(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)
Macro Dragon: New Month + New Horizons = Pure Bliss
Top of Mind…
- TGIM & welcome to WK #10…
- Amazing discovery over the wkd in the Dragon household, would encourage everyone to go through the following exercise.
- Step 1. Sit somewhere comfy & where you will not be disturbed, be it with a nice cup of early grey tea or hot cocoa, or maybe even a chilled rozeeeeee or clean whisky
- Step 2. Slip on some noise cancelling headphones, get the track ready & close your eyes.
- Step 3. Press play & just let go….
- Your welcome :)…
- This. This. Is. Global Macro Investing. This. Is. Life… with valleys, peaks, wins, losses, victories, defeats, joy, sadness, playfulness, despair… & the same constants… process, the love for one’s craft & the continued work in progress that we all are.
- Here is to a beautiful & limitless upside Mar, lets have an epic close for 1Q21
- Market focus this wk in addition to the classic new month staples - of final PMIs, US NFP / ISMS, month start flows - , will be on the latest US $1.9 trn Fiscal Package (c. +9% of US pre-covid GDP) finally being passed in the House. It is now about the Senate (which has always been the case) & whilst the Dems control the senate with Kamala Harris as a potential tie breaker, its worth noting two democrats in the House opposed the bill (Golden from Maine, Schrader from Oregon) & there were exactly zero republicans that voted for it.
- Worth noting part of the package (Which has to clear the Senate, then potentially go back to the House – as to clear the Senate with a simple majority, looks like there need to be a tweak in the bill) is the +$1,400 stimulus direct checks to Americans. Will be interesting to see how much of that ends up in the WSB/Robihood crowd.
- From the Dragon’s standpoint the key thing to watch is the inception of the move towards YCC. Remain highly convicted of the view it’s a question of WHEN not IF… & bear in mind the convexity of bond prices changes as yields go higher, its not like equities – momentum as a strategy is not symmetrical across life, nor is it symmetrical across assets.
- So watch for a coordinated narrative from the likes of Clarida & Powell when they are getting ready to do implement YCC. As Piznair Capital’s CIO Gez said, “its not going to be digital, they will flag it first”.
- So question is that US 10s at 2.0% from these 1.41% or 30s at 2.50%/2.75% from these 2.18%? Actually the accelerated move up is the best scenario from get a quicker & clearer response from the Fed. A more gradual grind up, would introduce a lot more noise over signals.
- Lastly, regular readers of the Dragon will know of our ultra-high conviction on energy both for oil & equity since one wk before the US elections in 2020. And damn, have we been phenomenally on point there, with some grateful luck on the thesis, given the freeze across the US.
- There is the direction of an investment thesis playing out & there is the magnitude of that move – still remain a high conviction bull on energy, as that a lot of these energy names will still likely pop +50% to +100% over next 12-18m (XLE $48.15, XOM $54.37, BP 291.75, WPS A$24.77) & are well below their Jan 2020 pre-covid lvl. Remember some of these names closed last year down -40% & they are in one of the sectors were valuation are cheap, plus they are also very much in the value bucket & a leverage play on the world re-opening out, vaccines being rolled out, etc.
- Yet tactically worth noting how quickly we have moved in a very short amount of time. We are kicking off this Asia morning with WTI firmly above $60 at $62.65 +1.8% & Brent $65.60 +1.8% & when Texas eventually defrosts, winter in the Northern Hemisphere disperses, we are likely going to see a pretty brutal reversal on oil.
Rest of the Week & Other Reflections
- Yes China PMIs came in worse than expected this morning, all noise as 1Q data always has the Lunar New year effects… generally an acceleration of activity into it & as a consequence of that, a deceleration post that.
- Powell set to speak again this wk – did an interesting job of playing relaxed on the need to move rates up last wk… good Jay, good Jay – on Thu, so again… hints of YCC? Likely will depend where 10s & 30s are… if we are at 2.0% & 2.75%... he will talk YCC.
- Australia GDP on Wed could be a big mover for currency traders on Aussie crosses.
- UK should set its budget release this Wed.
- CBs: Australia 0.10% e/p (remember RBA recently bought an unscheduled few yards of points to keep their YCC in place) & Malaysia 1.75% e/p.
- ECB”s Lagarde set to speak on Tue, with RBNZ’s Orr on Thu
- Hols: JP out on Tues.
New Dragon Interview– Global Macro & Nature Conservationist Geo Chen
Our third Dragon Interview takes us to an outlier’s outlier, with Global Macro Trader & Nature Conservationist Geo Chen.
We had the pleasure of sitting down & speaking with Geo who is:
Board Member @ The Rain Forest Trust
Co-Founder of the Huang Chen Foundation [Nature Conservation Focus]
@geochen
Whilst the interview was filmed at the tail-end of Nov 2020, there is something here for everyone to take something away, including bigger picture thoughts on 2021, broader implications of the macro regime that we are in, as well as overall framework, allocation & investment process.
Geo has been running his own capital across both liquid & illiquid strategies since 2017, chalking up world class returns in the process, which more importantly fuels Geo & his family’s passion & calling, for Nature Conservation.
What is impressive outside of the large returns over the period, is that Geo somehow does it all – from trading to investing, to internal capital allocations as well as external allocations across the entire asset class & strategies spectrum. I.e. its tough enough to consistently do well in one area, lets alone across the board.
We cover his come up story, his framework + process & approach, his passion & the importance of the Nature Conservation. Lastly we close with Top of Mind Thoughts & views for 2021 & the general global macro regime that we are in.
We hope you enjoy the interview, as much as we did putting it together. And if there is something that you take away from this, be it inspiration, enhanced framework, investment thesis that resonates, left you thinking, etc…
Do consider making a donation to the Rain Forest Trust – which buys up rainforest land around the world & maintains them within an ecosystem of local residents.
From a markets perspective these are some of the areas we touched on:
- How Geo fared in 2020, given the massive bullishness in Jan, crazy sell-off in Feb & Mar, then once again bullish recovery in Apr & May
- Inflationary regime & the huge fiscal forces that we are seeing
- Precious Metals & US duration
- Bitcoin & Crypto
- Energy
We hope you enjoyed this Dragon Interview, as much as we enjoyed putting it together
Previous Dragon Interviews
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Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.
This is the way
KVP
