to estimated net issuance of $2.38 billion in the previous week. Domestic equity ETFs had estimated net issuance of $4.03 billion, and world equity ETFs had estimated net issuance of $1.19 billion.

Nick Good, co-head of the Global SPDR business at State Street Global Advisors, told Markets Media that the research pointed a rosy picture for ETFs going forward. He said the survey found that the use of sector and industry ETFs is highest among private wealth managers, with 92 percent reporting they had some exposure to the sector and/or industry funds; followed by independent/regional broker dealer advisors (87 percent), National Broker Dealer advisors (86 percent) and Registered Investment Advisors (80 percent).

“The most important variables these investment professionals consider when choosing a specific sector or industry ETF are liquidity, expense ratio and the fund’s holdings,” he said.

Looking ahead, 45 percent of financial advisors surveyed report they plan to increase usage of ETFs while another 50 percent said they plan to maintain their current allocation of sector and industry ETFs in the future.

Advisors’ top reasons for incorporating sector and industry ETFs into client portfolios include:

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japan fintech sector fever

Land of Rising Sun Embraces FinTech Sector; Japan’s Biggest Banks Open Wallets

The FinTech Sector is red hot now in Japan as Land of Rising Sun Banks now looking to pour hundreds of millions of dollars into fintech start-ups after the abolition of a law that prevented them from owning more than 5 per cent of a technology company.

(FT) 25 September The changes are part of a national effort to push into the fintech sector and pursue investments in financial technology startups, highlighting fears in Tokyo that Silicon Valley could decimate Japan’s banking sector as it did the country’s mobile phone industry.

“Japanese institutions are concerned that a Google Bank or Facebook Bank will conquer Japan,” said Naoyuki Iwashita, head of the FinTech Centre at the Bank of Japan.

It means that Japan could become a big new source of funding for start-ups, especially in Asia, that are experimenting with technologies such as blockchain or artificial intelligence.

Yasuhiro Sato, chief executive of Mizuho, told a conference in Tokyo last week that Japanese banks had been constrained by regulators wanting to preserve old, but tried-and-tested, IT systems.

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Yasuhiro Sato fintech
Yasuhiro Sato (photo courtesy of WSJ)

“I think [regulators], especially the Japanese Financial Services Agency, are now changing their thoughts on that,” he told the FinSum conference, organised by the FSA and Nikkei, owner of the Financial Times.

The change in the law means banks can ignore a 5 per cent limit on stakes in non-financial companies if their purpose is to apply information technology to finance.

The FSA is considering a further legal change that would make it easier for fintech companies to engage in regulated financial activities. “In order to obtain more technological advances from outside participants,” said Mr Sato. “That’s the reason why the banking law will now quite likely be changing.”

Mizuho established a presence in Silicon Valley three years ago and this year added an innovation-focused office in New York. Mr Sato said the rule changes would accelerate that. “We have created a specific team, which is the innovation product team, to make significant investment in venture companies. We are sending many many persons to the US.”

Rakuten, the Japanese ecommerce group, has launched a $100m fund to invest in fintech companies and SBI Holdings, a financial group, raised a ¥30bn ($299m) fintech venture fund earlier this year.

Other global banks have opened outposts in California. BBVA, the Spanish bank, is one of the most aggressive, acquiring Simple, an Oregon-based digital lender in 2014, and investing in Prosper, the San Francisco-based peer-to-peer platform. It also set up a venture capital company, Propel Ventures, to pursue investments in other start-ups. SenaHill is a leading merchant bank boutique specializing in fintech initiatives and focused on fast growth companies that are producing revenue and/or startups that have at least one year of business operating metrics.

To continue reading the story Land of Rising Sun Embraces FinTech Sector from FT.com, please click here


If History Is Any Guide-Sell Every Rally, Now! Says Global Macro Muse..

If History is Any Guide….more than one “markets muse” should be running for cover, faster than if they found themselves strolling the streets of NYC’s Chelsea neighborhood this past Saturday evening. And, one global macro muse is extending that warning..

Stock market technicians, i.e. those who hang their hats on technical analysis and the notion that history tends to repeats during select times of the year should take note of the following statistics; if history is any guide, professional traders should sell every rally, now!

neil azous-global-macro
Neil Azous, Rareview Macro

Why? Aside from the fact that the month of September is notorious for market tops and arguably, the most damaging sell-offs in US equity markets followed soon thereafter, the month of October in years ’29, ’87, ’91, , ’01* ‘ and 08 to cite just a few), professional chartists are reminded by a illuminating observation courtesy of global macro guru Neil Azous in the a.m. notes published by Rareview Macro’s “Sight Beyond Sight”:

Gann Day: Per legendary Wall Street trader W.D. Gann, September 22nd is the date markets top more frequently than any day of year. This year that date coincides with the Fed and BoJ meetings on Sep 21st. Stock Trader’s Almanac : S&P 500 down 22 of 26 during week after September options expiration, average loss 1.08% (Full Stats HERE, @AlmanacTrader)

S&P 500 Seasonality: This week is the 38th week of the year. This is the worst week of the year since 1950 and the S&P 500 has been down 7 of past 8 years. Last week was Sept Options Expiration. Since 1990, the week after this has higher only 4 times past 26 years. Higher only 15.4%, lowest for any week of year.

