Charlie McElligott – Macro’s Seasonal Shifts and the Volatility Compression Slingshot

Published on
August 11th, 2020
Duration
35 minutes


Charlie McElligott – Macro’s Seasonal Shifts and the Volatility Compression Slingshot

Investment Ideas ·
Featuring Charlie McElligott

Published on: August 11th, 2020 • Duration: 35 minutes

Charlie McElligott, managing director for cross-asset strategy at Nomura Global Markets, joins Real Vision’s managing editor, Ed Harrison, to discuss his view of reversal potential for financial market over the next three to six months. McElligott breaks down what he views as crowded trades that might be over-positioned and prone to momentum reversal. He explains how recent volatility compression could act as a slingshot for markets in conjunction with seasonal volume and issuance fluctuations. McElligott and Harrison analyze the phenomena of institutional crowding into short-vol strategies compressing returns, as well as the impact of long-vol hedging strategies, such as S&P 500 puts and VIX calls, have on large dislocations in those markets. McElligott also explains the recent shift in macro regime driving factors from dollar liquidity, Fed QE, and rate expectation to growth and inflation expectations. Filmed on August 7, 2020.

Comments

Transcript

  • JD
    Julien D.
    15 August 2020 @ 22:12
    Great interview!
  • KB
    Kurt B.
    15 August 2020 @ 02:42
    “We can de-jargon that”. [Thank God]
  • CM
    Cory M.
    13 August 2020 @ 23:00
    OMG, Ed, Please break out the telestrator and draw some circle and arrows Madden-style for another thirty mins for me! Brilliant, I’m sure, but I used to think I was smart. No more.
  • CN
    Christopher N.
    12 August 2020 @ 22:27
    Excellent short and concise information from a deep-thinker. Nice interview!
  • DP
    Duane P.
    12 August 2020 @ 19:12
    I really liked this interview but I thought his analysis at the end was rather faulty. The flaw in his logic is presuming that companies drawing down on their credit revolvers and increased savings rates versus Fed balance sheet expansion are mutually exclusive. The banks are the conduit to the Fed's balance sheet expansion via crediting their reserve account at the Fed. Where do revolving credit lines come from? Banks. Where does all of the funding for the stimulus, which is being put into savings come from? Treasuries, which are being funded by the primary dealer, which is being funded by the Fed. Do forget about the Fed's direct intervention via the SPVs too. I have a hard time believing M2 is ever going to go down significantly so I can't get on board with his narrative just off of that. I agree that the risk aversion is driving velocity of M2, but not M2 itself so using M2 as an indicator of inflation seems like faulty idea.
  • NC
    N C.
    12 August 2020 @ 15:12
    Where is Jeremy Irons when you need him? "Please, speak as you might to a young child or a Golden Retriever. It wasn't brains that got me here, I can assure you that..."
  • JH
    Jesse H.
    12 August 2020 @ 14:47
    Charlie - would love to get your thoughts on the effects of market structure - specifically, the big shift to Passive - on the trading and market dynamics you’re seeing right now. That would be fascinating to me, as I suspect you may have some deeper and nuanced thoughts on this, given your depth of experience.
  • JH
    Jesse H.
    12 August 2020 @ 14:42
    Very good, but make sure you bring your A game as a trader / investor and are ready to focus - this one gets very technical. As an engineer, this doesn’t bother me, but I can see how it can be intimidating and obfuscating at times. Thanks, Ed and Charlie, for an interesting and very informative piece!
    • JH
      Jesse H.
      12 August 2020 @ 14:44
      RV team - may be worth making mention of the degree of technicality of a piece (or perhaps create a « Technical Hat » or « Deep Dive » series just to clarify for us subscribers which pieces are gonna be very heavy on jargon and which pieces are lighter. Thanks again.
  • KD
    Kelley D.
    12 August 2020 @ 13:51
    I appreciate guests with deep specific knowledge rather than general mkt view....I am becoming fascinating by the Fed dampering vol..but in the spirit of Minksy..can not make it disappear..
  • SC
    Sam C.
    11 August 2020 @ 08:00
    What a beard. I remember last time the two of you talked I had absolutely no clue what he was talking about with all his gamma scalping. Makes me remember how last year the big August story was "the overnight repo rates spike". Simpler times.
    • TT
      Tokyo T.
      12 August 2020 @ 12:41
      The beard has probably been short gamma since March. He would not tell the retail crowd what he really thinks.
  • NE
    Nathan E.
    12 August 2020 @ 06:37
    Better have a thesaurus handy if you listen to this guy. He employs straightforward language about as often as a beard trimmer.
  • PJ
    Paul J.
