The Fall Of The Giants

Published on: October 21st, 2018

This week Raoul moves his focus to the biggest tech names and the risks that lie ahead.


  • CS
    C S.
    21 October 2018 @ 07:12
    Hi Raoul (and Julian, if able to chime in) - This is off-topic, but of personal concern because most of my liquid wealth is in HKD in the HK banking sytem. The recent Kyle Bass interview indicates a possible HKD devaluation, and his suggestion that funds available to defend the peg are 70% depleted (within 3 months, which suggests a potentially short remaining fuse of 6 weeks of defence left). I see, potentially 3 risks for someone in my position: 1) currency devaluation (ameliorated by switching currencies); 2) HK bank failure/loss of deposit; and 3) Location risk - imposition, for whatever period, some form of capital controls. I am able to move funds out of HK (Singapore). Are you able to comment on the potential risks as you see them to the HKD, and offer any thoughts on actions to consider given where my funds are currently located? Thanks in advance for any input you're able to make. Cheers.
    • CS
      C S.
      22 October 2018 @ 02:31
      Raoul, I'm sorry to be a pest, but lets assume for a moment Kyle is spot on, and a devaluation of the HKD occurs. He said a few things during the interview that suggests this event could happen soon. Would you be able to ask him, if this is a correct understanding of what he thinks (say, before the end of 2018)? Thanks (I owe you one).
    • RP
      Raoul P. | Founder
      21 October 2018 @ 18:35
      The best answer is to open a Sing bank account so you have options. Then assess and split assets.
    • CS
      C S.
      21 October 2018 @ 17:05 From page 6 of 12 on Monetary Stability: "to improve the transparency of the Currency Board Account, a specific portion of exchange Fund assets has been allocated to back the Monetary Base since october 1998. the Backing Ratio (defined as the Backing Assets divided by the Monetary Base) moved within a narrow range of 106.3–107.5% during 2016, without touching the upper or lower trigger level. the ratio closed at 106.7% on 31 December (Chart 5). under the leRS, while specific exchange Fund assets have been designated for the Backing portfolio, all exchange Fund assets are available to support the Hong Kong dollar exchange rate. in the event of abrupt shocks, the sizeable amount of financial resources of the exchange Fund provides a powerful support to Hong Kong’s monetary and financial stability." Here is a description of Exchange Fund assets. "the total assets of the exchange Fund reached HK$3,618.7 billion at the end of 2016."
    • MW
      Marco W.
      21 October 2018 @ 15:15
      Reference: ( You are probably looking for this. Hong Kong aggregate balance represents the level of interbank liquidity. Therefore it represents the commercial banks's ability to defend Hibor/prime rate (not to follow Feb fund rate or Libor up). Once depleted, the commercial banks need to follow Fed to raise rate due to the currency peg. It is very remotely related to the central banks's ability to defend the peg.
    • KJ
      Keith J.
      21 October 2018 @ 10:23
      There were some comments on the Kyle Bass video to the effect that this 70% depletion statistic is incorrect.
    • CS
      C S.
      21 October 2018 @ 07:18
      A follow up, which might be of interest to others, is the prospect for shorting the HKD. What happened when the CHF devalued 20% overnight a few years ago? Where shorts paid, or would force majeure be called/counterparties for FX contracts default? (a recent comment by Peter Brandt was he uses Futures for Fx trading as he knows who the counterparty is, whereas, in the spot market you have no idea who is on the other end of the trade. I use a bank for FX trades (albeit, a HK bank - Hang Seng). Regards.
  • FM
    Fraser M.
    21 October 2018 @ 08:07
    Raoul - the vulnerability of the ETF industry to the backlash against FB and GOOGL - in the form of an eventual rollback of passive investing - is becoming increasingly evident in Blackrock’s share price. As you’ve stated before and I agree; the best way to play a theme is often not directly but in a secondary or even tertiary way. A BLK short seems to fit the bill in many respects.
    • EF
      Eric F.
      21 October 2018 @ 23:22
      Like it Fraser, would love to hear more!
    • RP
      Raoul P. | Founder
      21 October 2018 @ 18:34
      Love that thinking. I am super bearish the asset mgt industry too. Wrote a long article about it in GMI.
    • KJ
      Keith J.
      21 October 2018 @ 10:25
      Agree the knock on effects could be more profitable here. I saw a chart of facebook’s 180 day implied vol and it’s around 40%. Seems a steep price for trying a trade with put options. Similarly an outright short needs to nail the timing.
  • NI
    Nate I.
    21 October 2018 @ 20:55
    TSLA is a train wreck but the balance sheets and income statements of FB and GOOGL are so pristine that's it hard to get short - especially GOOGL. Moreover, these companies own Congress so I'm not holding my breath for adverse legislation. They are such big components of the ETF and index complex that they will certainly decline in a fear driven sell-off, but I think the same could be said of AAPL, AMZN, MSFT and JNJ among others.
    • RP
      Raoul P. | Founder
      22 October 2018 @ 10:43
      Dont forget that advertising revenues rise and fall with global GDP and are highly levered to it. Any global slowdown and ad revenues will fall 30% to 50% in 6 months,
    • EF
      Eric F.
      21 October 2018 @ 23:21
      You’re right Nate but FB’s advertising revenues could be badly hit if legislation impacts the ‘effectiveness’ of the platform. Same with Google. Issue is most regulators don’t understand the mechanics, but I think that will change.
  • JC
    Justin C.
    21 October 2018 @ 20:58
    Raoul, Are you waiting for the second shoulder on FB to materialize before opening a short position? Also, thank you for the $TSLA input - my largest short position. Narrative, chart, etc. seem to be favoring a big break here.
    • RP
      Raoul P. | Founder
      22 October 2018 @ 10:42
      Yes, Im awaiting further price action. These are not easy shorts due to their mass market following and non-adherence to macro in general... but the time is getting close.
  • EL
    Edward L.
    21 October 2018 @ 22:14
    Raoul, I think you agree we are in the final leg of the fourth turning. Chaos will follow as fault lines become exposed. Earlier you and Julian had ?disagreed on the path of interest rates. It appears you now agree interest rates will rise.
  • MS
    Mark S.
    22 October 2018 @ 22:02
    Hi Raoul, So highlighted at the top of your letter is that rates are going up. Am I to understand that you have joined Julian's position and abandoned yours? thanks
    • KJ
      Keith J.
      24 October 2018 @ 13:20
      Raoul posted on twitter today saying he is super-bullish US fixed income as he thinks the Fed have over tightened.
  • DY
    Dmytro Y.
    25 October 2018 @ 01:15
    Any flash updates from Macro insiders ? So much has been going in the markets already these past 2 weeks. Thank you
  • MG
    Miguel G.
    25 October 2018 @ 15:38
    Due to the severe damage that has been done to faang stocks and how over sold they are at this point, would you be able to give us levels to watch for re-entry or add ons if these names start to have a dead cat bounce?
  • RP
    Raoul P. | Founder
    26 October 2018 @ 11:39
    Well, I have been warning you all that these market leaders were close to breaking....its seems that in now underway.
    • LD
      Lance D.
      26 October 2018 @ 14:15
      thanks . Google trend line broke so is this the highest prob that the market has now peaked ?. i guess (now i think on it) you would say something like we now have a clear risk reward .