Macro and Flows Update: March 2024 - e27
Summary
TLDRThe video discusses the current market dynamics, emphasizing the impact of quarterly options expirations (Opex) on stock performance. It highlights the skew and open interest in structured products, leading to force buybacks at the index level. The speaker notes a shift in positioning in the tech sector, with call buying instead of put buying, creating gamma at the right tail. The video also touches on the macro trend of stagflation, the role of the Federal Reserve, and the implications of election years on market performance. It advises viewers to expect a bullish market environment and to capitalize on potential short-term dips for long-term gains.
Takeaways
- 📉 The speaker emphasizes the importance of the F 14th decline and its impact on Opex, suggesting a period of closely monitored market behavior.
- 📈 There is a notable skew in the market with significant open interest, particularly in structured products, which is driving a force buyback at the index level.
- 🔄 The tech sector shows opposite positioning with more call buying compared to put buying, leading to a gamma concentration at the right tail of the products.
- 🔩 The decay in certain names as big Opex cycles approach is resulting in underperformance, contrary to previous expectations of a tail counter move.
- 🌪️ After Feb 14th, the market is expected to experience controlled dips, which are considered viable entry points for investors.
- 📊 The upcoming CPI report is anticipated to be weak, potentially leading to sideways to down market action, which is seen as a digestion period for overbought conditions.
- 🔄 The speaker predicts a two-week window of potential market weakness and momentum, following the last Wednesday of Opex.
- 📈 Structurally, the market actions are seen as very bullish, with positive flows being a significant factor in this outlook.
- 🌐 The macro trend is identified as stagflation, with the speaker advising on trade strategies such as buying calls, precious metal calls, and Bitcoin calls in response to this environment.
- 🏛️ Political considerations are highlighted as a key influence on the Fed's actions, with a focus on supporting growth over inflation control.
- 🗳️ Election years, especially populist ones, are typically positive for the market, with the speaker encouraging aggressive long positions in such periods.
Q & A
What is the main focus of the macro and flows update video discussed in the transcript?
-The main focus of the video is to discuss the quarterly Opex and its impact on market behavior, particularly the performance of certain stocks and indexes during the Opex cycle and the subsequent weeks.
What does the term 'Opex' refer to in this context?
-In this context, 'Opex' refers to 'options expiration,' which is a financial term describing the date on which an options contract becomes invalid if it is not exercised or assigned.
How does the speaker describe the market's behavior during the Opex cycle?
-The speaker describes the market's behavior during the Opex cycle as experiencing a solid push, with certain stocks and indexes showing a gradual underperformance following the expiration, leading to a potential buying opportunity.
What is the significance of the F 14th decline mentioned in the transcript?
-The F 14th decline signifies a critical point in the market that the speaker and their team were closely monitoring. They were anticipating a decline as the last opportunity to hold positions tightly and be ready to bounce back.
What does the speaker mean by 'buyback force buyback from dealers at the index level'?
-The speaker is referring to a situation where dealers are forced to buy back shares due to the market dynamics at the index level, often as a result of changes in skew and open interest related to structured products and options tied to them.
What is the 'mag 7 and tech complex' mentioned in the transcript?
-The 'mag 7 and tech complex' likely refers to a group of seven major technology stocks or a similar complex of tech-related assets that exhibit specific trading behaviors, such as a high volume of call buying versus put buying.
What does the speaker suggest about the market's medium to long-term outlook?
-The speaker suggests a bullish medium to long-term outlook for the market, with a focus on structured trades like long calls and risk reversals, and emphasizes the importance of being positioned for a market rally, especially in the context of a populist election year.
What is the 'stagflation' mentioned in the transcript, and how does it affect the market?
-Stagflation refers to a situation where the economy experiences stagnant growth along with high inflation. The speaker mentions that during such an environment, the trade is to buy calls on precious metals, Bitcoin, and longer-dated calls on certain asset classes, while avoiding commodity investments and selling oil puts.
What is the significance of the election year in the context of the market's performance?
-The speaker highlights that election years, particularly populist election years, tend to be positive for the market. They note that in such years, there is significant fiscal spending and monetary support, which are beneficial for risk assets.
