Almost three months ago, we noted KEDM was in full harvest mode, as we culled the herd and moved to center-book. We even pruned some center-book names—though, our focus was on purging anything illiquid, stuff we’d be hard-pressed to sell in a real correlation-1 scenario. We wanted to de-gross in a major way.
Admittedly, our dismount was less than graceful. If you called us clumsy, we wouldn’t disagree. That said, when you see liquidity, you take it—especially when you think a shitstorm is coming. The financial numbers going south only accelerated our urgency…
We joke, as we’re big fans of Kerrisdale… The real Sahm Rule is below and it’s looking B-A-D…
From experience, we know that we want to sell while there are still bids—especially in illiquid names. You NEVER want to be this guy….
Sometimes, you just plaster a name. It’s OK. In fact, it’s the nature of the game. Where we think we’re going, that liquidity will be irreplaceable…
…especially as the ‘chart of death’ proves that Bidenomics = Stagflation.
Let’s fast forward a bit. What was the proximate cause of the Klusterfuk on Thursday and Friday?? (Don’t @ us over this chart crime. We’re still stuffed full of Pasta and a bit groggy from all the Brunello di Montalcino)
Anyway, it seems that just about every risk-seeking strategy had some version of Yen funding and the Yen suddenly went bid—hard. This weekend, there’s going to be a lot of soul searching as the quant teams travel to Sagaponack and brief their PMs on what just happened. We assume that the preparation for the conversations start something like this…
…and what will the PM do?? They’ll de-gross and go back to enjoying their summer. That’s all that PMs really know how to do. When things get shitty, they de-gross. Except, things are suddenly no-bid, as everyone is starting to realize a recession is coming, while inflation is still here. JPOW is trapped and valuations are in the stratosphere. What happens when a bunch of funds reach for liquidity at a time when most prop traders are working on their tans??
Seriously, what can the government do about the economy rolling over—especially into an election?? What does 25 or even 250bps do?? Who has floating debt?? We sure don’t. Does anything change if PE gets a bit better IRR as funding costs decline?? Does anyone care that CRE can breathe a bit and maybe refi?? The issue is that the bottom third is getting squeezed by inflation and without stimmies, their propensity to spend is reduced. Then the top third just saw their AI profits disappear—do you think they’re happy to spend either??
We don’t often go bearish around here. This rag is literally the mouthpiece for “Project Zimbabwe,” however, we think it gets bad and stays that way ‘til they do stimmies again.
…But, it’s gotta really hurt first—especially for them to do anything into an election, that will itself be a klusterfuk. We believe strongly that the 2008 crash was amplified as no one was willing to do anything that appeared political into the election. We know that the Dems don’t care about appearing apolitical—we just don’t know if they understand economics enough to find a way out of the coming mess. For that matter, we don’t know if Trump has a plan either. Both parties will run fiscal hot and hope for the best. However (and this is important) any increase to fiscal will be AFTER the election. We’re into a 4 and potentially 6-month window where the markets will have to fend for themselves…
In summary, we’re de-grossed, yet pissed we didn’t sell ‘em even harder. Buckle up, we think it gets wild out there…
Kuppy’s Event Driven Monitor (“KEDM”) is not a financial or investment advisor and the information contained in this publication is not intended to constitute legal, accounting, or text advice or individually-tailored investment advice and is not designed to meet your personal financial situation. The investments discussed in this publication may not be suitable for you. You are required to conduct your own due diligence, analyses, draw your own conclusions, and make your own investment decisions. Any areas concerning legal, accounting, or tax advice or individually-tailored investment advice should be referred to your lawyers, accountants, tax advisors, investment advisers, or other professionals registered or otherwise authorized to provide such advice. KEDM makes no recommendations whatsoever regarding buying, selling, or holding a specified security, a class of securities, or the securities of a class of issuers, and all commentary is for educational purposes only. The investment examples noted are intended to provide and example of the events and data KEDM flags each week and is not representative of typical returns generated by each event or any future returns.
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De-gross, De-gross, De-gross…
A low frequency but juicy strategy where the edge is government incompetence.