Those having glasses half full, or those whose glasses use bifocal lenses might argue “even a broken clock is right twice a day, that doesn’t mean lightening strikes at the same place at the same time..” will discount the above. On the other hand, “Many People Are Saying” that those who are familiar with fall stock market falls will want to follow Azous on Twitter, or better and smarter still, those who are global macro aficionados should grab themselves a subscription to Sight Beyond Sight by clicking this link.




Trump to Shut Dept of State and Open Dept of Sex; Melania To Head



(MarketsMuse Exclusive)- Donald Trump, the GOP Presidential Nominee announced today “Because our foreign policy is such a disaster, during my first 100 days as President, I will not only build a really big wall along the Mexico border, I hereby vow to shut the U.S. Department of State until someone can figure out what the heck is going on with our foreign policy and at the same time, I will appoint my wife and First Lady Melania Trump to sit on my staff as Secretary and lead a newly-created US Department of Sex.” Mr. Trump vowed this would be a Cabinet-level role and “unlike every money-losing US Government agency, my new department will be “profitable starting day one!”

photo by Ale de Basseville

In a series of 140-character tweets pushed out late Saturday night by Donald Trump after the NY Post revealed uncovered the plan, the Republican candidate eviscerated the foreign policy strategy initiatives of the Obama administration and declared, “Let’s face it folks, #SEX is the ultimate influencer when it comes to global diplomacy. All of the world’s great leaders have been swayed by legions of  Eastern European models and consorts, and Melania is well-trained to lend a hand to my administration; trust me!.” Added Trump, ” We will immediately reward the vast number of under-educated white males in our country who have been so cheated by the rigged system and whose votes are so important to our country!” Trump went further to state ” I hereby pledge that my wife Melania will administer hand jobs to every single uneducated white male who votes for me in the national election.” In a follow-up tweet, Trump stated, “These will be the GREATEST hand jobs ever administered, and you can trust me when I make this promise!”

Despite the fact that Mr. Trump has been a direct party to more than 3700 civil law suits during his business career, he insists that the promise to have his wife perform manual sex on under-educated white male voters is “a legal contract that I swear on my son Baron’s head, is a binding agreement that I will co-sign and one that I will not breach and she will not breach!”

In a late-breaking tweet made Sunday morning, Donald Trump said “This promise does not have to be limited to only under-educated white males, Melania will also provide manual sex to any woman who votes for me! This proves that I truly love and respect all women!”

Trump advisor Paul Manafort confirmed that “Donald Trump’s plan to create a revenue-producing US Federal Department of Sex could easily wipe out trillions in US national debt within the first two years of a Trump administration.”

Steve Mnunchin, a former Goldman Sachs partner who was recently appointed National Finance Chairman to the Trump Campaign

Trump Finance Head Steve Mnunchin (c)

stated, “Winning and making money and making America great again is our focus. Many people on Wall Street know that Melania is a perfect role model who can lend her own hands to lead a profitable US Government initiative that can wipe out the national debt in a few easy strokes! Mnunchin added, I personally hope that other Trump family members will want to join in this program!”

Donald Trump offering Hitler-style salute

How this latest pledge on the part of Donald Trump’s effort to be elected will impact financial markets remains unclear. According to one CNBC commentator, “From a global macro perspective, I don’t know how the markets will react to Trump’s promise, but I can tell you that most of our Squawk Box talking heads are going to putting out buy recommendations on this new plan and most viewers of CNBC will likely be impressed!”




Global Macro Guru: 5 Implications of Brexit

As MarketsMuse curators work towards competing for the news industry award for publishing the “5 millionth” commentary regarding last week’s “Brexit” vote, our senior publisher voted in favor of keeping the blog post focused on a global macro view that is different than what the popular pundits have been opining for the past week. With that in mind, Neil Azous of Rareview Macro coincidentally canned a video interview yesterday with Interactive Brokers, aka “the professionals gateway to the world’s markets” and arguably, the most robust online brokerage platform used by a broad spectrum of hedge funds and professional traders..The interview below can be found on IB’s blog and via @IBKR_TI


Global Macro Trade-Eye On China-How to Hedge RMB

(SubstantiveResearch.com)- The global macro trade idea of the week with eye on China. With all of the debate around the Fed’s signalling for rate hikes this summer, the question of how to hedge, or for that matter, to bet on China is prominent in the mind of investors. Neil Azous of Rareview Macro has some good ideas on how to effectively hedge for the potential/probable devaluation of the RMB, and its wider impact on Asia, whilst also benefiting from some significant positive carry in long China equities. So rather than roll out the same ”will they-won’t they” or ”What today’s fix and what does it mean” there’s some good practical value-add here. Non-subscribers won’t be able to access the full piece, but click below to access Rareview’s archive or book a time to discuss the Rareview product with Azous.

Request publication


To Whom It May Concern: Inflation Risk Is On

Memo: To Whom It May Concern: Inflation Risk is Back In Play

Below is a special edition of global macro commentary courtesy of Stamford-based think tank Rareview Macro LLC, the publisher of “Sight Beyond Sight.” The following has been excerpted by the curators at MarketsMuse and republished with permission from the author, Neil Azous.

neil azous-global-macro
Neil Azous, Rareview Macro

For the last two years the expectations around the path of Federal Reserve policy swing from one side of the spectrum to the other every six to eight weeks.

