Dollars and Debts

Published on: December 20th, 2019

Sometimes Julian and I see things differently; it’s part of the value of Macro Insiders – honest debate and different time horizons. As I am still long, I want to give my views on the dollar and also add some comments about what the hell is going on in credit and funding markets!


  • HK
    Hendrik K.
    20 December 2019 @ 19:21
    Did not Druckenmiller just said on Bloomberg he is selling the long end of the Curve or am I mistaken ...
    • AH
      Ali H.
      21 December 2019 @ 08:13
      Yes he did.. short duration was his trade
  • JW
    Joel W.
    20 December 2019 @ 20:23
    Raoul, I think you’re right that you and Julian will both be right. My $0.02 is that the dollar will weaken for ‘a while’, then strengthen in a hurry Q1 or Q2 next year. Also, I’d like to take advantage of the corporate debt situation you describe, but I’m not sure how to best do so. Is it as simple as shorting an ETF like JNK, or is there a better way?
    • JW
      Joel W.
      23 December 2019 @ 23:54
      Thanks braddah. You’re clearly the better man.
    • JJ
      JW2 J.
      21 December 2019 @ 07:33
      OK OK .. I changed it .. :-)
  • wj
    wiktor j.
    20 December 2019 @ 21:25
    Awsome work guys Perhaps you guys could include the move index also. In your next analysis.
  • GP
    Geoff P.
    20 December 2019 @ 22:29
    I've never seen so many identical charts across assets classes. Every asset appears to be keying off this fake Fed stimulus. Even CCC is inoculated. When the market figures out that the Fed isn't actually providing the underlying liquidity they think it is, there will be a serious vacuum. 1H next year is going to be make or break for this bullish psychology of traders to permeate into actual business decisions. Razor thin. Thanks Raoul.
  • AH
    Ali H.
    21 December 2019 @ 08:12
    Fantastic analysis Raoul.. Could you clarify the comment on Bull steepening. I would have thought JPM would move to short dated not long dated Bonds to take advantage of the expected FED cuts.. slightly confused as to which part of the curve will give you the most juice for the next recession.. Thanks
    • AP
      Adam P.
      23 December 2019 @ 21:29
      Think of it this way: If yields on the 2's and 10's both fall 50 bps at the same exact time, you'll get better performance out of being long 10's because of the duration. The price move will be compounded over 10 years instead of 2 years. If you are using a product like TLT to go long duration, we're talking 20+.
    • JQ
      JACK Q.
      22 December 2019 @ 06:33
      Pls correct me if i'm wrong - but my thought is, your front end still outperforms. But from bank's perspective, funding comes to mind and with 2s @ 1.6x depending on your funding cost its extremely expensive to hold - O/N UST repos trading roughly at or thru that level. So if you move to long end, you're still going to get some carry minus your funding but at the same time benefit from yields going lower :)
    • RM
      Richard M.
      21 December 2019 @ 17:40
      Raoul, I am confused too! I thought a bull steepener was when short-term rates are falling faster than long-term rates - implying the bigger percentage move would be in the shorter dated paper. Please help me understand where I am wrong. Many thanks!
  • JL
    J L.
    21 December 2019 @ 13:23
    how do members see a long of 2Y at 1.64 for Q1 and Q2? seems the chances of a hike are literally zero before election after powell went full chicken. Sustaining any hikes over time will prove tough as well, while the upside of them having to cut down to 50bp or lower is considerable
    • GP
      Geoff P.
      21 December 2019 @ 23:06
      FWIW, I think rates go lower. I like 2yrs with excess cash while directing the entire 2 years worth of coupon into 1 yr plus calls on ED contracts. Based on my strikes, it's about a 40% return (on the face value of the 2 year notes) if EFFR gets to 35bp at expiry (meaning no option premium left). It's not a high conviction trade, but I'll wager the income on cash that rates go lower. If I'm wrong I lose the opportunity cost of a higher returning asset or at best inflation. Since I feel inflation is much less probable than deflation, it's a good risk / reward for me.
    • JQ
      JACK Q.
      21 December 2019 @ 13:53
      still don't prefer outright long 2s - preferring 2s10s steepener more here
  • SS
    Steven S.
    28 December 2019 @ 01:43
    "Sometimes Julian and I see things differently; it’s part of the value of Macro Insiders – honest debate and different time horizons." ...this is one of the main reasons I subscribe to MI. The presentation of differing viewpoints, coupled with thoughtful debate is a precious commodity.
  • JJ
    JW2 J.
    7 January 2020 @ 11:13
    Thanks for another compelling analysis. I am wondering however whether you are staying away from equities completely or whether you see opportunity for certain sectors. Even if this thing will fold it it likely that certain sectors will continue to grow - healthcare, 5G, IoT, some consumer stocks (people will continue to eat & drink).