Capital Flows and Asset Markets

The say the key to happiness is low expectations. I thought my expectations of central bankers were low enough - and yet I still find myself unhappy with them. There have been many reasons for central banks to tighten monetary policy over the years - rampant asset prices (Bernanke would argue it better to cut rates to cause this outcome - moron), surging oil prices, rising wages, collapsing curren...

The founding idea of Iran is conflict with the US. In some ways, it has been surprisingly successful. The Soviet Union only became enemies with the US post World War II - if you mark the beginning of outright hostilities as the beginning of the Korean War in 1950, to the collapse of the Soviet Union to 1991, this was only 41 years. Modern Iran was founded in 1979, and survives today, 47 years late...

Its funny talking about interest rates. Whenever I say I think long bonds are going to 10% - people with mortgages look like I basically said the world is going to end. I will keep this short - as it is a very simple analysis. Essentially, I think we are in a pro-labour era that sees the back end sell off until political change comes. We are at 5% now, I could see an Iran war sell off drive that t...

Most, if not all, of my big thinking is based on watching the markets, and wondering why something you expect to happen does not happen, and what does that mean. In the earlier part of my career, I looked at JGBs, and wondered why they never sold off despite every major macro thinker being bearish on them. I made a career out of working out why JGBs were strong. When JGBs did start to trade bearis...

For the first time in years, the market has presented me with another option to the rising cost of capital trade. As we all now, the War in Iran has seen oil prices rise precipitously. Given the lessons of the 1970s, you would think GLD/TLT would do well. This has not been the case. The long term trend of gold higher versus treasuries remains, just that the reaction to higher energy prices is odd....

First things first - I am not a gold bug. In my career I have been both long and short gold. In fact, if gold is done, gold and silver miners are excellent shorts here, as I can guarantee there is a huge number of investors who will be buying it all the way down. I like gold as I saw wage inflation taking off, something I still continue to see. And I envisioned something like the 1970s, where infl...

Since I first came up with the GLD/TLT trade, its having its first meaningful drawdown. To be fair, it has been on a blistering run. The idea behind GLD/TLT was that we are in a rising cost of capital world, not because things are bad, but conversely because things are good. Governments are focused on demand management, full employment and rising wages. This means “systemic” inflation will be much...

When I first started looking at the GLD/TLT trade, I really liked the long term graph. It suggest as some point a crisis would send gold to the moon, and treasuries into a tail spin. The peak in the late 1970s was around the time of the second oil shock. Foolishly, I had assumed War in Iran, and a spike in oil prices would provide the same time of move. On the contrary, GLD/TLT is going to be down...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I like to think I am smart - and I am smart enough to know that I am not smarter than the market. Generally speaking, I like to get an idea of where we going, and then bet WITH the market on that direction. So before I get to individual trades (and the paywall), let me look at the overall market trends. As mentione...

President Trump is the first “social media” president. You can see it in how he looks to not only dominate the social media narrative, but remains heavily influenced by it. If a policy gives good traction on social media, you should expect him to run with it. But ultimately, all his policies seem to be advancing an “America First” agenda. The Liberation Tariff day sell off was all about giving Tru...

Unlike almost anyone else I know, my route to finance was via a currencies. I was working in HK in 1998, when the currency peg came under attack, and was fascinated by the way it affected interest rates and stock markets. I went back to university and wrote my thesis on private currencies (HK is last place in the world where private banks issue banknotes) and applied for a job at UBS. I then built...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com It has been plain that a war with Iran has been coming for awhile. The question was what would it look like? Would it be a Venezuelan style coup d’état? Or would a popular uprising sweep away the ancien régime? Or would it become a quagmire. Two weeks in, and the likelihood of the first two outcomes, which would ha...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com After I closed my last fund, and spent a few years thinking about how the world works, I realised that politics trumps macro. And even when it looks like macro is winning, it just that the politics is allowing it to win. First of all, I recognise that all the doom scrolling headlines on Iran could be true. And mayb...

When I look at the Israeli stock market, it is hard to see any signs of war pressure in this market. In fact it is at all time highs. The Economist has a good article on why Israelis would feel so secure. Iranian offensive ability has been severely degraded, with not only the amount of munitions being launched by Iran falling, the numbers actually making through falling precipitously. They have al...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com It was a war we knew was coming, but had no idea how it would start or end. Would it be one and done like Venezuela, or would somehow this be a new Iraq, a quagmire with no end? The problem with prognosticating on the war today, is that so many players have an interest is spreading disinformation. This mean basing...

Japan and Korea have been by far the weakest markets since the war in Iran started. Nikkei is down 8% this month - but as any day trader or amateur market technician would tell you, so far not even a correction in an uptrend. Kospi 200 is a meatier 20% this month, which meets the definition of a bear market - but again still in an uptrend. No prizes for guessing the catalyst. Asian LNG prices have...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com The current catalyst for a market shift is the war in Iran - and as it is a crisis, the market thinks all moves are temporary. For me, crisis tends to accelerate what the market is doing anyway. In the 40 year bull market in bonds, there were always crises, which would drive yields lower, but that was just an accel...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com One of the problems with getting older, is that you see similar market set ups, and you start thinking “uh-oh” I have seen this before. I am certainly getting 2007 deja vu all over again in February. Before I get into all that, let me tell you how we did in February.

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com No doubt this will confuse my American readers. I can see themselves saying “Why is this guy talking about a failed short?” Generally speaking my American’s friends advice to me is to talk about how awesome you are, and never show weakness. I have spent enough time in the US to understand why that is sound advice i...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I suspect in a special hell just for hedge fund managers, they are forced to run net short all the time. Making money shorting is tough - and even when it goes well, it can so easily reverse. While stocks can surge higher every day without a correction, I have never known a short not to bounce with perhaps one exce...

I have a lot of time for Brad Setser. In a recent FT article he claimed that China was still buying treasuries, but just via policy banks rather than as official foreign reserves. He provides this chart to support his view. Not the most intuitive chart, but basically the red line goes up when the Renminbi goes up, showing that banks in China buy more treasuries when the Renminbi goes up. The impli...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I have seen various short selling markets in my career. The first one, the dot com bust, was driven by over investment in a huge variety of internet and telecom assets. The second bear market I saw was the GFC - which at its heart was overinvestment in the housing market. The third was the commodity and emerging ma...

It is remarkably common to hear 50 something investment managers and strategists to compare the current AI boom to the dot com bubble. For those too young to remember - the dot com bubble burst in 2000, and the S&P 500 had three down years in a row. There were many poster childs of excess from that period, but perhaps the best was Cisco. Everybody needed to build an online presence, and a thousand...

During my formative years in finance, I learnt to be a “currency first” investor. Basically, I noticed most equity fund managers tended to get currency risk totally wrong, so if I got that right - I should outperform. It has taken a few years to shake off this “currency first” mentality. But I was going through some slides from my friends at 36 South (full disclosure, I am their landlord in London...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I have been bearish on private equity, partly because they stopped returning cash to investors even though markets are at all time highs, and partly because I thought the cost of capital rising would be bad for them. For corporates, cost of capital has not really risen. Over the last couple of years, high yield cos...