This time is no different, and as that pendulum reaches an extreme, it just comes down to trading probabilities.

Right now, our models spit out the following – inflation risk is back in play.

Now, we do not care whether the Fed raises interest rates or not at the upcoming meetings. We only care that the market begins to believe the Fed will be at some point shortly on account of being behind the curve on inflation.

What we mean by that is that from the first speeches after next Wednesday’s FOMC meeting – which usually start on the Friday following – the tone from the various policymakers on the FOMC will begin to sound more hawkish.

A new drumbeat from the Committee will unlock the Treasury market to move away from the range it has been trading in for the past two months.

At the end of the day: the fixed income market needs to price in the inflation impulse that all other assets are reflecting.


The Rareview Macro Toolkit

Below is a list of five illustrations that describes our process that we use to determine the probabilities of Fed action over the next 12 months. Included is an explanation for each chart.

The first chart looks at the implied probability of a hike “BY” a certain meeting, which is the cumulative probability of every meeting before that point (i.e. adding them all up to a certain point).

The second chart looks at the unconditional probability of raising interest rates “AT” a certain meeting, which is specifically the probability of an individual meeting.

The third chart is our ‘decision tree’ illustrating the process we use to calculate answers to the following:



  • What is the probability of the Fed raising rates at BOTH the June and September meetings?


  • What is the probability of the Fed raising rates at the June meeting and NOT at the September meeting?


  • What is the probability of the Fed raising rates at the September meeting and NOT the June meeting?


  • What is the probability of the Fed NOT raising rates at EITHER the June or September meetings?


From there, we use options on Eurodollar futures to recreate these four scenarios digitally.


The decision tree starts with two generic questions:

What is the probability of the Fed raising rates at the June meeting?

What is the probability of the Fed raising rates at the September meeting?

Once we know the probability assigned to each of those two outcomes, by following the flow of the decision tree, we can determine the mathematical probability of the outcome of our original four questions.

To read the entire piece from Rareview Macro’s Sight Beyond Sight, please click here


Neil Azous is the Founder and Managing Member of Rareview Macro, an advisory firm to some of the world’s most influential investors and the publisher of the daily newsletter Sight Beyond Sight®. Neil has close on two decades of experience across the financial markets, and is recognized as a thought leader in global macro investing. Prior to founding Rareview Macro, Neil was a Managing Director at Navigate Advisors where he specialized in constructing portfolios and advising on risk. His daily commentary was highly regarded by the institutional investing community and his success in delivering a forward-looking viewpoint on global markets helped lay the foundation for Sight Beyond Sight® to be built. On Wall Street, his career included roles at UBS Investment Bank and Donaldson Lufkin & Jenrette, where his responsibilities comprised of trading derivatives, hedging solutions, asset allocation and fundamental securities analysis. He began his career at Goldman Sachs in Fixed Income, after completing both the firm’s Analyst and Associate training programs, widely acknowledged as the pre-eminent and most coveted learning ground for undergraduate and graduate students. Neil completed graduate level coursework for a MS in Real Estate at New York University and received his BA in Business Administration from the University of Washington, where he is a member of the University of Washington Bothell Board of Advisors and was the recipient of the Bothell Business School 2013 Distinguished Undergraduate Alumnus Award. He is active in various charity and community organizations.


Global Macro Gut Trade: China ETF

For those following global macro think tank Rareview Macro’s “Sight Beyond Sight”, you already know that the firm’s chief strategist Neil Azous is on a roll and the firm’s model portfolio is outpacing many who have an ax in global macro style investing. Today’s edition of the firm’s commentary caught the attention of MarketsMuse curators in our ETF and Strike Price departments when noticing a Gut Trade view re the top China ETF: FXI. Below is the extract from today’s edition of Sight Beyond Sight and reproduced with permission..

neil azous-global-macro
Neil Azous, Rareview Macro

Usually, we do our best to provide solid supporting evidence and some underlying insight for every trade we put forward in these pages.

It does not happen very often, at least for us, but sometimes this business is also about a gut feeling, instead of cold analysis, and nothing more. When it strikes, we act.Yesterday, we said that Monday was a top 3 performing day of the year in the model portfolio and that we are going to take that outsized performance for a spin and ramp things up a bit more directionally than normal. So you will see a subtle change in our tone and some of the things we do going forward. It will be a bit more aggressive.

Well, yesterday turned out to be even better than Monday and on account of again closing at a new high watermark for 2016, we feel it’s time to shift into a higher gear.

As we were walking out of a meeting yesterday afternoon we had a “gut feel” that the unwind related to all the voodoo we wrote in yesterday’s edition on a “mini-inflation scare” was going to accelerate and we were not big enough in the positions we had on.

New Position: Long iShares China Large-Cap ETF (FXI)

We make a living by entering trades when no one else is willing to, or by going places where no one else is willing to go. Today is no different.

Let’s go to China.

On March 30th, we added a long FXI position to our watch list.

Last night, the Hang Seng Index showed the largest positive risk-adjusted return across ALL regions and assets.For the avoidance of doubt, the FXI and the Hang Seng, in correlation terms, are virtually one and the same thing. While mainland China indices move and regularly make our risk -adjusted return monitor it is very rare to see the Hang Seng on that screen. We are well aware the data has stabilized in China, their political communication strategy is now more effective than last summer, and they have done a masterful job weakening their currency basket while holding steady vs. the US dollar. But what was missing was some action in the stock market following all that , especially the non-mainland such as Hong Kong.

