Meeting Of Minds – December 2018

Published on: December 28th, 2018

In his Meeting of Minds piece this month, Julian highlights the vulnerability of the shale oil sector to tighter financial conditions and a slowdown in the global economy. In Raoul’s contribution, he notes that the tightness of financial conditions is showing up across the global economy and considers the likely impact on the year ahead.

Comments

  • JU
    Joshua U.
    3 January 2019 @ 17:00
    Raoul, you NAILED it! Buy bonds and wear diamonds, indeed! Any thoughts you or Julian on where the current move higher in bonds in general and the 10-year in particular might take a short-term breather? Given the extremity of the move up in bonds, should we be taking some short term profits now and waiting for a correction of the recent move to gain a better vantage point?
  • JK
    James K.
    3 January 2019 @ 15:13
    Raoul & Julian....Thx for all you guys are doing. Q - What is your current outlook on Gold/Silver & their associated mining ETFs....ie GDX, GDXJ, SIL, SILJ, etc ?
  • RK
    Roger K.
    1 January 2019 @ 19:38
    FED could resort to either one of below outcomes ( assuming that QT is in FED's automatic mode); 1. Pause. 2. Pause & Reverse 3. Continue Which is more likely outcome? Please feel free to discuss
    • HO
      H2 O.
      1 January 2019 @ 22:23
      My vote is that if they pause on rates they will pause on QT as well. The liquidity effects of the latter have a similar effect as the former, and bugger up everything else as well. So twin pause coming if Q1 data disappoints, as it should on unfavorable comps. Only positive is that Treasury overissued last year, and can slow down funding demand a bit despite widening deficit.
    • RK
      Roger K.
      2 January 2019 @ 00:07
      If FED eases , then Julian's Shale thesis will be wrong , If FED tights , then Raoul's Bond thesis will be wrong. Which one guys ?
  • EF
    Eric F.
    30 December 2018 @ 15:07
    Would have been great to get a few ideas on potential shale trades.
    • RK
      Roger K.
      31 December 2018 @ 23:37
      Is it not long oil?
    • DB
      Daniel B.
      1 January 2019 @ 08:59
      What about just shorting the names in Julian’s cashflow list?
  • HO
    H2 O.
    29 December 2018 @ 15:35
    Thanks for the update. A few lingering questions: 1) what do you make of the relatively large spike to dealer inventories in treasuries well beyond any seasonal pattern? Why are they hoarding collateral. 2) why are xccy spreads so narrow if dollar liquidity is tight? 3) given the magnitude of inflows to US bonds (corp and gov) in recent years, why should one expect additional safe haven flows into US assets? Why won’t ROW investors take their funds home, where they will presumably need the liquidity?
    • JB
      Julian B. | Contributor
      1 January 2019 @ 01:29
      H2O I see the spike in inventories as simply a function of reduced Fed buying, which isn't being offset by other players in the market and as a result is leaving primary dealers holding the ball. After all, one of their main rolls is to take down auctions if other buyers don't show up. As for cross currency spreads the issues aren't so acute vs the majors, which is why the spreads aren't that wide.
    • HO
      H2 O.
      1 January 2019 @ 02:20
      Thanks for this and a great year with MI.
  • HT
    Henry T.
    28 December 2018 @ 21:40
    Hi guys, thanks for the great work this year. I agree with the point that the bull run has ended. Any advice on how to trade a bear market effectively? Just this week alone, the volatility is so huge that trying to long or short the equities index proves extremely challenging. I understand the notion that we should sell to strength and buy on weakness. But on a few occasion this week even selling to "strength" is tricky as the market can rally harder from where you shorted it. Some tips to navigate the bear market will be appreciated.
    • DB
      Daniel B.
      29 December 2018 @ 11:13
