Insider Talks – February 2020

Published on
February 7th, 2020
49 minutes

Insider Talks – February 2020

Featuring Raoul Pal, Julian Brigden, Harry Melandri

Published on: February 7th, 2020 • Duration: 49 minutes

In this first moderated Insider Talks video, Harry Melandri, fellow colleague of Julian’s at MI2 Partners, helps guide Raoul and Julian’s discussion and answer viewer questions. Raoul and Julian are hyper-focused on the markets and believe we are in a bubble phase. Julian states that the price action in equities makes him continually more uncomfortable and reiterates that parabolic moves never end well. He adds that market liquidity is slowing and will likely come to a halt and that there are a number of things, including the corona virus, that could knock momentum off growth stocks. Raoul shares similar views and discusses how the ‘reaction function’ of people in response to the virus is key. He mentions the growing pandemic reminds him of the Gulf War and 9/11 in that it may tip economies from weakness into recession. The equity market is looking at the virus as a short-term issue and not expecting the consumption shock it is likely to cause. Filmed on February 4, 2020.


  • JW
    J W.
    24 February 2020 @ 08:30
    Re Eurodollar futures; I have been educating myself on these instruments and also bought a few contracts to see how they behave (Dec 2020 and Dec2021). My question is, when does one sell ? Does one let them run to expiration date or is the recommendation to take profit at some time before at a predefined target ? Thanks.
    • JW
      J W.
      25 February 2020 @ 15:58
      In the talk they mention 99.5 levels. In any case, and I made these request before in the context of the Trade Portfolio's, sell targets would be appreciated. Julian tends to provide these more consistently than Raoul is my impression. Thanks all.
  • OT
    Omar T.
    7 February 2020 @ 20:21
    HI Harry, they talked a lot about bear / bull steepener, I don't understand how that would affect the "buy TLT" trade the Raoul is recommending. What happens to TLT if fed cuts rates? Is there a combination trade here that I am missing?
    • CH
      Christian H.
      8 February 2020 @ 14:57
      I have the same question. Seems like TLT price would decline on fed rate cut - maybe depends on whether fed is behind the curve or ahead of it? Any insight appreciated. Thanks
    • ZW
      ZH W.
      10 February 2020 @ 05:40
      If Fed starts cutting again, the yield curve likely gets bull-steepened. In this case, both short-end (ED or 2Y) and long-end (10Y or TLT) should rally, but short-end should rally more than long-end hence the steepening of the curve.
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 17:46
      TLT will rally if the Fed cuts rate more than is currently discounted. Which is pretty much any reasonable rate cut. It has been rallying. If you are long of TLT and you have a bull steepener you will probably make money. But less, to the extent the long end of the curve underperforms the short end. Imagine a line drawn from 2y on the curve to 10y. A bear steepener would be a situation where the 2y point doesnt move (or goes up a little bit in yield), but then 10y goes up more in yield, so the overall curve "steepens" while bonds in general go down in price and up in yield. A bull steepener would be one where the 10y doesn't move very much, but the 2y comes down a lot, resulting in the yields coming down but the yield curve steepening. Owners of TNT will do well in a bull steepening and bull flattening. But they will probably do badly in a bear steepening or flattening. Hope that helps. Do ask if you need a clearer explanation.
    • AA
      Alberto A.
      12 February 2020 @ 04:08
      Harry great explanation on the impact on TLT depending on the curve behaviour! Thanks.
    • JA
      Joseph A.
      12 February 2020 @ 11:39
      Harry I think your reply about TLT and bull and bear steepeners is probably what I was referring to that you needed clarification on however I would appreciate a somewhat deeper explanation if you don't mind as although I understand the basic principles of bonds I am not familiar with the real mechanics behind steepeners / flattenings as well as how they affect the price action in the tradeable bond instruments universe (however maybe my intuition and logic in my original question was in the ball park?) I really don't know anything about Eurodollar or what drives its price action and so can't feel confident about putting on that particular trade at this moment in time.
