Looking Forward (2015)

Now that the most recent “correction” is over, I’ve decided to reassess many of the strategies / themes I’ve followed. I’ve decided on the following:

New Themes
Neutral Rates – Europe and China will be exporting capital / deflation. US, however, will be strong. We might see the end of QE, but the path of rate increases will be slow.

Yellen Straddle – Taper be damned… It’s pretty clear that the central banks of the world are here to jawbone (or, in extreme cases action) stability. Not just economic stability, mind you, but also asset stability. The Yellens, Draghis, and Zhous will be replicating a short-straddle position accordingly.

Some people have been talking about the “Last Great Bubble” (belief in the Central Banks). Perhaps it’s true, but it’s not something to worry about in the short-term. Globally, the political willpower is there to bolster the economies of the world. The bubble will only burst when we receive a negative shock so large that we don’t have the political willpower to act.

Maintained Themes
Long Beta – We are in an era of low volatility (aside from potential spikes) and moderate earnings growth. Multiples will likely stay inflated for some time, making slightly levered beta a decent Sharpe proposition.

Long Activism – We continue to have cheap debt and share buy backs. The activists have become more vocal and powerful over the last year. I bet along with them.

Long IQ – Where would the best and brightest of Harvard, MIT, etc. go? Software AI are highly levered, and the returns on raw intelligence will be high for the next decade. I don’t believe the intelligence premium is recognized properly (I might have to test this at some point using scraped LinkedIn data).

Dropped Themes
Short Rates – Given negative carry, I don’t believe following the Goldman strategy is the way to go – especially since the world around us is slowing down. The risk/reward just isn’t there.

Long Growth – The easy money has been made in growth. Earnings growth will be more consistent/stabilized. The long growth names might be more priced to perfection at this point than we believe (ex: NFLX, AMZN). I don’t have a sense of where they should be valued at this point, so I will stay away.

Current portfolio positioning (ratios based off of my ES Delta). Yes, I got mildly spanked by AMZN post-close.


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