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Comments of the Day
28 January 2021
Video commentary for January 27th 2021
Eoin Treacy’s view
A link to today’s video commentary is posted in the Subscriber’s Area.
Some of the topics discussed include: short covering rallies in retail favourites, mania or reversion to the mean, Dollar carry trades unwind puts pressure on risk assets. ECB jawboning effective in the short term.
ECB Officials Agree to Push Back on Market Rate-Cut Skepticism
This article by Carolynn Look for Bloomberg may be of interest to subscribers. Here is a section:
The discussion resulted in President Christine Lagarde placing a special focus on the wide range of options available to the ECB, when she declared on Thursday, with an emphatic pause, that policy makers stand ready to adjust “all” tools if needed.
Officials are not currently considering another cut in borrowing costs in the short term, the people said. One of them said investors shouldn’t be ruling out such an action at a time when economic uncertainty remains high and the euro is relatively strong.
Eoin Treacy’s view
There is a growing antipathy at the ECB to the strength of the Euro. The jawboning began about a month ago and was amped up with today’s announcement. The ECB is reluctant to cut rates further into negative territory but they are also alarmed at the strength of the currency. Europe’s path to recovery from the pandemic will be built on exports and a strong Euro is not helpful.
Reddit Jolts Activist-Short Hedge Funds Into ‘Adapt or Die’ Mode
This article by Michael P. Regan, Bailey Lipschultz and Anders Melin for Bloomberg may be of interest. Here is a section:
The days of “smash-and-grab” shorting are over, according to veteran bear Marc Cohodes, referring to investors who release a critical research report and then quickly cover their positions following an initial share price drop — or those who piggyback on others’ work and crowd into bearish positions. More
discipline will be required, he says.
“The last thing the referee tells you when you’re in a boxing match before they ring a bell is ‘protect yourself at all times,’” he said. “And these big hedge funds who’ve been short and over-concentrated in these names have been arrogant, pompous and didn’t realize they were overstretched.”
The big lessons of the last week are pretty simple, according to Fraser Perring, founder of Viceroy Research: “If you go short, make sure you have a position that in some way preserves some capital if the trade goes against you in the short term. If the cost of that strategy is too high, the risk isn’t worth it.
Price discovery is officially suspended.”
Eoin Treacy’s view
13-f filings are required to be filled out every quarter. They detail what funds managing more than $100 million held over the quarter. Retail investors tend to pour over these filings because some funds also put their options positions in the filings. Activist funds hope that by publicizing their short positions they will gain additional adherents. The opposite is occurring at present which is what landed Melvin Capital in trouble.
Email of the day on positioning and evidence of a mania:
I wanted to provide some input to the question you asked subscribers today on how we are invested and cash levels.
I am close to 70 years old and just retired. My investment portfolio is my pension which comprises stocks and property. For me, within my own fairly conservative criteria I am close to fully invested in the stock component of my pension. In the final 4 months of last year I invested additional cash in FTM themes such as emerging markets, metals and mining and renewables. A large portion went to South East Asia where I have built some knowledge over the years and saw real value, often with good dividend yields. The remainder of my portfolio is in a portfolio of US stocks which I have managed for some years but the contents of which I rotate as trends change. A small percentage is in continental Europe plus UK Investment Trusts the latter following FTM themes. I have additional cash available which I might invest in stocks if the market declines providing a buying opportunity or I may invest in property if a suitable opportunity arises. But the cash will be invested either in stocks or property within the coming year.
I also maintain a cash or cash equivalent position amounting to several years living and recreation costs which will never be invested in stocks. Maybe overly conservative but I’ve been investing from the mid 1980’s, when I first subscribed to FM, and this way I can sleep at night knowing I wont need to sell assets to fund living costs.
I am usually about 20-25% in cash. Now about 50% and I almost feel like I should be 75-80% in cash. Just don’t see why the world is so much better now vs 1 year ago today pre-covid-other than low cost of money. Seems like a lot of pent-up demand and fear not to get in has made the market frothy…kinda like the run on toilet paper……
Eoin Treacy’s view
Thanks to a number of subscribers for responding. The responses so far tell me that while there is evidence of froth in the market, we are not at a point where there is a risk of an imminent end to the reflation. Many investors went 100% to cash in the summer and are still only beginning to get back into the market.
Eoin’s personal portfolio – stop triggered on hedge position
Eoin Treacy’s view
One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change.
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