Let’s dig in…
Almost three months ago, we noted KEDM was in full harvest mode, as we culled the herd and moved to center-book. We even pruned some center-book names—though, our focus was on purging anything illiquid, stuff we’d be hard-pressed to sell in a real correlation-1 scenario. We wanted to de-gross in a major way.
Admittedly, our dismount was less than graceful. If you called us clumsy, we wouldn’t disagree. That said, when you see liquidity, you take it—especially when you think a shitstorm is coming. The financial numbers going south only accelerated our urgency…
We joke, as we’re big fans of Kerrisdale… The real Sahm Rule is below and it’s looking B-A-D…
From experience, we know that we want to sell while there are still bids—especially in illiquid names. You NEVER want to be this guy….
Sometimes, you just plaster a name. It’s OK. In fact, it’s the nature of the game. Where we think we’re going, that liquidity will be irreplaceable…
…especially as the ‘chart of death’ proves that Bidenomics = Stagflation.
Let’s fast forward a bit. What was the proximate cause of the Klusterfuk on Thursday and Friday?? (Don’t @ us over this chart crime. We’re still stuffed full of Pasta and a bit groggy from all the Brunello di Montalcino)
Anyway, it seems that just about every risk-seeking strategy had some version of Yen funding and the Yen suddenly went bid—hard. This weekend, there’s going to be a lot of soul searching as the quant teams travel to Sagaponack and brief their PMs on what just happened. We assume that the preparation for the conversations start something like this…
…and what will the PM do?? They’ll de-gross and go back to enjoying their summer. That’s all that PMs really know how to do. When things get shitty, they de-gross. Except, things are suddenly no-bid, as everyone is starting to realize a recession is coming, while inflation is still here. JPOW is trapped and valuations are in the stratosphere. What happens when a bunch of funds reach for liquidity at a time when most prop traders are working on their tans??
Seriously, what can the government do about the economy rolling over—especially into an election?? What does 25 or even 250bps do?? Who has floating debt?? We sure don’t. Does anything change if PE gets a bit better IRR as funding costs decline?? Does anyone care that CRE can breathe a bit and maybe refi?? The issue is that the bottom third is getting squeezed by inflation and without stimmies, their propensity to spend is reduced. Then the top third just saw their AI profits disappear—do you think they’re happy to spend either??
We don’t often go bearish around here. This rag is literally the mouthpiece for “Project Zimbabwe,” however, we think it gets bad and stays that way ‘til they do stimmies again.
…But, it’s gotta really hurt first—especially for them to do anything into an election, that will itself be a klusterfuk. We believe strongly that the 2008 crash was amplified as no one was willing to do anything that appeared political into the election. We know that the Dems don’t care about appearing apolitical—we just don’t know if they understand economics enough to find a way out of the coming mess. For that matter, we don’t know if Trump has a plan either. Both parties will run fiscal hot and hope for the best. However (and this is important) any increase to fiscal will be AFTER the election. We’re into a 4 and potentially 6-month window where the markets will have to fend for themselves…
In summary, we’re de-grossed, yet pissed we didn’t sell ‘em even harder. Buckle up, we think it gets wild out there…
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Kuppy’s Event Driven Monitor (“KEDM”) is not a financial or investment advisor and the information contained in this publication is not intended to constitute legal, accounting, or text advice or individually-tailored investment advice and is not designed to meet your personal financial situation. The investments discussed in this publication may not be suitable for you. You are required to conduct your own due diligence, analyses, draw your own conclusions, and make your own investment decisions. Any areas concerning legal, accounting, or tax advice or individually-tailored investment advice should be referred to your lawyers, accountants, tax advisors, investment advisers, or other professionals registered or otherwise authorized to provide such advice. KEDM makes no recommendations whatsoever regarding buying, selling, or holding a specified security, a class of securities, or the securities of a class of issuers, and all commentary is for educational purposes only. The investment examples noted are intended to provide and example of the events and data KEDM flags each week and is not representative of typical returns generated by each event or any future returns.