Capture The Mag
Under-capture. That's the name of the game for (too) many investors in 2024.
The ultra-concentrated nature of the rally's making it impossible -- figuratively or even literally -- for some cohorts to keep up with the benchmark.
"Here's the deal: Equities investors and 'generalists' have to keep chasing into the AI theme because they simply can’t own enough of the handful of names powering benchmark indices higher," Nomura's Charlie McElligott wrote, in a Thursday note.
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A new nightmare scenario for Jay Powell to confront. If the market goes South hard, very few will understand the structural market issues driving the sell-off. Absent a major development, such as Putin nuking Ukraine (which won’t happen before the election), Joe Public will blast Powell, Yellen, and Biden for making a mess. CRE upheaval or similarly abstract market problem, along w/ an equity sell-off, will hardly convince those reading headlines it’s always “healthier” in the long run to take out the trash when the container overflows.
Poor Jay. Seriously. The dude may have to deal w/ another disaster after Trump’s late 2018 scolding, repo malfunction in mid-2019, covid, non-transitory inflation, market’s interest rate rollercoaster delusion, etc. What a sad character. Maybe he just throws in the towel and walks away if equities collapse. “I’m done. Good luck to my capable successor. Any capable successor. Nothing more to say.” I hope so. He deserves the freedom to re-write the script.
I’m not sure where you’re getting “nightmare scenario” here. This isn’t supposed to be an ominous article. It’s just an update on the equity vol landscape. Also, remember: Yellen, with an “e.” I corrected it for you.
You must’ve read that quote from someone else’s coverage of the same note. Charlie did use the term “nightmare scenario,” but it was in the context of the funding leg for dispersion books, where they’re short index vol to fund longs in single-name vol, the idea being that if you get an exogenous shock (or anything that pushes the whole market down), they’re caught in a short squeeze, which is to say they’re buying index vol into the spike. But that’s just Charlie reverse engineering a hypothetical car accident. The more likely scenario is something that looks like the tech “tip over” in early September 2020, when that same spot up, vol up dynamic ended in a pedestrian correction.
That dispursion book idea makes a lot of sense. More vol dispersion at the single stock level seems to be balancing out enough that overall market volatility is pressured lower. That looks like a pretty good expantion of what has been going on in the markets recently, yes/no?
I didn’t read anything else from anyone about Charlie today or in a long time, for that matter. You’re my primary, secondary source on all things McElligott.
I had no idea the guy used “nightmare scenario.” Yeah, I miss Yellen spelling too often, but my brain works at a decent clip now and then, at least well enough to envision another “nightmare scenario” typical of his yo-yo like experiences as Fed Chair. I wasn’t aiming for analytical precision as much as loosely identifying a cosmic thread running through Powell’s existence.
No, no, it’s totally fine. I wasn’t trying to be abrasive, it’s just that I responded, then I went out for a run and about a mile into it I thought “Dammit, that note actually did say ‘nightmare scenario.'” So then I had to come back and basically respond to my own reply, thinking you must’ve read the rest of the note somewhere. How funny is this coincidence? Here, I’ll show you. Click on this screengrab: https://heisenbergreport.com/wp-content/uploads/2024/06/CMJune202024.png
It’s the nightmare scenario I see; don’t expect anyone else to buy into it.
Sorry about Yellen and thanks for the help.