    • HM
      Harry M. | Real Vision
      12 February 2020 @ 22:41
      Joseph A. I post a link which discusses this in more detail. I thought the link covered the ground. Its not an endorsement of the website. I would never suggest you should put on any trade you did not fully understand. Worth noting that this one has worked, and EDs have moved up. So if you put it on now you would have worse terms than at point of publication. That said, always happy to help. My email is
    • JA
      Joseph A.
      13 February 2020 @ 10:17
      Thanks Harry although a lot of the issue here was also not being able to get into any of the recommended bond and ED trades at the entry level as the markets moved quicker than the updated trade recommendations came out. I was able to act on bonds at a somewhat worse price not that far off but still not optimal and didn't want to double down the imperfect entry price to stop distance error through into ED which I didn't understand as a product either. It is interesting that Julian prefers stops and Raoul doesn't in line with one shorter term and one longer term way of thinking. Going all in is justifiable when you have accumulated a winning position beforehand but isn't appropriate when initiating a new trade idea or without a hedge. I note the growth/value trade continues to be stretched towards the stop end and all the index trades stopped out already with only Apple just about hanging on but shy of all time highs but today futures pointing to CV panic rising again. USD/BRL might be a portend of things relating to the USD/MXN trade but if left on it would still act as a hedge. Gold and Silver wallowing but I think as R and J note are setting up for another push higher at some point that could take yet more weeks/months to unfold.
  • jl
    john l.
    13 February 2020 @ 04:16
    Great piece. New format is really nice. Near the end there is talk about EEM(?). As in the ETF EEM? Raoul mentions doing currency first and waiting to short EEM later, and then when around 38 to 40. The ETF EEM has been above 40 since November. Was he talking about something else?
  • AA
    Alberto A.
    8 February 2020 @ 05:14
    Guys great conversation. I think Harry will add more and more as he gets use to both of your style, but now Raoul will have more time to talk :)). Question/Thought: I'm 100% committed to the bond trade via Eurodollars and some 10 year notes. But as we know this is a negative delta strategy (bearish the S&P) and since the equity market will react positive to the interest rate cut in the beginning, I believe it makes sense to be long /ES or the micros as a hedge to the ED trade. Is a short/long strategy that seems to be kind of a sure thing. Thoughts?
    • ZW
      ZH W.
      10 February 2020 @ 05:45
      I have the same portfolio construct. One thing to add is to properly set/trail stops on equity longs, so while you enjoy the last bit of the bubble run, when it actually turns you should be out fairly quickly with some nice profits or at most small losses on equity, and then left with the outright long bond positions to ride. Just don't let your equity long bleed too much. My 2c.
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 17:39
      So, this has worked really well. But right now its pretty clearly a "Texas hedge". The signs on the correlation between bonds /rates and stocks can change at any moment. I'm not saying it will change right now. Just saying that its something to be aware of. Its definitely not something to bet the kids education fund on - unless they have annoyed you. The other observation is what is the correct hedge ratio?
    • AA
      Alberto A.
      12 February 2020 @ 04:10
      Thanks Harry...quite aware the correlation now is beginning to be distorted....
  • FB
    Floyd B.
    11 February 2020 @ 22:05
    I like the new structure,more information conveyed and less confusion . How does one participate real time for questions,i must be missing the notice?
  • BK
    Bruce K.
    10 February 2020 @ 23:07
    OMG! Harry is an AI, isn’t he? Regardless, ‘he’ is a wonderful addition and he adds great value to the format. Bravo!
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 13:42
      I am an AI. Both my wife and kids agree totally! Sadly a lot more optimization is required!
    • EC
      Edward C.
      11 February 2020 @ 19:50
      Harry is Kit! Now we just need a Michael. Great addition guys and very well played Harry.
  • DL
    David L.
    7 February 2020 @ 19:53
    What is the eurodollar ETF symbol Julian was referring to? Thanks
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 18:09
  • RM
    R M.
    7 February 2020 @ 18:11
    Harry, please do post that trade Julian was discussing without the ticker. Thanks.