    11 August 2020 @ 13:14
    dam, I would be proud if I had his beard as my pubes
    • TM
      The-First-James M.
      11 August 2020 @ 23:46
      :D
    • TT
      Tokyo T.
      12 August 2020 @ 05:43
      Nomura customers pay to get advice from him. There are some gullible people easily sucked in by confusing language. Think people!
  • DS
    David S.
    11 August 2020 @ 22:51
    I know Charlie is clued in to a lot of smart insights on the market. I've heard his forecasts before and seen them play out. But I wish this would be explained in English.
    • MT
      Mark T.
      11 August 2020 @ 23:24
      I've seen plenty of his forecasts go 180 degrees the predicted direction. I fear part of his appeal is sounding smarter than everyone else.
    • TT
      Tokyo T.
      12 August 2020 @ 05:36
      His trackrecord is patchy. He is another strategy guru predicting the future for a fee NOT putting his hard earned cash on the line.
  • CM
    Christopher M.
    12 August 2020 @ 01:15
    Great interview but I would have loved to have heard his thoughts on today’s market!! Gold, bitcoin, and every major stock index down, dollar flat, nothing much on bond prices but real yields continued the weeklong trend of less negative. Value indices were up slightly despite FANG+ and major indices down. Mid-day, it looked like a rally in all the non-tech stocks and then by market close everything crashed. Where the hell did all the money go? A big cash withdrawal? Notably the Vix spiked for the first time in a long time. You could have made 5% today just by holding a vix ETF such as VXX. Why? What does it mean that everything fled from safe havens into value stocks temporarily only to leave the market entirely while volatility spiked for the first time in a while?
    • IR
      Igor R.
      12 August 2020 @ 04:29
      This was filmed 5 days ago
  • MD
    Matt D.
    11 August 2020 @ 23:17
    Great interview Ed. Charlie is a legend. I appreciate the question on the short vol / gamma hedging. I think the NASDAQ is close to flipping? Last night's moves may confirm some of the ideas of this video? Good timing. Thanks again - look forward to the follow up interview.
  • JH
    John H.
    11 August 2020 @ 23:14
    I’m sorry, but this discussion was way over my head, and I’m not at all sure what my takeaway should be. A brief and simplified summary of this discussion would be welcomed. The last five minutes of the discussion were especially confusing to me.
  • CS
    Chris S.
    11 August 2020 @ 19:57
    Ed, could you elaborate on the bull flattener? Correct me if I’m wrong but could it be that the bull flattener that we are currently seeing is typically/normally bullish for stocks, due to a chase for yield. However, in this particular instance long term growth prospects have declined, which could lead to a risk off event in the coming months as Charlie eluded too, since “long tech/QQQ” train is pretty full, and some may need to get off. Definitely a great conversation and above my pay grade. I’m going to have to rewatch
  • LA
    Linda A.
    11 August 2020 @ 19:38
    I need a "dumbed down" version for me. Thank u, I always enjoy an intelligent discussion.
  • PE
    Paul E.
    11 August 2020 @ 16:41
    Some of this was 'over my head', I think, maybe, not sure. I'll have to watch it again and try harder next time!
  • rc
    ritesh c.
    11 August 2020 @ 16:35
    Folks, what does this mean for GLD in short term (Aug/Sept) as well as rest of Q4? Can you guys help me understand.
  • BE
    Benjamin E.
    11 August 2020 @ 13:40
    Ed is a fantastic interviewer. His questions are about his curiosity in understanding a particular investment thesis. Which is the core reason I come to Real Vision daily. To learn.
  • CJ
    Christopher J.
    11 August 2020 @ 12:13
    A brief suummary would help (a lot) for the retail crowd!
    • DR
      Derrick R.
      11 August 2020 @ 12:39
      Absolutely. I kept trying to think of how to trade this..
  • JL
    JP L.
    11 August 2020 @ 11:58
    Why are we having so many guests recently so sure that the Democrats win the election? Are these the same people who said Clinton would beat Trump? The same people who said in March after the low, stay away from stocks? There are no certainties. Definitely not for the election 3 months away. A lot can happen.
    • DR
      Derrick R.
      11 August 2020 @ 12:39
      Why are people so sensitive about politics that they hear things that weren’t said? Watch the video again.
  • DD
    Dmitry D.
    11 August 2020 @ 09:27
    Great to see Charlie back! It's been too long!
  • JS
    Jon S.
    11 August 2020 @ 07:12
    I have not seen the video, but when I saw the unique Mcelligot I must give it a like already. This is the kind of video you know you will like even before watching it.
    • JS
      Jon S.
      11 August 2020 @ 07:57
      Ok, now I watched and great video! Great insights as ever from Mcelligot