Looking Beyond – A Different Macro Environment

Since the onset of the COVID-19 pandemic, we have seen several developments that were distinctive but not beyond our expectations. Here are a few trends which we have highlighted earlier:

1. Central bank interventions resulting in massive liquidity and significant asset inflation
2. Elevated government budget deficits and debt levels in private sectors
3. Intensification of geo-political risks as China-US tensions heightened
4. Rise of digitalization of information, artificial intelligence and social media

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Three Major Economic Management Models Have Arose Among The USA, China and EU

USA model of neo-liberal capitalism with the following characteristics:
1. Main emphasis is expansive monetary policy anchored on a global US dollar currency driven by consumption
2. Turbo-charged wealth creation though the financial markets
3. Strong appreciation of stocks, bonds and properties
4. Trickle down economics through wealth effects
5. Active merger and acquisition corporate market...

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A Strange “Goldilocks”

Recent inflation numbers in the USA are very strong. CPI annual rate increased from 4.2% to 5%, while PPI was at 6.6% for May. Compared to zero interest rates, the inflation-interest rate spreads are huge implying monetary policies are extremely inflationary. Home prices are surging across America. Nevertheless, market players and the Treasury bond markets behave in almost absolute confidence of Fed’s Powell that this is transitory and even deflationary later. Ironically, there was a quick sharp unwinding of reflation trades pushing 30 years bond yields down from nearly 2.5% to 2% quickly, after which it then reversed to 2.3%....

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The Inevitability of Higher Taxes in the USA

Through this ongoing pandemic, the US administration has incurred trillions of budget deficits on top of its near out-of- control accumulated deficits. While at every financial crisis, huge amounts of money were printed that resulted in two less than ideal situations: 1. The socializing of costs and the privatizing of profits at taxpayers’ expense and 2. The ability of big MNCs and the super-rich to access liquidity via the neo-liberal capitalist banking system resulting in greater wealth creation for them and a widening of the already huge wealth gap and distribution between the super-rich 0.1% and the rest....

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End April marked a one-year of track record after a ten-year hiatus. It has been an engaging, interesting and increasingly satisfying journey. The first 5 months had been difficult. I made some mistakes including under-estimating the ferocity of the relentless stock markets recovery and dilution to traders’ weaker performance.

I observe that a major (new) factor in active tactical trading is to figure out the impact from the high proportion of trading done by machines (programs). This increasing phenomenon results in faster and sharper short-term moves, which will be completed sooner than in the past, as these programs basically have the same signals and there is no delay in execution....

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Archegos Capital demise though shocking again affirmed my conviction that there is much hidden key risk for hedge funds and family offices who are running leveraged and concentrated bets in dealing with especially some US investment bank prime brokers. There are a few realities with regard to hidden risks in this space:
1. Never play an opened hand with these prime brokers. Despite confidentiality somehow at critical moments your concentrated positions will be leaked. And you will be the hunted.
2. Prime brokers have hypothecation risk with your excess funds placed with them.
3. Be wary of big house players....

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It was a volatile January with stock market initial euphoric surge continuingly supported and influenced by frenzy short squeeze in hype up stocks (Tesla, GameStop, etc.) in platforms like Reddit, playing Pipe Piper to millions of Millennial novice speculators into options buying and cultish herd behaviour, justifying as inflicting social justice as Brave Young Ones versus Establishment propaganda. But as shorts among some prominent hedge funds were forced to cut out significant positions, losing tens of billions and the reality of month-end options delivery into actual crazily priced stocks kick in, the stock market declined sharply into its last few days of trading erasing its earlier gains....

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2020 has been a unique year in many ways.
The world was devastated by Covid-19 pandemic at a human, social and partially economic level.
Countries and leaders responded in different ways, with a range of vastly different results.
Generally, societies that have authoritarian governments with discipline and cooperation from citizens did much better like China, Vietnam and many East Asian nations... 

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