As mentioned in my previous Global Macro Insight, markets have three Damocles swords over their heads: Short Dollar, Short Volatility, and Long US 10Y…
Our positioning has been long dollar since the beginning of the year. Now, the short dollar is imploding.
I am scared to see the two short squeezes imploding at the same time. Bond traders will put huge pressure on FED by sending US 10Y to 2%, and then, if no reaction, to 3% my final objectify for the US 10Y. Hedge Funds (for financing) and Mutual Fund (parking their cash buffer) are long US Treasuries, and many times short MOVE index…
The other big issue is nesting in the inflation expectation. Bond traders are not believing in the FED rhetoric. I was perturbed by the comments from IMF economists, copying the FED comments about transitory higher inflation…,
Neither Climat Change (increasing food prices, infrastructure costs, etc.), nor the implosion of Supply Chains (Semiconductor is one of the best example, and others due to the Cold War 2.0 between China and the USA), nor the costs if you are living in the normal world (= real estate, schools, health insurances, etc.) are transitory…
In addition, a bear steepening is never good for financials, and with the end of the SLR (just announced by the FED) + the Justice Department is looking at Visa Inc’s debit practices, the crowded trade in banks could be under pressure…
In my Global Macro Insight, I pointed out the dangers during the transition when economies will get out Covid restrictions and state supports. Zombies will wake up and banks will be on first-line…
Most structured products are mainly short volatility and most of the “famous” tech strategies (see ARK ETFs) are overweighted in the same big tech names. Bear in mind that Long TECH = Long Duration.