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 18:08
  • PC
    Paul C.
    7 February 2020 @ 18:36
    Potential catalyst in Uranium (i've been watching the space since Raoul's In Focus piece). Trump's 'Nuclear Fuel Working Group' will (according to the link below) resolve later this month. Wyoming governor, Mark Gordon, stated that he spoke directly with Larry Kudlow – presidential advisor and co-chair of the NFWG – who stated that President Trump's budget will include $150mil annual spend on domestically-produced uranium for the strategic weapons reserve for the Department of Defense. The obvious beneficiaries of direct-gov purchases are the current and near-term US producers, URG, LAM... CCJ could go too. I'm a tad excited about this...
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 18:02
      Well I would be very excited about that too cos I own some Ur stocks which have halved. Bad entry position. But clearly if there was a catalyst, it would be important. Is $150mn big enough to make a difference?
  • JA
    Joseph A.
    8 February 2020 @ 15:29
    This comment refers to current positioning but first I want to mention that I just watched Raoul's Skype repo-rama on RVTV. Ending the piece with Barton was the icing on the cake. A proper deep dive insight into repo even though not all questions answered and probably never will be because it seems nobody really knows! However, I think there were a few light bulb moments in there for anyone trying to wrap their heads around repo and liquidity mechanisms. Essential viewing at precisely the right time given the current state of both the equity and bond markets so thanks for creating that film as I know I asked for something like that in one of my earlier message on MI. "Ask and thou shalt receive" :) So it brings up some questions I have for current MI positioning (see further down this post). An outstanding question I had from the repo film was what's causing the shortage in cash? At the end Raoul tried to say it was likely because market participants such as hedge funds need more cash every day to fund their new positions and day to day business. If that is so and presumably those positions are mainly relative value positions made up of trades in bonds and equities of all flavours and varieties, is this finally confirmation that the Fed and Treasury General Account (TGA) pumping cash on a regular basis into the system is simply being siphoned off and traded because the users of that low interest rate cash are doing with it what most people do when they can borrow cheap money which is to leverage that money and use it to invest in products where they can get a much higher return and then they finesse their choice of positions based on the repayment timeline. So whether it is QE, long dated, not QE, short dated they trade accordingly and that all works fine with low volatility, low rates at the margin and equities and stocks only going in one direction. The problem comes as was given in the example on the film by one of the other commentators, when rates swing not only to the higher end of the band (due to less cash more securities and less liquidity available) but also spike well over (for example in September last year to nearly 10%) then relative value hedge funds are forced to close positions to manage total risk and position sizing on their books as they would be concerned about being able to repay the cash loan at much higher interest than expected and also not knowing how long those sudden higher rates might occur for, potentially exacerbating the problem. I am leaving regulatory minimum reserve requirements for banks and hedge funds out of this as presumably they are a fixed, assumed part of the liquidity puzzle and not really the ongoing driving factor behind the constant need for liquidity. Comes back to my original question how and why are liquidity shortages occurring if everyone's supposedly making money hand over fist being long equities in a low volatility and low interest rate environment? Is greed for placing ever more new positions and new business what is driving the constant demand? When is enough enough? Is this in simple terms the mechanisms that are creating both the steady march up (sometimes explosive in growth stocks) of equities? Likewise if shortage of cash and sudden rate spikes cause sudden drops in equity markets and the market participants rely on more liquidity being pumped into the system whether from Fed repo, future QE or the TGA to restore order and marginal interest rates then surely this is the argument to explain why bonds and equities are rising basically at the same time and that it will go on for a considerable period of time especially when Barton suggested that it's the TGA that has all the ammo now really and that they can use it to add liquidity much quicker than the way the Fed does at the moment (notwithstanding any future official QE that takes place). If this is the case then I question the vanity equity trades on at the moment (short S&P, Short NDX, short Apple) and the taking off of the short USD/MXN trade which acts as a hedge when the current MI portfolio (speaking from the point of view of when I joined MI only a few months ago) doesn't have one that deals with risk on/long equities going on for the foreseeable future. My next question is about the current bond positioning. At the moment we have long dated Eurodollar, ED calls, TLT or 10 year notes. Based on the repo film again where it talks about front dated and long dated changes with regard to trying to uninvert the yield curve, can someone explain what the relative implications are for price action across the tradable bonds set i.e. from treasury bills to 2 year to 10 year and longer. What are the risks to price action to all of them individually and relative to each other in both an inverted yield curve, a flat yield curve and a rising yield curve. Does the optimal treasury bill/note to be long of (in the case of inverted with rates going to zero) need to change? Are 10 year notes or TLT simply more likely to accelerate in price action to the upside in price with a steepening inversion on the curve relative to short dated treasury bills and are therefore the preferred ones?