      Smaller position sizes help with bear markets - the volatility will take care of any gains you think you’re giving up by sizing small. Smaller sizes will also allow you to run wider stops so you don’t get stopped out before volatility swings in your favour.
    • JB
      Julian B. | Contributor
      1 January 2019 @ 01:33
      Henry, I know that both Raoul and I would agree that trading a bear market is the most difficult of all trades. My suggestion would be to use options when volatility swings wildly. Alternatively, while its isn't sexy I can't help but thing that Grundlach's recent suggestion to invest in 2 to 3 year Treasuries isn't a bad idea.
  • AP
    Alistair P.
    31 December 2018 @ 02:05
    The Macro Insiders service is great, as are these reports specifically. The regular, yet not too frequent nature of the reports and discussions, feels about right. One specific question. Are you or any other subscribers aware of any accessible products that you could point me in the direction of that would gain exposure to Bond Volatility (e.g. the MOVE Index) or the Trade Weighted US Dollar Index. Or any interesting proxies as an idea?... Thanks!...
    • JB
      Julian B. | Contributor
      1 January 2019 @ 01:25
      Alistair direct bond vol exposure is essentially impossible for any but the most sophisticated institutional investors. That said "typically" although not always the move is negatively correlated to TLT i.e. as it falls vol moves higher. As for the dollar there are 3 that I know that are ok proxies for the USD TWI vs the Majors: UUP, USDU and UDN.
  • KC
    Ken C.
    31 December 2018 @ 18:36
    Hi Raoul and Julian Is there now a White House put along with a Fed put on the stock market? Will this be a double barrel rally for stocks? Does this change any of your analysis? 12/28/2018 A Trump administration official has reached out to a notable investor for advice on stock markets, sources told CNBC. A call took place after markets plunged on Christmas Eve. The investor advised the official to tell Trump to stop criticizing Fed Chair Jerome Powell and make a deal with China.
    • JB
      Julian B. | Contributor
      1 January 2019 @ 01:17
      Ken, its possible that we can engineer a bounce but if the Fed keep pressing ahead with QT then while it could be powerful its a sell. ONLY a complete reversal of Fed policy with and end to QT, no more hikes and possibly renewed QE will deliver a sustained bounce.
  • AG
    Adam G.
    30 December 2018 @ 18:58
    Hi Raoul, the Libor 2yo2y seems to be a key metric right now. I would like to learn more about the knock on effects of the ROC and how you see that translating into stresses in the system
  • ET
    Eduard T.
    30 December 2018 @ 10:10
    Hi Raoul, could you please explain the assumptions that go into the GMI Hard Data Composite - this is particularly important for readers who are not as familiar with your work. Thank you! Much appreciated.
  • DS
    David S.
    29 December 2018 @ 11:08
    Hi Raoul, without giving away any proprietary info, what are the main inputs in your GMI Hard Data Composite...? It looks awesome...
  • MW
    Marco W.
    29 December 2018 @ 03:21
    Fabulous! Now oil volatility has spiked, stock market volatility surged while bond volatility started to rise. Given the link of Japanese credit to shale oil as Julian described in this week's report, the historical relationship between bond yield and USD/JPY, as well as the internet stock carry trade from outside US in the past years, JPY volatility should catch up.
  • J
    Jim .
    28 December 2018 @ 20:33
    As always gents very cogent and well thought out. A couple of follow-up questions for Raoul: 1) could you elaborate on the GMI Hard Data Composite vs. LIBOR 2Yo2Y% graph and the scale in particular and 2) with respect to your note that the Fed never pauses and hikes again I am curious how you think about 2016 when the Fed paused for 12 months following their first hike (the longest period between Fed hikes in history) in what we now know to be the "Shanghai Accord" where China turned on the Credit spigots and the Fed refrained from the 4 hikes in 2016 as implied by the Dec 2015 DOT plot. Great work, thanks again and Happy New Year Raoul and Julian!