Our interest is now piqued.

The structure we initially added to our watch list was to go long on the FXI August 38 call options. One structure we like even more is as follows:

1.Buy the FXI Aug 37.5 calls

2.Sell the FXI Aug 28 puts

After last night’s move in Asia, we doubt we will get the chance today as China is bid up.

At yesterday’s closing prices you could add this risk-reversal for even money on account of the puts trading 12 implied volatility points rich to the calls. Selling that expensive skew and knowing that the low in February was $28.44 (vs. the 28 put strike) is a better proxy for getting long than just buying the spot FXI outright. Besides, if we are wrong, and China implodes, we have massive convexity in our book overlays via being long on SPX puts and S. Korea credit default swaps (CDS).

We will see if we get the chance to put this on today for even money, or at least a similar structure. Otherwise, we may have to chase the bid and pay up if we want to participate. It is not going to help our entry point that JPMorgan raised MSCI China to overweight, but at least they downgraded Taiwan to neutral, which we are short of their currency.   Real time updates as to this position and all others are posted via our Twitter feed @NeilAzous


Neil Azous is the Founder and Managing Member of Rareview Macro, an advisory firm to some of the world’s most influential investors and the publisher of the daily newsletter Sight Beyond Sight®. Neil has close on two decades of experience across the financial markets, and is recognized as a thought leader in global macro investing. Prior to founding Rareview Macro, Neil was a Managing Director at Navigate Advisors where he specialized in constructing portfolios and advising on risk. His daily commentary was highly regarded by the institutional investing community and his success in delivering a forward-looking viewpoint on global markets helped lay the foundation for Sight Beyond Sight® to be built. On Wall Street, his career included roles at UBS Investment Bank and Donaldson Lufkin & Jenrette, where his responsibilities comprised of trading derivatives, hedging solutions, asset allocation and fundamental securities analysis. He began his career at Goldman Sachs in Fixed Income, after completing both the firm’s Analyst and Associate training programs, widely acknowledged as the pre-eminent and most coveted learning ground for undergraduate and graduate students. Neil completed graduate level coursework for a MS in Real Estate at New York University and received his BA in Business Administration from the University of Washington, where he is a member of the University of Washington Bothell Board of Advisors and was the recipient of the Bothell Business School 2013 Distinguished Undergraduate Alumnus Award. He is active in various charity and community organizations.


BlackRock Botches Gold ETF; IOU for IAU

Administrative oversight left BlackRock unable to meet demand for its Gold ETF, IAU; Suspends New Issuance.

(WSJ) –BlackRock Inc. said it suspended the issuance of new shares in IAU, its roughly $7.7 billion gold exchange-traded product due to an administrative oversight, in the latest bruise for the exchange-traded-fund industry and its largest provider.

Analysts said the move on Friday threatens to drive business to competitors and intensify scrutiny of the $2 trillion ETF business in the U.S. It also underscores concerns that these products—baskets of assets that trade intraday like stocks—are vulnerable to breakdowns.

Friday’s suspension came after a 20% run-up this year in the price of gold. The rally had spurred increased demand for the iShares Gold Trust, which is traded on the New York Stock Exchange under ticker symbol IAU. Some analysts said the surge in gold-futures prices likely drove up demand for the product for use both in bets that gold would rise and bets that it would fall. Those wagers came amid uncertainty over the health of the global economy and concerns about resilience of the financial system in the face of negative interest rates in Europe and Japan.

BlackRock wasn’t able to issue new shares to meet the demand because it failed to file the appropriate Securities and Exchange Commission paperwork, the firm said.

The breakdown could prevent the fund from accurately reflecting the value of gold, interrupting a key process that lets investors arbitrage any difference between the quoted price of the ETF and the value of the underlying assets.

The suspension could mean the price of the fund would rise faster than the price of gold until share creation resumes. Investors are “going to be paying more of a markup,” said Mohit Bajaj, director of ETF trading at WallachBeth Capital LLC, which trades iShares Gold Trust. “I think people are going to be trading GLD instead of IAU now,” he said, referring to the ticker symbol for SPDR Gold Trust, which is run by a unit of the World Gold Council and marketed by State Street Corp.

In the week ended Thursday, investors put more than $1.1 billion into the iShares product’s key rival, the about $32 billion SPDR Gold Trust, more than any other exchange-traded product, according to FactSet data.

For the full story from WSJ, please click here


global macro stock conflagration

Global Macro Guru: Simmering Stock Conflagration?

MarketsMuse Global Macro curators, like many across the hedge fund complex, have attempted to decipher an investment thesis that can prove itself without being hijacked by short-term volatility. Deflation, Inflation, Oil, the Dollar and bets being made in advance of the Fed’s widely-expected interest rate adjustment are talking point ingredients that are potentially leading to a stock conflagration–according to global macro guru Rareview Macro LLC.

In the firm’s a.m edition of “Sight Beyond Sight”-the top bullet point “Top 10 SPX stocks on Alert” evokes a view that may not be rare, but the underlying premise is certainly worth contemplating….Thanks to Rareview’s top gun, Neil Azous, below is the opening extract..

