Here’s An Hour-Long Interview With Nomura’s Charlie McElligott
Listen, you guys, Nomura's Charlie McElligott is a man who has a lot to say.
As regular readers know, we try to inject a little humor into things whenever possible, and when it comes to Charlie, that effort generally manifests itself in lines like these, from a December post:
The elephant in the room this week was obviously Nomura’s Charlie McElligott, the living embodiment of “more cowbell” when it comes to real-time updates on systematic flows. If you’ve “got a fever” and the “
No need to join a “cult” with the title of “information minister”, you’ve created your very own cult. I’m one of your most avid followers and want to buy a ball cap with your tag line in the front. Where can I place an order? Size large for my very large brain.
ah yes, the occasional HR apparel request. I’m afraid i’m not yet convinced the demand is sufficient, but it’d be fun. lol
I can certainly understand your reticence, so I would be happy to test market a HR chapeau on your behalf.
Please let me know what tag line(s) you would prefer and which of the following style(s) that you would find acceptable.
Homburg
Fedora
Panama
Bowler
Boater
Fez
“the general investing public’s understanding of how systematic flows impact the market is not growing commensurate with that same investing public’s awareness of that impact”
So true. what’s odd is most successful CTAs are not that complex. Momentum signals, vol weighting, and broad range of assets for diversification. Everyone understands these core concepts.
When reading through the macro commentary, i just kept thinking about the confounding factors at play and it’s hard to imagine a way for a low vol regime to return.
First on the political side, you have a US president who doesn’t understand macro dynamics and makes twitter outbursts with real life consequences. You have significant uncertainty in trade as well as an ongoing shutdown with unknown consequences. Not to mention the implications of ongoing investigations and the shifting political landscape.
Second on the monetary policy side, you have a Fed chair who has not yet mastered the ability to softly steer markets as we’ve come to expect, resulting in oversized moves, conflicting narratives, and policy uncertainty. This is made especially problematic as QT saps liquidity from the market. (Kolanovic said it best)
Markets could probably digest either of these alone, but you can’t expect markets to move smoothly along while being accosted from all sides.The actual amount of unpredictability in the system right now is honestly astonishing. I really don’t see how we have have sustained periods of low volatility in the near term.
The impact of systemic strats is just gasoline on this dumpster fire. Although applied in very different ways, leveraging while vol is low and deleveraging as vol increases broadly applies to almost any systemic strat. Add in retail flows and the fire rages so hard that I doubt even buy backs can douse the flames. And speaking of buybacks, it’s unrealistic to expect the buyback bonanza to continue forever. If the economy turns, I don’t think corporations will be able to justify them, and there goes one of the last stabilizing factors in equity markets.
“…all of these different strategies have an outsized impact because the liquidity deteriorates due to this tightening liquidity environment, the reduction of leverage in the environment — they’re having an outsized impact…”
I think Kolanovic and McElligot have shown this to be true beyond any doubt. So assuming this amount of unpredictability continues, we’ll be left worse off than where we started, with broad implications on the US and global economy.
At this point, I think it’s likely a new crisis emerges, and if that happens, I stand by my earlier call: the next crisis will come from either currency markets (emerging vs US) or the China credit bubble finally bursting.
Wow that was a long-winded post
Love it. Great progression of each fuse refined into a loudly ticking time-bomb.
So, the cat asks him about gold and he goes on about something else? What did I miss here?
Charles, the hat would have to be a pork pie, of course.
Not much choice in this case 🙂
Jamaican
Jerk pork no doubt. One of my personal favorites
additional remark:
large brain not a problem.
Correction: Very Large Brain