What did we learn from the February volatility shock? Volatility has trended lower and the same trades are being put into play; short volatility. Looks like the market has a short memory.
The signals for potential credit risk –
Can we support the market debt if there is no slower GDP growth?
The growth in credit since 2008 is stunning –
Latest research states that credit growth is key indicator of future financial crisis.
Warren Buffet’s favorite macro measure –
Total market cap to GDP is reaching all time high. Perhaps the global nature of US first can allow for high number.
This recession risks low –
Model is not at elevated level, but is actually declining.
Yet, earnings numbers are attractive –
Forward looking – Can this get much better?
China Reserves not keeping pace –
This is the level necessary to support the economy under a currency crisis. It will grow with the size of the economy and current account.
Strong decline in yuan –
This offsets the effects of a tariff but not one for one.
The flows tell the story –
Improvement in EM capital flows has had a positive impact on some currencies and risks.
This has been a great trade but what is the upside –
Spread tightening in July helpful for high yield but what is the return to risk going forward?
Using principal components as an asset allocation tool –
Look at PC1 can tell you where there are common risks and places to gain diversification.