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Morgan Creek Capital Management was founded in 2004 and currently manages close to $2 billion in discretionary and non-discretionary assets. Prior to founding Morgan Creek, Mr. Yusko was CIO and Founder of UNC Management Company (UNCMC), the Endowment investment office for the University of North Carolina at Chapel Hill. Before that, he was Senior Investment Director for the University of Notre Dame Investment Office. Mr. Yusko has been at the forefront of institutional investing throughout his career. An early investor in alternative asset classes at Notre Dame, he brought the Endowment Model of investing to UNC, which contributed to significant performance gains for the Endowment. The Endowment Model is the cornerstone philosophy of Morgan Creek, as is the mandate to Invest in Innovation.

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SkyBridge Capital, Founder & Co-Managing Partner

Prior to founding SkyBridge in 2005, Scaramucci co-founded investment partnership Oscar Capital Management, which was sold to Neuberger Berman, LLC in 2001. Earlier, he was a vice president in Private Wealth Management at Goldman Sachs & Co. In 2016, Scaramucci was ranked #85 in Worth Magazine’sPower 100: The 100 Most Powerful People in Global Finance. In 2011, he received Ernst & Young’s “Entrepreneur of the Year –New York” Award in the Financial Services category. Anthony is amember of the Council on Foreign Relations (CFR), vice chair of the Kennedy Center Corporate Fund Board, a board member of both The Brain Tumor Foundation and Business Executives for National Security (BENS), and a Trustee of the United States Olympic & Paralympic Foundation. He was a member of the New York City Financial Services Advisory Committee from 2007 to 2012. In November 2016, he was named to President-Elect Trump’s 16-person Presidential Transition Team Executive Committee. In June 2017, he wasnamed the Chief Strategy Officer of the EXIM Bank. He served as the White House Communications Director for a period in July 2017. Scaramucci, a native of Long Island, New York, holds a Bachelor of Arts degree in Economics from Tufts University and a Juris Doctor from Harvard Law School.

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MicroStrategy, Co-Founder

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Nugget's News, Founder & CEO

Alex Saunders is the founder and CEO of Nugget’s News, a digital media company focused on all things crypto. Alex has been captivated by cryptocurrency since 2012 and in 2017 he began educating globally on the benefits of cryptocurrency and how to safely acquireit. Nugget’s News has been listed as a top-20 podcast by Business Insider, ShapeShift and Lifehacker and has over 120k YouTube subscribers with 9 million total views.Alex is also heavily focused on his cryptocurrency education platform Collective Shift which currently serves over 4,500 members. provides his unique perspectives by utilising his expertise in fundamental analysis, technical analysis and market sentiment. He is working towards his mission of making it easier for everyone to understand the financial world.

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TradeStation Crypto, Inc., Sr. Director of Product Strategy

James helped launch TradeStation Crypto’s offering which utilizes a true online brokerage model that self-directed investors and traders have come to expect for equities, futures, and foreign currency markets. He is a reputed crypto asset specialist and blockchain thought leader focused on helping people find innovative ways to participate in this space. He is active in the blockchain community with speaking engagements, TV appearances and mentoring. James has over 15 years of experience in the Fintech industry.

Raoul Pal

Real Vision, Co-Founder & CEO

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He retired from managing client money at the age of 36 in 2004 and now lives in the tiny Caribbean island of Little Cayman in the Cayman Islands. Previously he co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul moved to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe. In this role, Raoul established strong relationships with many of the world’s pre-eminent hedge funds, learning from their styles and experiences.

Other stop-off points on the way were NatWest Markets and HSBC, although he began his career by training traders in technical analysis.

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What Bitcoin Did, Journalist

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Bitwise Asset Management, CEO

Hunter Horsley is Chief Executive Officer of Bitwise Asset Management. Prior to Bitwise, he was a product manager at Facebook, working on advertiser products including the multibillion-dollar sponsored content ecosystem and ad breaks in videos. Before Facebook, Horlsey was a product manager at Instagram, responsible for multiple advertising products generating several hundred million dollars of revenue. He is a graduate of the Wharton School at the University of Pennsylvania, with a B.S. in economics. Recently, Horsley was named a member of Forbes’ 2019 “30 Under 30” list.

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Forest For The Trees, Founder & President

Luke Gromen has 25 years of experience in equity research, equity research sales, and as a macro/thematic analyst. He is the founder and president of macro/thematic research firm FFTT, LLC, which he founded in early 2014 to address and leverage the opportunity he saw created by applying what clients and former colleagues consistently described as a “unique ability to connect the dots” during a time when he saw an increasing “silo-ing” of perspectives occurring on Wall Street and in corporate America.

FFTT caters to institutions and sophisticated individuals by aggregating a wide variety of macroeconomic, thematic and sector trends in an unconventional manner to identify investable developing economic bottlenecks for his clients. Prior to founding FFTT, Luke was a founding partner of Cleveland Research Company, where he worked from 2006-14. At CRC, Luke worked in sales and edited CRC’s flagship weekly thematic research summary piece (“Straight from the Source”) for the firm’s clients. Prior to that, Luke was a partner at Midwest Research, where he worked in equity research and sales from 1996-2006. While in sales, Luke was a founding editor of Midwest’s widely-read weekly thematic summary (“Heard in the Midwest”) for the firm’s clients, in which he aggregated and combined proprietary research from Midwest with inputs from other sources.

Luke Gromen holds a BBA in Finance and Accounting from the University of Cincinnati and received his MBA from Case Western Reserve University. He earned the CFA designation in 2003.

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