Gandalf. Need more Gandalf.
To fear them or not to fear them?
There are lingering questions.
What does it mean to be “diversified” when everything is expensive?
“Come play with us Danny”…
Those are the dominoes. Don’t tip one.
“And I’ve learned when they do build, they can build very quickly, so we have to be very vigilant about this.”
“They are not investing. Yet here he is, laying it all out to the world again – necessarily doing less of his day job than he would otherwise do.”
“It may not be optimal to own the most diversified portfolio you can possibly own, because anti-diversifying decisions might, in fact, be worth it. But it is exactly that thought process that must become part of our code as investors. It’s OK to turn down a free lunch, but you’d damn well better know that what you’re going to spend your money on is better.”
“…at the turn of the tide.”
“Risky assets digested the increase in bond yields only reasonably well – 3-month equity/bond yield correlations stayed positive (Exhibit 3) and credit spreads buffered part of the increases (Exhibit 4). But correlations are starting to reverse.”
It’s been a long time coming, but the week(s) of reckoning have finally come for CTAs and the risk parity crowd. Of course the “serious people” reading this will say the “day of reckoning” bit is hyperbolic. After all, we haven’t seen a sustained vol. spike of the sort that would probably be required to…
Given what we’ve seen this week in terms of DM yields spiking and that spilling over into equities, this is probably a good time to remind you that the 800-pound gorilla in the room is risk parity and the potential for a deleveraging episode. As I’ve noted on several previous occasions, the gorilla analogy probably…
“However, relative to CTAs there is much less transparency on the total size of assets in risk parity and equity vol control strategies let alone the subset of which is completely rules-based.”