Global macro investing, market structure, and decision-making in speculative markets.
“Partial knowledge is more often victorious than full knowledge: it conceives things that are simpler than they are and therefore makes its opinion easier to grasp and more persuasive." - Nietzche "History will justify anything. It teaches precisely nothing, f…
We can think of two components of intelligence. Both are needed to be an effective trader or investor. First, an intelligent person needs to effectively adapt to an environment. Resources are needed manage the environment so an individual must have the capabil…
James March is one of the great professors of organizational management, yet finance and investment professionals rarely discuss or even consider much of his work. This is odd because organizations, not individuals, make so many investment decisions. Organizat…
The share of dollars has been declining, but not consistently across countries. Some have increased their dollar share while others have reduced their dollar exposure. In a NY Fed blog posting, “Are Central Banks Moving Out of Dollar Assets?” the authors try t…
There is consternation in the bond markets that may be unwarranted. Rates are higher, and the sell-off has been strong, but we are returning to the normality seen before the GFC. Was the post-GFC period normal, or is the current environment, with a positive re…
An important news article states that Euronext is open to a merger with Deutsche Börse, which would be an important step in the one-European-exchange move to unify rules and regulations for stock trading; that is the hope. One of the most urgent and important…
Inflation won't be tamed in the near term. First, CPI is staying above 3%, not 2%. Second, PPI isn't supporting lower inflation. The PPI is usually volatile, but commodity prices are rising with greater volatility. While longer-term inflation expectations sugg…
While most investors focus on volatility, the covariance matrix can significantly affect performance and is hard to measure. A large covariance matrix with N assets will have N(N+1)/2 free parameters and T degrees of freedom based on the number of observations…
The Almighty Dollar: 500 Years of the World’s Most Powerful Money by Brendan Greeley explores how money functions not as a sovereign creation, but as an evolving financial product. Don't think of money as coins or greenbacks, but as a product that facilitates…
This is a crazy number - over 98% of all Federal Government Receipts go to net interest and entitlements. Only 2% of tax receipts cover the other expenses, the real activity of government. Put differently, we pay for all our non-entitlement programs, like the…
The Overton window is an effective tool for describing changing opinions in politics and science. The window is a simple construct. Joseph Overton, a public policy specialist, wanted to show how think tanks and political strategists can change public policy by…
1873: The Rothschilds, the First Great Depression, and the Making of the Modern World by Pulitzer Prize-winning historian Liaquat Ahamed expands on the themes of global financial fragility introduced in his acclaimed Lords of Finance. It is a compelling story…
Bonds are a bad bet, or have been a bad bet. In fact, the current period has been the worst in the longest history available. It is worse than the period of high inflation in the 1970's, worse than the Civil War. However, there is hope. As rates move higher, c…
Copper has hit new highs as investors focus on rising demand from the tech sector, yet a fundamental supply problem remains. Not enough new fields are being discovered and developed to meet demand. There is talk about commodity cycles, yet understanding long-t…
There are supposed to be certain “rules” between market drivers and gold. Gold is supposed to hedge inflation. This relationship has proven mixed. A second relationship is linked to real rates. Since gold does not earn a return, investors should prefer an asse…
To price assets, you ned to know who will be the marginal buyer who will clear the market. How sensitive is the buyer to value or economic shocks? For the longest period in the US, the Fed was the marginal buyer through QE. QT was tried, but there always seems…
The real energy shock is not with the price of crude but with the price of refined products. There is no question that crude oil prices have spiked and remained elevated since the beginning of the Iran War, but higher crude is just one component of a more comp…
“Amateurs go broke taking large losses; professionals go broke taking small profits.” Bill Eckhardt Bill Eckhardt is one of Chicago’s true trading legends. He may not be as well-known as others, but through the turtle bet, he helped launch an industry called m…
When we discuss currency dominance, we also need to think about the world order. Politics and economics intersect. The exorbitant privilege the US receives through the dollar and Treasury rates is financial compensation for serving as the world’s dominant hege…
I don’t believe there is an inherent reason for a dollar cycle. The evidence, at least from the chart, suggests a pattern in the dollar’s behavior. No, there may be movement away from extremes, a form of mean reversion, such that if the value of the dollar get…
The intra-stock correlation is at market extremes. Dispersion measures are also high, suggesting very little common movement across stocks. Put differently, idiosyncratic risk is high. This means that we should be in a stock picker’s dream. Investors who can s…
The big issue in US energy markets is the high price of diesel fuel, which raises shipping costs. The diesel-gasoline spread in NY Harbor is at a high for the year. Some of this is seasonal. More gasoline is refined during the summer driving season, but the US…
Partial knowledge is more often victorious than full knowledge; it conceives things simpler than they are and therefore makes its opinion easier to grasp and more persuasive. - Nietzsche Information overload exists. We don't want too much information because i…
The efficient frontier should be a well-defined curve when we have uncorrelated or negatively correlated assets such as stocks and bonds for the period 1986-2020. Yet, in the more recent post-pandemic period, it looks almost like a straight line. Investors hav…
Treasuries have been a safe asset, but it’s unclear whether they still are. A safe asset means investors will pay a premium to hold it, so a convenience yield exists between it and the next safest asset. Treasuries will trade at a lower yield than AAA-rated bo…
A news report creates market buzz, but it is important to look at the numbers: the MOVE index for bond market volatility is still in a longer-term downtrend and is off the high from earlier in the year. The buyback announcements have caught the bond market's a…
hat tip Kevin Coldiron - the ideas lab for graphic The Treasury buyback program has received considerable attention, but some key foundational information is missing. The current buyback program has been in place since 2024 and can be broken into two parts: th…
The Jackson Hole economic summit has an agenda set in advance, though it is released at the beginning of the conference. The conference agenda focuses on innovation and features some top-flight speakers. The agenda will be interesting, but the real talks will…
The US deficit-bond math isn't very attractive. The primary deficit is improving strongly toward levels closer to the 2015-2019 period, but we are not seeing the same improvement in the total deficit, which is now persistently below 5%. The fiscal primary defi…
If the bond vigilantes are back, it is not just in the US. Rates in other G7 countries have been rising, and the US is not the only one. Global bond markets are repricing risk, and there seems to be a common concern about government budget deficits. The proble…