By his own account, Nomura’s Charlie McElligott has a lot of work to do ahead of some meetings this week, but that doesn’t mean he’s going to leave the congregation (Bloomberg has affectionately described Charlie’s following as a “cult”) high and dry with nothing to ponder.
McElligott’s Tuesday blast isn’t the usual stream-of-consciousness-style world macro tour, but rather a series of charts documenting “the current market zeitgeist”.
Most of this is familiar territory, but we’ll highlight a couple of the visuals just to drive home some key points.
Charlie calls the rally in Bitcoin “a play on escaping negative-yielding debt”. The global stock of sub-zero fixed income has now surpassed $13 trillion in the wake of last week’s “dove-fest” from central banks. That’s driving folks down the quality ladder and out the risk curve. Nothing says “out the risk curve” quite like Bitcoin.
Gold is riding a hot streak above $1,430 as the apparently imminent start of an easing cycle from the Fed and cracks in the US economy have finally managed to kneecap the previously resilient dollar. In the right pane above, McElligott shows that gold is now the most inversely correlated to 5-year real yields in some two decades.
Needless to say, the bond love affair is hot and heavy amid persistent concerns about global growth and the promise of never-ending accommodation from central banks. Nomura’s risk parity model shows the still-elevated allocation to government bonds (synonymous with the deployment of leverage) against what Charlie notes is an “ongoing reduction in equities exposure”.
Meanwhile, the asset manager long in equities is to be contrasted with the leveraged fund short, and the Long/Short crowd’s still depressed exposure to stocks (L/S beta to SPX is bumping along at multi-year lows).
Finally, drilling down, the “slow-flation” expressions are ascendant within US equities as long defensives and secular growth is set against underweights and shorts in cyclicals.
And, speaking of that, I’ll leave you with one last chart…