Federal Reserve Meeting

Some Thoughts Before The Fed Meeting

The Fed is back at it again on Wednesday of this week. And as with every Fed meeting, we get to play the “will they” or “won’t they” game.   Read more

european equities

Market SitRep – Buying Spree

This episode of the Market Sitrep kicks off with a look at the ECB’s corporate bond buying program — an unprecedented central bank intervention that will hurt more than it will help. Next we take a look at Belgian equities which broke out to new highs and explain why the breakout is probably a false move. We finish up with a discussion of the “bad news is good news” effect. The central bank narrative is still controlling markets, but how long will it hold up?

Do you think the new addition to the ECB’s easing program will work? Let me know in the comments.

A link to the pdf presentation can be found here.



Failure of 60/40 allocation

The Standard 60/40 Stock & Bond Portfolio Won’t Survive The Next Decade

Everyone’s familiar with the classic 60/40 investment portfolio. If you’ve ever dealt with financial advisors, this is the standard allocation they’ll recommend. 60% of your money in the stock market, and 40% in bonds. Read more

Don't buy MLPs

Don’t Jump Into MLPs With Tepper Just Yet

Range-bound markets over the past year have made it difficult to earn good returns. Most investors haven’t made any money at all. And this reality has forced them to pile into high-yield products to make up the difference.

One popular area to reach for yield has been the energy space. The general belief is that crude has hit a bottom and that energy companies are now a safe bet. Especially with the dividends some of them are offering.

Billionaire hedge fund manager David Tepper is all over this theme. His interests lie specifically in Energy Transfer Partners (ETP) and Williams Partners (WPZ). Both these companies are master limited partnerships (MLPs) and both operate in midstream energy assets such as storage and pipelines. Read more

Market SitRep – Reach For Yield

In this week’s Market Sitrep – Reach For Yield we start off with examining the high-yield energy space. We focus in on David Tepper’s big bets in Williams Partners and Energy Transfer Partners. Next we discuss what bond duration means and its implications going forward. We take a look at an interactive bond calculator that shows changes in bond prices given a change in future interest rates. The duration discussion transitions into an overview of the popular 60/40 stock/bond portfolio. Performance in the last 5 years has been great, but future performance will not be. We finish off with an update on the US dollar index and its impact on the market and gold.

A pdf of the presentation can be found here.



the end of apple

What’s Really Driving Apple?

Narratives are a fundamental part of our human existence. They’re the key to how we process information. Just as the mind instinctively searches for visual patterns in nature, it also seeks to derive patterns and meaning from information flow. We create stories to help us understand.

We see this in financial markets all the time, though it’s not always a good thing. You’ve heard the talking heads on CNBC. They hop on camera and try to attribute every little market gyration to one news story or another. This type of narrative creation doesn’t make much sense. Most of the day-to-day movement in the markets is just noise.

But pull back a bit and you can see where narratives become useful. For example, why has gold been on a tear since the beginning of the year? Its narrative revolves around the loss of faith in central banks. Investors have stopped believing in their ability to support and stabilize markets and the currency. And so they turned to gold for safety.  Read more

Bitcoin and blockchain

Market SitRep – Blockchain

In this week’s Market SitRepBlockchain we discuss Bitcoin and the revolutionary blockchain technology it utilizes. We then review recent central bank announcements and take a look at some monthly charts to get a big picture view of markets. 

A PDF of the presentation can be found here.

Read more

market sitrep

Market SitRep – Max Dissonance

This week’s Market SitRepMax Dissonance begins with a discussion of the “risk on, risk off” phenomenon where both defensive and offensive assets are catching a bid. We then take a hard look at long term equity valuations and explain why holding dry powder is more important than ever before.

A pdf of the presentation can be found here. Read more

stock market bull

Could We Experience Another ’90s-Style Bull Run?

The recent bullish action in the markets makes it fitting that we play devil’s advocate – something we at Macro Ops refer to as “Red Teaming.”

We’ve been bearish when it comes to the overall markets for about a year now. And we still believe the bearish hypothesis is the most probable outcome. But the unrelenting retracement in credit and equities over the past month forces us to investigate the bull position – one must always respect price.

Our team at Macro Ops usually view markets through the lens of liquidity (e.g. cost of money + spreads). The liquidity model we built has predicted future market returns to a remarkable degree, but our modeling has become more convoluted now that interest rates are near zero and the real cost of money is negative. There isn’t much past data we can use to evaluate this type of environment (other than the Great Depression). What’s more, this environment makes game treeing policy decisions a tough code to crack, since actors have more incentive to take extreme measures in both directions. So although our model is still sound, it’s prone to give off false signals. Put another way, it’s hard to determine with full confidence where the market ends up 6-9 months from now. Read more

Market SitRep Video Newsletter

Market SitRep – Reflation Redux

This episode of the Market SitRepReflation Redux starts off with a discussion of China’s addiction to credit expansion and debt. We also touch on the crude oil market and explain why we think the “reflation” trade is nothing more than a short-term hope jag. Finally we cover quant/technical analysis of the S&P 500.

A PDF of the slide show can be found here. Read more