    • LD
      Lance D.
      9 February 2020 @ 18:41
      nicely put question, looking forwards to a little fat chewing on this. cheers
    • JA
      Joseph A.
      9 February 2020 @ 19:24
      Thanks Lance for taking the time to read it!
    • JA
      Joseph A.
      9 February 2020 @ 19:44
      typo in my comment I meant equities and bonds* only going in one direction.
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 17:12
      Oh boy. So there is a lot to unpack here. First of all, you ask why the cash shortage. So one of the issues was the TGA rebuilding its cash balances. But that will happen from time to time. I would argue that the immediate problem was caused by the intraday liquidity requirements implicit in Bank's "living will" requirements bumping into the Fed draw down of "excess reserves". It turned out that a decent amount of the $1.30bn of excess reserves at the low was not excess at all, but required for banks to meet the liquidity requirements of the living wills. So last year we were running with a serious liquidity shortage by year end. When the Fed acted to buy Tbills and repo funds, it relieved that liquidity tightness, at least in the US. Are we likely to see the problem come back? Well possibly and in fact anecdotes we are hearing suggest quite probably. There are reports of Asian investors seeking return of funds from their structured credit portfolio managers. It will take time to honor those redemption requests, but if it happens it opens the door to a further tightening of credit conditions. I dont think the TGA will be used to add liquidity right now, but it isnt necessary. The Fed can choose to add more if it sees a need. So your point is still correct. And in retrospect the "vanity trades" were punished as you suggested. Looks a lot like a capitulation of the underweight institutional accounts right now. Worth noting that BRL looks unhappy, so maybe it was best to come out of MXN anyway, but your wider point is well made. We thought we had heard the fat lady singing. We were wrong. With respect to fixed income positioning, I am not entirely sure I understand the question. We have seen a lot of ED appreciation already. Could go a lot further. Bonds have rallied across the curve in the same way and for the same reason. Clearly the flatter the 2s10s the more the market thinks the Fed is behind the curve and should be cutting already. So one would normally compute which part of the curve discounts more Fed action and perhaps switch between them. But it isnt an easy trade cos there are a lot of moving parts. In terms of bang for buck, clearly more duration means more bang, all other things being equal.
  • RH
    Rob H.
    8 February 2020 @ 15:01
    VelocityShares Short LIBOR ETN DLBR - This might be the ETN Julian was talking about. It seems to tract the 2021 EuroDollar contract fairly well. I will stick to the futures contract since I like the liquidity and Trading hours of the futures contract. I would note this ETN lacks liquidity and you better like volatility with a 17% + swing on Feb 5th contrast that with a 0.11% move on the 2021 Eurodollar futures contract on the same day.
    • BR
      Boyd R.
      8 February 2020 @ 21:25
      Thanks - whats the most liquid short end rates trade but leveraged, given I’m not involved in futures
    • FN
      Fredrik N.
      10 February 2020 @ 15:58
      Any other suggestions on a ETF that tracks the Eurodollar market? Unfortunately here in Sweden most special ETFs are not tradable because of regulatory reasons.
    • BH
      Boris H.
      11 February 2020 @ 15:47
      People should also note the specs of the ETN - before investing, check the FAQ page ( and specifically the sections about decay and the floor of the indices. The latter one is 2.50% for the short index, meaning that as long as the LIBOR is below this level, the index movement will not track 100% the futures movement.
