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“Big Short” Investor Goes Short… But Not on Housing
45 days after the end of every quarter – Wall Street’s top fund managers are required to report their most recent holdings. These filings are known as 13Fs – and they reveal a lot about where the ‘smart’ money is going. Whilst there was nothing too out of the ordinary – a particular trade from Big Short investor – Michael Burry – caught my eye. He took a $1.6B short bet against the SPY and QQQ (in aggregate) using Put Options. Let’s explore why he could have made that bet…. and he’s not alone
The One Chart that Matters Most
If you were asked what is the most important metric in global finance – what would you answer be? The S&P 500? The US Dollar? Gold Something else? My answer is the US 10-year yield. Everything in finance is a function of this asset. For those less familiar with the game of asset speculation – this is a very important concept to understand. What’s more, its importance extends well beyond the stock market. To begin, the US 10-year yield is the proxy for financial instruments such as your mortgage, your car loan, student debt, your credit card etc. More than that – how this bond trades also signals investor confidence.
Why Core Inflation Will Remain Sticky
Markets got excited on news of the softer-than-expected CPI headline print today. Headline inflation came in at 3.2% YoY vs expectations of 3.3%. However, what deserves closer scrutiny is not the headline number – it’s Core CPI at 4.7% YoY and shelter costs. For e.g., two-thirds of the monthly inflation increase came from shelter – where rents rose 0.4% MoM. This is now the 18th straight month the price of shelter has risen at least 0.4% MoM. But here’s the thing – there isn’t. much the Fed can do with monetary policy to change this.
Stocks Treading Water for a Good Reason
Stocks cannot get out of neutral. If anything, they appear to be going into reverse. Makes sense… they ripped~ 30% higher in 9 short months. But the risks are increasing as prices rise. This post looks at “equity risk premium”. In short, investors are not being adequately compensated for the risk being taken in stocks (at current valuations) against the risk free return from Treasuries.