With Stocks In ‘No Man’s Land,’ Nomura’s McElligott Delivers Summer Outlook, ‘Roadmap’ For Second Half
"The S&P is stuck in no man’s land", Nomura's Charlie McElligott writes, describing a situation that finds spot loitering right around the "flip" line for dealer gamma positioning, meandering between two large strikes.
Reinforcing this aimless roaming at gamma/delta neutral levels is relatively meager CTA positioning, with McElligott flagging "low gross exposure levels due to the recent signal chopping back and forth [and] somewhat distant buy-/sell- triggers in either direction".
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Who puts money into those kind of funds? I guess the “consultants” have continued to jam everyone into anything labelled as “alternative”. I wonder what the returns are looking like.
Not sure you’re conceptualizing of it in a wide enough context. Bridgewater (i.e., risk parity) is essentially just target-vol. And the CTA universe is massive.
To answer your question: Everyone. When you think about the systematic universe, it encompasses a wide range of strategies. This isn’t some kind of obscure little corner. There is massive AUM here.
Thanks. I’ll be curious to see how sticky the assets are as the year progresses.
Many others target risk volatility. I use it as part of my practice, with the constraint being how risk tolerant the client is, and what level of risk needs to be taken to achieve a client’s goal. However, the type of risk parity I engage in, is far more long term. The CTAs follow the “risk herd” with a much shorter time horizon than I do for my practice. Wall Street is day to day, hour to hour, I imagine the risk parity CTAs might have a slightly longer time horizon but not by much. The tricky thing is that any risk model will change to incorporate the lastest movement in the market. So when volatility increases, if you follow such models closely you will be looking to take your perceived risk lower or higher at the least opportune time. This process if you follow your models will increase the volatility in a feedback loop. The conclusion is that we are going to be seeing persistently higher volatility day to day for awhile until we get a change in the narrative. One can argue that the Fed is trying to reduce volatility by engaging in asset buying and yield targeting to low interest rates, even though this is really only an indirect reading of their stated mandates (maximize employment, minimize inflation and provide a stable banking system).
Listening to all the bank ads on TV it looks like they are all pushing the “don’t panic , we’re behind you and want to help” message. But, what we really needed was a “we realize it’s not your fault that you no longer have an income so we’re freezing everyone’s debt until this is over”. Also, we need the government (who can print and borrow money ad infinitum) to back up the banks and let them GIVE money to all the citizens based on their recent history of earning. In this way , no one actually loses their income and there is no panic about not meeting the mortgage or car loans that are frozen and there is money to pay the utilities and food bills. Also with no need to layoff people the government can back up all the medical insurance that people are losing daily. Businesses don’t have to go bankrupt. People don’t have to panic because they have no money to buy food to feed their families. We don’t have to rush to return to normal and can really let the virus spread die down to what we can handle. Instead of having to send a completely inadequate token check to all Americans with some idiots name on it (A lot of whom are still waiting) they just have to wire the money to the banks once a month.
Wow. That made so much sense.
Or the Fed could just buy mortgages, student loans, and consumer loans for durable goods and write them down –loan forgiveness would be far simpler than ongoing installment payments and the “shock and awe” akin to their various lending facilities and asset purchases rolled out would probably have an extraordinarily powerful effect on everyone’s mood –and maybe even inflation expectations. I really see no difference in terms of free riding, adverse selection and moral hazard problems that the corporate support and market stabilization programs the the Fed has been willing to overlook on the corporate side. Couple that with state and municipal bond purchases and then the Fed would hit the scale necessary to lift us out of this impending Depression. 15 T should just about do it.
Agreed. The government could really relieve, if not resolve, this situation with a consumer debt jubilee, UBI, or other similarly massive fiscal programs directed at households. But, in our current political reality, such meaningful “handouts” or “entitlements” to “takers” from “makers” (even though “paying for it” is a nonsensical construct as H-man has pointed out over and over) seem exceedingly improbable, with both political parties disincentivized to it by their corporate rulers, and I’d argue actually opposed to it ideologically. Neoliberal architect Larry Summers is back as the “advisor” to the Democrats for crying out loud, supposedly as an “answer” to fiscal conservatism from the GOP, and we are expecting real fiscal stimulus to meet this moment? Call me a cynic, but I just don’t believe any of these old dogs can learn that many new tricks, certainly not without a lot of pain first to force the issue.
In response to your closing paragraph- I am watching the news about RBG– who could become “the” election issue, not Covid-19.