Dodgy credit

Another day, another de-risking.   While not every market exacted pain on its participants, enough did make it an unpleasant day for a lot of punters.   While dollar weakness was notable- both against non-EM currencies and gold- the booby prize for global assets probably goes to high yield credit- interesting timing, given last week's post.

Not only has HYG taken on the chin over the last few days on solidly chunky volume....

...but there's been a decent net redemption of shares- and the chart below of shares outstanding doesn't even include yesterday's trading.


Longs aren't being too picky about price, either, selling shares below the NAV.   It's not unprecedented, but it's not situation normal, either.


It seems likely that some of this risk reduction is down to the election and the tightening of the margins after the latest of a seemingly never-ending series of scandals engulfing the two candidates.  There has been some interest in a reader survey, and now seems like an opportune moment to gauge how people expect asset markets to react to the outcome of the election...and what the expectation for that outcome is.

Readers are encouraged to fill in the survey below; please note the formatting request on the Fed funds responses.


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Anonymous
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November 2, 2016 at 11:05 AM ×

Amidst loads of fear, after a sell off during the next three weeks, the market will melt up and SPX will end the year at 2200.

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amplitudeinthehouse
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November 2, 2016 at 11:34 AM ×

Hey Macro Man.....stop your whining FFS. Volatility will surely eventuate. Psssss.
Over the election cycle lets relax to some tunes at the desk....this ones my favourite pal!

https://www.youtube.com/watch?v=hGY44DIQb-A


Chow!

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Anonymous
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November 2, 2016 at 11:44 AM ×

Looking at the pie charts in the survey results, we can conclude that people expect their preferred candidate to win, that is to say the participants are all engaged in selectivity bias. Shows how f*cking stupid most people are! haha No wonder most of you lose money trading :)

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Celeriac1972
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November 2, 2016 at 12:15 PM ×

To conclude that those two pie charts tell you that the 60% who would like Clinton to win is the same 60% who think she will is f*cking stupid...

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Bruce in Tennessee
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November 2, 2016 at 12:23 PM ×

I don't know who will win, but it appears there is selling at the end of the day as the established MO.

After the election, where does the good news come from? The Fed doesn't tighten? ...Yawn on that....lower oil prices? ...Ditto... New orders for shipping revive the shipbuilding industry...em, perhaps not.

...It just seems we've built our house on credit sand....are we better off than when the GR started?

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Anonymous
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November 2, 2016 at 1:06 PM ×

Deutsche Bank thinks Draghi’s gone over to the ‘dark side.’ Says ECB has entered new dimension of moral hazard. http://bloom.bg/2edcqzM

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wcw
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November 2, 2016 at 1:27 PM ×

@Bruce, sure you know. Utah will be off, because that site models two-party vote, but otherwise that's how it will go down.

@Anon1306, Folkerts-Landau is a dimwit. May 2008 [PDF]: 'low levels of interest rates.. and growth in emerging markets.. make the spread of problems in one segment of the US market to a general collapse of asset prices much less likely.'

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Leftback
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November 2, 2016 at 2:56 PM ×

MM, HYG has traded in large part in tandem with crude oil all year long, as a lot of the dodgy credits are in the energy space. Abee may be able to confirm that for us. It's been resilient though, we have tried small shorts there with no success. Expect it to continue to follow the dynamics of the oil market. CLZ6 more or less on the 200 day here, struggling to hold it.

LB closed his CLZ6 trade today. Since we were short from north of $50 and it touched $45, you can imagine that worked out well. We closed a little early, left some money on the table, but… large position size dictated that we take the money and run.

We wish we had acted on our long yen idea on Monday this week, but we didn't. Very large size trades have a way of demanding attention and obscuring other activities and opportunities, so it was hard to focus on anything but crude oil this week.

Our guess is that the next set of trades we make will probably be in equities and/or dollars from the long side (relief rally), and/or maybe GDX from the short side, but we are going to return to the hammock for a bit and let things develop.

That crude oil trade alone added about 0.5% to our YTD performance, this against a background of risk avoidance and capital preservation. 2016 has been a real grind but it's been working out OK. Tough year for everyone except momos and algos.

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Panda
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November 2, 2016 at 4:16 PM ×

@LB: Once again great call on crude. Curious - how do you control position sizing, and when do you cut your losses? I started shorting at $48, added at $50, but what prompted me to get out was one of the crude inventory releases, when the numbers overshot estimates and crude immediately fell. At that point I thought it was all jolly and well, only to see it be bid right back up and to near $51 over the next half hour. At which point I thought people were intentionally propping it up without reason and hence got out.

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Witch
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November 2, 2016 at 8:03 PM ×

MM's VIX butterfly call from Oct.24 has made godly money.

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Macro Man
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November 2, 2016 at 11:15 PM ×

Dunno about that, but it's worked exactly as intended. Hope you put some on!

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Leftback
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November 3, 2016 at 3:52 AM ×

@Panda.

Position size rule for LB, maximum 5% of total portfolio value for any trade (unleveraged).

The buying last week was all on OPEC "cut" rumors and best ignored. We wish we had added on those spikes but didn't. The trade was based in part on fundamentals, and in part on technicals (price spike through upper Bollinger band preceded the reversal), partly on intestinal fortitude and cojones like steel ball bearings… :-)

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