Sunday, August 5, 2018

Charts that give me fear and calm this week


What did we learn from the February volatility shock?Volatility has trended lower and the same trades are being put into play; short volatility. Looks like the market has a short memory.

The signals for potential credit risk -
Can we support the market debt if there is no slower GDP growth? 

The growth in credit since 2008 is stunning -
Latest research states that credit growth is key indicator of future financial crisis.

Warren Buffet’s favorite macro measure -
Total market cap to GDP is reaching all time high. Perhaps the global nature of US first can allow for high number.

This recession risks low -
Model is not at elevated level, but is actually declining.


Yet, earnings numbers are attractive - 
Forward looking - Can this get much better?

China Reserves not keeping pace -
This is the level necessary to support the economy under a currency crisis. It will grow with the size of the economy and current account.

Strong decline in yuan -
This offsets the effects of a tariff but not one for one.

The flows tell the story - 
Improvement in EM capital flows has had a positive impact on some currencies and risks.

This has been a great trade but what is the upside -
Spread tightening in July helpful for high yield but what is the return to risk going forward?

Using principal components  as an asset allocation tool -
Look at PC1 can tell you where there are common risks and places to gain diversification.

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