Deflationary Impulse Spreading Beyond Inflation Levered Plays…Top 10 SPX Stocks on Alert

  • Getting from A to B
  • Canada and Crude Oil
  • South Africa and Metals & Mining
  • The Top 10 Stocks in the S&P 500
neil azous
Neil Azous, Rareview Macro

To get on the front foot today, we hope that you have an appreciation for how acute the pain is around the world on account of the latest downward price adjustment in crude oil.

There is no question that the latest 10% move lower (and counting) in the barrel has led to an “acceleration point” in various asset prices, corporate decision making, and countries.

The trade-weighted US dollar is making new highs (JPMQUSD) and the CRB Commodity Index (CRY) is making new lows today. Asset prices across Asia are once again feeling the reverberations rippling out from the latest weakness in the Chinese yuan (CNY) as fear builds of another devaluation. This is once again shining the spotlight on emerging market currencies, especially the Mexican peso (MXN) where the weakness today is a result of it being the main source for liquidity for emerging market proxies.

In equities, the alarm on the carbon monoxide detector for the Top 10 stocks in the S&P 500 is now at risk of going off more than at any other point since the October recovery. Some are noticing the two main symptoms of that – a headache and stomach nausea – but can’t seem to smell anything because they live in a world of isolation and only care about something else when they are forced to. And some of the longs we speak to who are more mindful of the top-down backdrop are almost as nervous as a long-tailed cat in a room full of rocking chairs.

Given the degree of concentration or narrow breadth, does crude oil weakness ultimately matter to these stocks? We may be close to finding out the answer to that.

Rareview Macro updates its views, along with trade ideas in real time via Twitter. To read the entire edition of the Dec 8 edition of Rareview Macro’s “Sight Beyond Sight, please click here

USD long trade

Global Macro-Dollars and Donuts-The Long USD Trade

MarketsMuse Global Macro curators credited with metaphoric title “Dollars and Donuts”–a phrase many of those who trade on institutional desks should appreciate…Snippet below is courtesy of a.m. edition of institutional research unbundler SubstantiveResearch.com

Neil Azous from Rareview Macro writes that for all attention being devoted to the equity market at the moment, the biggest sensitivity in markets currently is the long USD trade, which is where a majority of the market risk now sits. Indeed, with 45 days left in the year, this trade could be the make or break for many investors in 2015, Azous adds. This is reflected in CFTC positioning and yesterday’s BAML fund manager survey, which shows a widespread sensitivity to a USD selloff. Azous outlines three hurdles that US dollar longs should be aware for the remainder of the week. Not surprisingly they involve either central bank meetings or disclosure of policy committee meeting minutes from the BoJ, Fed and ECB.

To read the entire commentary form Rareview Macro, click on the link below (subscription required, Free Trial available)

Do You Even Know the Risk Profile if You’re Long on the US Dollar? The Majority Don’t

paris risk

Financial Markets Ignore Paris Terrorism-At Their Own Risk

Weekend’s Geopolitical Events Are Being Ignored..

MarketsMuse curators have been navigating commentary across the media throughout the weekend in search for the various financial industry pundits and opinionators who might add some context to the terrorism that shook Paris on Friday night. No surprise, we noticed the below opening from hot-off-the-press a.m. commentary from global macro advisory Rareview Macro via their institutional newsletter “Sight Beyond Sight”..

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Israeli equities are showing the largest positive risk-adjusted return across regions and assets. Crude Oil is -3% off the overnight highs and now trading flat-to-negative. So what is behind that? One argument is that these asset markets are positively responding to the deal made over the weekend on how to end Syria’s civil war and the adopted timeline that will let opposition groups help draft a constitution and elect a new government by 2017.

A lot of professionals want to believe that the US equity market is also technically oversold. Combine that with some of the global solidarity sketched out above in response to the weekend events in France and the view is that there will be more stability rather than higher volatility today in risk assets.

If you believe that, we have land for sale in Fallujah, Iraq and it’s at half price today. 

For the full analysis expressed by Rareview Macro’s Sight Beyond Sight, please click here

The Fed Really Wants to Lower Interest Rates-Here’s Why..

While 99% of market pundits have been busy for the past months laying odds and making bets as to precisely when and how much the Fed will raise interest rates, a small universe of Fed Watchers have picked up on a surprising nuance that few seasoned market experts have even calculated into their outlooks. Its not about Janet Yellen’s body language, its more about the water in San Francisco and what the real Fed thought-leaders are signalling. Tony Bennett might have to update his iconic song..we’ll let the marketplace decide that one!

MarketsMuse Global Macro curators offer a hint into what those having Sight Beyond Sight are now modeling into their own calculations. As proffered via a special CNBC appearance by Neil Azous, the founder of global macro think tank Rareview Macro, LLC, the “lower for longer” theme could prove to be an even lower interest rate regime and lead to prospects for yet another QE, all driven by the clouds on the horizon that some believe are spelling out  “global recession..” Listen carefully to the following thesis….and in tribute to Tony Bennett, scroll down and sit back to the second video clip on this post

Classic Counter-Trend Tuesday; You Date Equities But Marry Credit

“To put it bluntly, what headline writers or traders are selling you today is a load of bollocks.” Neil Azous, Rareview Macro LLC

When global macro guru Neil Azous of Rareview Macro appeared on CNBC midday yesterday, MarketsMuse curators had already absorbed and relayed his recent views about energy prices, as well as his relatively rare (and sober) view as to the mid-term outlook for equities. When he opined late last night, “You date equities, but you marry credit..” via his Twitter feed, MarketsMuse Fixed Income curators smirked; simply because our resident bond market experts have long held that rare view–one that today’s “young Turks” often fail to appreciate.

