Guest Post: Axe Would Hate Risk Parity

“And then ask yourself, what have Central Banks being doing since the Great Financial Crisis? Buying bonds (they are also buying some equities, but the vast majority of the purchases have been fixed income). What does that do to volatility? It crushes it. And what does lower fixed income volatility mean for risk parity? They buy more.”


“This Is No Different” From 1987: Is Marko Kolanovic Right?

“When an institution allocates to a momentum strategy in the hope of cushioning itself from stock market downdraughts it is really commissioning someone to sell stocks on its behalf into a falling market.”

Chart Check: “Trouble”

So earlier today in “To ‘Tantrum’ Or Not To ‘Tantrum’, That Is The Question,” I said the following about the juxtaposition between hedge funds’ big Treasury short and still long equity positioning: …if the highly anticipated repricing of yields higher turns out to be …err… higher-er–er than expected, the long equities side of this bet…

“JP Merlin” Returns: Quant Wizard Kolanovic Weighs In On Volatility, Geopolitics, And The Fed

He doesn’t have a long, white beard. He doesn’t wear a robe or a pointy hat. And he doesn’t walk with a gnarled, magic staff. But that doesn’t stop us from characterizing JPMorgan’s resident quant wizard Marko Kolanovic as a kind of Gandalf figure. Regular readers know Kolanovic. His star has risen over the past couple…

Here Comes The Next “Tantrum”

I’m always warning about VaR shocks. More specifically, I like to remind investors that in the event rates reprice sharply higher, the return correlation between stocks and bonds could well flip positive as equities interpret the sudden spike in yields as a risk-off event.  In short, that means stocks and bonds sell off together, leaving…

Heisenberg Challenge: To “Hedge” Or Not To “Hedge”

Submitted for your approval: an amusing comparison.

Top Strategist: Macro Is Running The Show And You “Should Not Be Surprised”

“Investing is macro and macro is geopolitics. If you don’t get that, you’re going to be perpetually behind the curve going forward.

Ray Dalio: “Populism Scares Me”

Anyway, it’s not populism that should “scare” Dalio, it’s the possibility that stock/bond return correlations flip positive and stay there during some kind of nightmarish VaR shock that sees 10s at 3.5%+.

Reflation Nation: “Righting” The Wrongs With A Single, Enduring Populist Push

Do you believe in miracles? Apparently somebody does, which is why we’re seeing record after record on Wall Street in the wake of Donald Trump’s surprise ascent to the highest office in the land – a confirmation of the populist surge that propelled the Brexit vote, led to the downfall of Matteo Renzi in Italy,…

Global Bonds Slide $1 Trillion

The problem is simple, suppressed vol allowed vol targeting strats to lever up but when vol spikes, these strats are forced to rebalance (i.e. sell). Here’s what Bloomberg had to say earlier today: The capitalization of a global bond-market index slid by $450 billion Thursday, a fourth day of declines that pushed the week’s total above $1…