Pro Macro: In Focus – Back to the Future

Published on: May 20th, 2022

Risk Parity and VaR-based products are ubiquitous, leaning on negative correlation assumptions. The last two weeks have challenged diversification as correlations have headed into positive territory across a range of assets. Inflation persistence will impose positive correlation, as it did before the Greenspan Put and the Great Moderation. Unwinding of leverage built on correlation has only just started.

Comments

  • JM
    Jake M.
    20 May 2022 @ 22:52
    3 0
    Hi Julian, are bullish DBA in this environment given all the tailwinds we have (protectionism, fertilizer shortage, energy shortage, supply chain issue, russia/ukraine issue, etc) ? Is it a good trade to go in?
    • HM
      Harry M. | Real Vision
      21 May 2022 @ 14:17
      4 0
      So I know JB thinks he screwed up coming out of that trade too soon. There are all sorts of great reasons to think grains should go still higher. However, we dont have the protection of good entry points, or being early in the trade. Take great care entering trades like this and use stops. Usually, high prices are the cure for high prices in agriculturals. Whether there is any timely supply response this time, well, who knows!?
  • DA
    David A.
    21 May 2022 @ 07:10
    1 0
    Hi Julian - great note - thanks. You have correctly been bearish / very concerned about risk assets all year and for the right reasons. With SPX down 7 weeks in a row it feels like a lot of experts are bearish but all saying "careful we are due a bounce "(look at D marks / technicals / cash levels / investor surveys etc ) ....does that mean if we break lower in the week ahead ie the bounce that traders re expecting (add shorts at 4400) doesn't come we should add quickly to shorts as it is a sign that reality of all the issues / challenges is finally sinking in?
    • HM
      Harry M. | Real Vision
      21 May 2022 @ 14:14
      3 0
      Thats not unreasonable. We should have seen "gravity" towards 4000 cos of the accumulation of strikes. Odds are the end of month institutional rebalance is also likely to be supportive if we stay around this level. But clearly there is a broader "deleveraging" going on. So its deeply concerning that stocks are not bouncing. Usually in bears you see particularly fierce rallies. I know that Julian wants to sell above 4200 and 3950 as a minimum, but there is no guarantee we will get those better levels to sell. But in these kinds of markets, one should take great care to protect capital. Outsized moves are possible in either direction.
  • JM
    John M.
    29 May 2022 @ 00:56
    0 0
    Thanks Julian, any thoughts on energy (XLE XOP etc) or nat gas here? This seems to be main sector that has worked this year...
    • HM
      Harry M. | Real Vision
      31 May 2022 @ 14:04
      1 0
      Yes. JB is still positive on those. Entry points are tricky, but given the geopolitics in the Eurozone there is no sign whatsoever that energy prices have peaked yet. In fact, its interesting to see SLB rally extend. Before we can get a supply response, SLB and similar companies will be operating at close to full capacity.
  • DB
    David B.
    30 May 2022 @ 08:28
    0 0
    Does anyone know where I can watch the conference videos? I remember signing up but I cant find the links anywhere. Julian mentions this video was out in April: The Last Shall be First and the First Last – A Rotation of Biblical Proportion
    • HM
      Harry M. | Real Vision
      10 June 2022 @ 15:15
      1 0
      https://players.brightcove.net/pages/v1/index.html?accountId=3117927975001&playerId=KQMsitF5y4&videoId=6303004850001&autoplay=true
    • HM
      Harry M. | Real Vision
      31 May 2022 @ 14:02
      0 0
      I had the same problem. I couldnt find them either. I will ask to get it posted somewhere we can find it.