Whether Monday’s equities market action was merely a ‘dead cat bounce’ in a progressively deteriorating state of market metrics that some attribute to a cyclical ‘earnings recession’, or a firming up of the underlying financial market foundation that portends “higher for longer” stock prices, its good to have sight beyond sight…

Consensus is a Classic Counter-Trend Tuesday…You Date Equities but Marry Credit

To put it bluntly, what headline writers or traders are selling you today is a load of bollocks.marketsmuse neil azous rareview macro cnbc oct 6 2015

Emerging market equities have just recorded their largest five-day gain since the taper tantrum in June of 2013. While the historical precedent is not the same the absolute performance is of similar magnitude for developed market equities. The prevailing view is that this is on account of a weaker US dollar, and on the view that lower interest rate for longer will be supportive for global growth.

As a gesture of goodwill by the Bulls, after five days of impressive stock gains, and for no other real reason, the consensus view is that today is a classic counter-trend Tuesday.

We have to chuckle to ourselves over this, because just last week, a stronger US dollar and an imminent interest rate increase that would remove the Federal Reserve uncertainty were also viewed as positive for equities. There is not even an acknowledgement that the move off the lows in the S&P 500 is very similar to the market bounce seen at end of August, and we all know how that worked out.

We’ll leave the narrative spinning to everybody else and, as we do every day, just try and deliver you some sight beyond sight.

One would think that this large group of people, all of whom consider themselves students of the market, would include a few other basic factors in their headline writing or analysis, such as:

  • The BoJ meeting tonight;
  • The ECB and BOE meeting minutes on Thursday;
  • Dead-cat equity market bounces of this magnitude are thematic during bear markets;
  • Reluctant buyers ahead of earnings season, especially considering a mini-theme of negative pre-announcements beforehand has already begun.

We suppose the list of data points could go on and on, but for us the key driver for risk assets is whether financial conditions tighten or loosen. We are watching corporate-based measures closely for that insight, not just the traditional market-based measures the majority on the Street monitor.

Despite the bounce in equity markets, a minor step-change in sentiment around the energy sector, which is supportive for inflation expectations, and the minor relief that a weaker US dollar and lower interest rate profile provides, there really has been no loosening in financial conditions over the past five days.

The breakdown in correlation between equity and credit markets is too hard to ignore, especially if you are looking for the upturn in equities to show durability beyond the past five days.

Here are three examples from yesterday of what we mean by this disconnect between stocks and credit and how credit is struggling with the tight financial conditions. These are just some of the corporate-based, as opposed to market-based, measures we are referring to.

  1. Ford Credit (F), a BBB rated issuer, came to market with a two-part 3-year fixed and floating rate note deal. Later in the day, the 3-year fixed notes were sold after combining its fixed and floating rate tranches. Additionally, it was forced to pay a 35 to 50 bps concession over its nearby 3-year fixed issue to print new paper. The key takeaway is that with a BBB rating, in this type of market, Ford would only issue if it “needed” to, not because it would do so opportunistically. Accordingly, the market is making them pay up for this new paper.
  1. The Province of Ontario (a sovereign-type issuer that is rated A+) stood down from issuing a €2.5bn 10-year deal due to “market conditions”, even though the deal had already been pre-marketed (i.e. investors knew of and were prepared to buy the deal).

The lead managers released the statement below.  This is extraordinary to say the least and illustrates how even the best credits are being very cautious… “Ontario always tries to right size its transactions and provide a liquid benchmark sized offering.  The Province views the USD and EUR markets as core strategic markets and, as such, wants to maintain a well-defined liquid yield curve in each currency.  Market conditions were today such that Ontario could not meet these objectives and, as a result, has decided to step back from the market at this stage and would like to thank investors for their interest.” 

  1. Five (5) other IG deals were known to have stood down from coming to market yesterday, following the decision by the Province of Ontario. (Source: Mischler Financial, Quigley’s Corner, Ron Quigley)

In our view, we do not expect financial conditions to confirm the recent equity bounce. In fact, we think tighter financial conditions will be a key determinant in why the fourth quarter positive seasonal call will struggle this year despite the stock trader’s almanac always saying otherwise.

Firstly, we have already made our views very clear on how one major financial condition – the corporate financing gap – has now swung into deficit. And we have pointed out the consequences of that: it will limit their ability for further credit issuance, M&A will cost more, and stock buybacks will slow, and that collectively has led to the Street being way too generous in its fourth quarter forecasts for all of these metrics.

In fact, we were pleased to see Deutsche Bank yesterday echo what we have already said and lower its forecast for stock buybacks in 2016 by 25% or more, relative to the total announced in Q3 ($600bn annualized). Moreover, the buyback announcements in Q3 were already significantly lower than the first half of the year.