  • AP
    Adam P.
    10 February 2020 @ 01:41
    I have a question about the Eurodollar trade, Raoul. What happens if we get a change in Basel 3 (or something similar) to provide extra liquidity in lieu of the Fed adjusting the overnight rate? I’m thinking the Fed may want to avoid rate cuts for two reasons: 1) The knock-on effects of the old “3 cuts then a stumble” saw. They want to avoid that “stumble” with number four, and 2) A lower overnight rate could actually cause cash to flee into other assets causing a liquidity trap. Perhaps lower rates exacerbate the problem?
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 13:51
      Adam a fascinating question! So Basle 3 is meant (I emphasize meant) to do the exact opposite. Things change but banking supervision is a pretty slow moving tanker. It doesnt change direction easily. However there is the possibility Basel 3 implementation is delayed, which would be functionally equivalent to what you suggest. Ultimately its is about how markets trade. If stocks continue melting up, the Fed wont be able to cut rates (or willing) to cut rates cos overall financial conditions will remain accommodating. If they feel they need to cut, then they will use all the tools in their possession to achieve easier financial conditions. Right now, consensus central banking thinking is that lowering rates to zero is stimulative. Its interesting to see how the consensus is shifting away from negative rates (a good thing too!). But zero is still considered "max accommodation" for monetary policy. So a weaker economy will still lead to lower rates even if you may well have a point about lower rates making the problem worse.
  • DJ
    Dhananjay J.
    10 February 2020 @ 18:00
    Where is Harry, I thought he was supposed to post responses on behalf of Raoul and Julian
    • HM
      Harry M. | Real Vision
      11 February 2020 @ 13:42
      Sorry for being late!
  • IB
    Ivan B.
    10 February 2020 @ 13:11
    It's great to see you are trying something different. I personally liked the old format too, it was always great to listen to Raoul and Julian and see some charts ad-hoc from Raoul's screen :) I have probably a silly question about yield curve control as Fed recently mentioned they'd like to cap yield rates. Is this going to impact Bonds trade in any way potentially? Thank you.
  • JC
    Justin C.
    8 February 2020 @ 19:56
    Harry is a good addition to the format. It is also good to have the piece published on a Friday. The release date has tended to be midweek for quite a while now. Personally, I find that I do not have the time left after a long day at work assimilate the content and take advantage of any trade ideas.
  • RM
    Richard M.
    8 February 2020 @ 15:38
    Really really liked the addition of Harry to the mix. A moderator can prevent some of the unintended "talking over each other" effect that has been noticed before. It also gives more time for each (Raoul/Julian) to think a little before answering a question or discussing a topic of interest. It will also be really nice to have someone dedicated to answering some of the questions posed in the comments section as I noticed a lot of times (not always though) that no one ever responds to a question that I see and would also liked answered. So, a big thumbs up for the new format! :-)
  • MD
    Michael D.
    7 February 2020 @ 18:48
    Excellent conversation as always! Harry's participation as moderator added a bit of structure and came across quite well. Question for Raoul: For those of us who are long Dec 2020 ED calls at 99, what are your thoughts about rolling to Dec 2021 rather than remaining as-is? Thanks,
    • AA
      Alberto A.
      8 February 2020 @ 05:07
      Mike I believe his timing is September. I asked him via twitter and he is still holding those options. The problem with rolling to 2021 is that it would cost unless you did a credit spread. I'm holding both 2020 and 2021. I'm sure now more than ever it will be profitable. The question for me now is by how much 2x, 3x?
  • wj
    wiktor j.
    7 February 2020 @ 20:11
    Buts its not locked down. I read as late as today you can take plane from Sweden to China and China to Sweden today! So unless you close Sweden as well it doesn't matter.
  • JW
    Joel W.
    7 February 2020 @ 19:32
    Thanks fellas, for trying a new format. I think it adds plenty of value, particularly if it can foster greater participation in the comments section.