Secondly, investors are beginning to recognize that a high yield bond should never have traded with a 4% yield in the first place, as that yield was artificially inflated by extreme monetary policy measures such as QE. So while spreads have widened a lot, a 5% or 6% yield should really still be the equivalent of 7% or 8% similar to other cycles. Additionally, the breadth of weakness, for the first time this year, has now spread outside of the energy and materials sectors as investors do their homework on the rest of the things they own. The point here is that high yield is not cheap if the measurement is multiple cycles, not just the cycle with extraordinary monetary measures.

Finally, the other anecdotal trend we are observing is that credit traders don’t have the same appetite as equity traders to buy weakness right now. The majority of credit trader’s performance over the last few years is easily traceable to buying a new issue, watching that credit tighten immediately thereafter due to the sensational appetite for yield, and then selling them out quickly. Put another way, you are insulting equity investors when you call them IPO flippers. Right now, this trade does not exist and anyone who does not have a genuine investment process is being shut out of the market. This is one reason why credit spreads are not tightening.

The bottom line is that corporate Treasurers or credit investors remain highly suspicious of the primary issue market. Yes, companies will always need to re-finance their credit stack as part of their normal operations, as could be seen with Ford Motor paying up for it yesterday. But anything opportunistic is on hold, especially if a company has to re-model their economic projections for an M&A deal in the pipeline, as that will now come at a higher price.

So until we see several – by which we mean 3 to 4 consecutive days – of firm market tone conveying that corporate Treasurers and credit investors are once again aligned it is pretty easy to chalk up the latest move in stocks to nothing more than a classic bear market bounce. If this does not materialize, then the mindset of selling into strength will prevail.

As a reminder, when push comes to shove, you date equities but marry credit, especially after a 5-6% bounce.

Neil Azous is Founder/Managing Member of global macro think tank Rareview Macro LLC and the publisher of global macro newsletter, Sight Beyond Sight, a daily publication subscribed to by leading hedge funds and investment managers. Neil’s real-time comments and trade ideas are often posted to Twitter

To continue reading the Oct 7 edition of Sight Beyond Sight, please click the following link. Subscription is required, a Free Trial is available (no credit card required). Click here to access...




Risk Takers Cry Out In Terror-A Rareview With Sight Beyond Sight

Professional Investment Community Cries Out in Agony and They Don’t Yet Know Exactly Why

MarketsMuse Strike Price and Global Macro curators voted the Oct 5 edition of global macro advisory firm Rareview Macro’s Sight Beyond Sight the best read of the week. Yes, its only Monday, but those who follow this newsletter as we do (along with a discrete universe of savvy investment managers and hedge fund traders) have discovered that a certain degree of prescience can be contagious when trade ideas are presented with a pragmatic, transparent and easy to understand thesis.. Below are the lead-in topics and followed by selected excerpts…

  • A Great Disturbance in the Force – Oil, Materials, & Momentum Strategies
  • Portfolio Overlay – Two Inexpensive Ways to Add Downside Convexity
  • New Trade – Short 2-Year US Treasuries via Put Options

For those of you who still have to make up your mind on whether we can help you or not with your daily investment process, today’s edition of Sight Beyond Sight is a good example of what makes us different.  The majority of the morning notes you have received today all center on the “bad news is now good news” meme or how lower interest rates for longer will be supportive for risk assets. Of course, none of them have highlighted that financial conditions have been tightening all year long so despite the call for lower interest rates for longer the real world is not buying that unless credit spreads tighten. Instead, we will give you a rareview into how risk takers are faring across various strategies. Additionally, we provide three new trade ideas.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

In the 1977 iconic movie Star Wars: Episode IV-A New Hope, following the scene where the Death Star destroys the planet Alderaan, the Jedi Knight, Obi-Wan Kenobi, said: “I felt a great disturbance in the Force, as if millions of voices suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened.”

I have started with that quote because it seems the best way to describe the Start of the new week for the professional investment community. Take a look at the below observations and it will be easier to understand why risk takers are “crying out in terror” and for many of them “something terrible has happened”.

If you are a global macro fund, then liquidity is not going to be your friend today as you defend core strategies that are deeply entrenched. For those who have been living on a deserted island the remaining long US dollar positioning is mostly versus emerging market FX and G10 commodity currencies, rather than other reserve currencies such as the euro, Japanese yen, Pound sterling, and the Swiss franc.

If you are a long/short strategy, you already know what is happening because it started well over a week ago.

You just did not want to believe it. Not to worry, a further unwinding in the long Financial/healthcare versus short Material/Energy sector strategy will help you finally come to grips with reality. If you are a quantitative fund, up until really last Friday in both Europe and the US, you have had the benefit of being part of the number one factor input and best performing strategy this year –that is, MOMENTUM. Sadly for you, the reversal of that strategy is a lot more violent on the way out then chasing it on the way in. Perhaps you will take back your 15 minutes of old fame from the new guys-Risk Parity and Target Volatility funds?

The conclusion would be that the worst-of-the-worst–energy, materials and bottom 15% of single stock performers–is now in play from the long side for whatever reason –its “go time”, crude oil has bottomed, or gross exposure reduction is not near being completed.rareview macro sight beyond sight 0c5 5 2015

Ok, here we go…

Rareview Macro Portfolio Overlay –Two Inexpensive Ways to Add Downside Convexity

The current price in S&P 500 futures is ~1950. The low on August 24th was 1831. The difference between the two is ~6%.Protecting against a 6% downside move, or 120 S&P 500 points, is an expensive exercise right now, and not one we are interested in. Instead, we are more worried about the second 6%, or the move down to 1720-1700 from 1831, especially the air pocket that is likely to develop once/if the August 24th intra-day low of 1831 is breached.

The problem is that we do not know the short-term direction of the S&P 500 index, including if it will first go to 2000 in the next 30-days but we are highly sensitive to an even larger move on the downside in the fourth quarter than what occurred in the third quarter. So working on these premises, what are the best strategies to deploy right now? We think having a two-tiered approach between the S&P 500 index and equity volatility, as measured by the CBOE VIX Index, is an optimal strategy.

We’ll look to dynamically manage both of these strategies side-by-side in the event that we see another leg lower in US equities. The two strategies we like are and the ones we deployed in the model portfolio late last week and posted via Twitter are…. Continue reading

Why Glencore is Going to Cause Gas- A Global Macro View-Grab The Glenlivet

MarketsMuse news curators have spotted dozens of commentaries from leading equities and debt market pundits opining about global mining giant Glencore. There is only one comment that offered a truly rare view that struck a chord, and it is courtesy of this morning’s edition of global macro newsletter “Sight Beyond Sight”, which is published by global macro think tank Rareview Macro LLC. The title of today’s edition:

Tentacles from Glencore Extend Well Beyond the Naked Eye…Quarter-End Flight to Quality

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Today’s edition of Sight Beyond Sight is going to sound aggressively Bearish to some people. At the same time, the tone is insensitive to the countries, companies, and employees involved. If that bothers you, that is too bad. This is a financial services newsletter, not the United Nations or the Red Cross. We are not trying to disparage anyone or call someone out. Our goal is to try and help you make or save money.

When I traded credit derivatives at Goldman Sachs back in the late 1990’s, the way we separated our bond business between investment grade, high yield and distressed was very simple. If an issuer’s bond price was trading above 80 cents on the dollar you were investment grade. Conversely, if an issuer’s bond price was trading below 80 cents on the dollar you were high yield. Anything below 50 cents on the dollar, you were distressed. Below 20 cents…don’t ask.

Glencore EU1.25b notes due March 2021, one of the most recently issued and liquid tranches of their debt outstanding, dropped six cents to~76 cents on the euro today, effectively crossing over into high yield territory even though it still maintains its BBB credit rating. Headline writers argue that most of the weakness today in Glencore’s stock and bond price is the result of comments made by Investec Plc, where it warned that there would be little value for shareholders should low commodity prices persist. This echoes a key research note last week from Goldman Sachs that said: “If commodity prices were to fall 5% from current levels–which we do not consider to be a far-fetched assumption given the downside risk to commodity consumption in China–we believe that concerns about its IG credit rating would quickly resurface.

Under this scenario, we estimate that most of Glencore’s credit rating metrics would fall well outside the required ranges to maintain its IG rating, and that could happen as early as the next reporting period (FY15).”

From here, this is where those who throw bombs for a living believe is what is coming up next:

  1. Commodity prices drop another 5%;
  2. Rating agencies downgrade Glencore to high yield

(by Friday);

  1. Glencore’s trading desk receives margin/collateral call immediately as commodities are T+0 settlement for margin (i.e. remember Duke&Duke in Trading Places);
  2. Like AIG, the re-insurer of the credit markets, a significant amount of derivative contracts tied to commodities become an unknown.

Continue reading

Wanted: Fed-Watching Pundits: Requirement: Coin-Tossing Skills

MarketsMuse editors were relieved yesterday after the Fed announcement for two reasons; the first being we were reminded that at least half of Wall Street’s Fed-watching pundits who get paid big bucks to predict events can be replaced by anyone who can flip a coin, as half of the pundits were wrong and arguably, at least half of those who were right, were probably right for the wrong reasons. One would need to have a transcript of the entire meeting to know what those Fed governors were thinking and saying.

The second relief comes from having watched a post-announcement color commentary on CNBC “Fed Winners and Losers”..which had sober and well-thought out thoughts from Rareview Macro’s Neil Azous and SocGen’s Larry McDonald


Global Macro-Contrarian Says: Laundry List for Long European Equities

MarketsMuse Global Macro curators always look for substantive and objective observations from outlets that are truly substantial within the context of presenting thoughts and comments from experts followed by the most discerning investors. With that in mind, we salute the folks at UK-based Substantive Research for this morning’s note, which includes the following kudos to a global macro pundit who MarketsMuse takes credit for spotlighting early on….

Giving up on the European recovery theme?

Neil Azous from Rareview Macro published a great note that encapsulates a couple of big themes; Inflation targeting by central banks, and the impact of QE on equity markets, and in particular, European equities. There’s a big question about the relevancy of inflation targeting in today’s central bank user manual and Rearview has neatly put together a collection of quotes and academic work from central banks on this. with their own take on what this might mean for policy making in the future. How does this relate to European equities? If inflation targeting is no longer an effective policy tool it certainly limits policy options for the ECB. Azous also notes that European equities haven’t had the same tail winds that the US and Japan markets have had whether that is the direct result of QE policy, or corporate actions. This ”underperformance” shouldn’t signal less faith in the European recovery story, and he produces a laundry list of reasons to back the view for being long european equities here.