What advice does the speaker give for investors in the short term?
-The speaker advises investors to be agile and flexible, looking for opportunities to play from both sides of the market in the short term. They also suggest that after the potential digestion in time and price, investors should be prepared to take a more aggressive long position.
What is the 'unpinning of VA' mentioned in the transcript?
-The 'unpinning of VA' refers to a shift in market dynamics affecting longer-dated Volatility (VA) instruments. The speaker notes that after a period of increase, dealers start to short these longer-dated VA instruments, creating a supportive environment for such assets.
What is the speaker's stance on the Federal Reserve's actions in response to inflation and growth?
-The speaker believes that the Federal Reserve is prioritizing growth over inflation in the current environment. They note that despite hot inflation numbers, the Fed has continued to signal its intention to cut rates, indicating a commitment to supporting growth.
Outlines
📈 Market Analysis and Expectations
The paragraph discusses the market's performance in relation to quarterly Opex and the impact of F 14th decline on market trends. It highlights the importance of skew and open interest in structured products, and how they drive buyback forces at the index level. The contrast between mag 7 and tech complex positioning is noted, with call buying versus put buying speculative flows. The paragraph also addresses the decay in certain names during big Opex cycles and the underperformance of these names. It emphasizes the controlled dips post-Feb 14th and the bullish momentum expected until the Wednesday of Opex. The influence of weak CPI and market sideways to down action is mentioned, along with the concept of time as a crucial dimension in market analysis. The paragraph concludes by suggesting a potential two-week window for market digestion and momentum.
📊 Mean Reversion and Market Dynamics
This paragraph delves into the concept of mean reversion and its role in the market, especially when positive flows are absent. It discusses the market's upward trend despite negative flows and compares the current situation to previous successful trades. The paragraph also explores the idea of an 'unpinning of VA' after a two and a half months uptrend, which suggests dealers starting to short and creating support in longer dated Vault. It outlines the strategy for short term and medium to long term investments, advocating for long calls, risk reversal, and short stock positions. The macro trend of stagflation is also discussed, with advice on trading in such an environment, including buying calls on precious metals and Bitcoin, and selling commodity puts. The paragraph concludes with a discussion on election year dynamics and how they impact market performance.
🏛️ Political Influence on Market Trends
The paragraph examines the political factors influencing the Federal Reserve's decisions, particularly in the context of a Trump administration. It suggests that the Fed's institutional integrity may be challenged, leading to a focus on growth over inflation management. The paragraph also discusses the broader political and stability risks that could affect the Fed's actions. It then connects these political considerations to market trades during a stagflationary environment, emphasizing the importance of buying calls and precious metal calls while avoiding commodity investments. The impact of global conflicts on commodity prices and the potential benefits of deglobalization for certain assets like Bitcoin are also explored. The paragraph concludes with a broader perspective on the impact of election years on market performance, distinguishing between populist and non-populist election periods.
🚀 Optimistic Market Outlook for Populist Election Year
The final paragraph offers an optimistic outlook on the market for the current populist election year, predicting positive performance supported by fiscal spending and monetary support. It advises on aggressive positioning for long investments during potential buyback opportunities and market digestion periods. The paragraph reinforces the idea of a risk-on environment and suggests that momentum is likely to accelerate as the election year progresses. It concludes with a reminder to be adaptable and seek opportunities while considering the long-term investment strategy. The paragraph also includes a disclaimer about the video content not constituting investment advice and the responsibility of the viewer to determine the suitability of any investment strategy based on personal circumstances.
Mindmap
Keywords
💡Opex
💡Skew
💡Buyback
💡Gamma
💡Mean Reversion
💡Stagflation
💡Volatility
💡Election Year
💡Risk Assets
💡Macro Trend
Highlights
Discussion of the F 14th decline and its implications on market behavior.
Explanation of how Bon and charm flows are related to skew and open interest, affecting buyback forces.
Contrasting positioning in the mag 7 and tech complex, with a focus on call buying versus put buying.
Analysis of the Decay in performance of certain names as big Opex cycles are entered.
Assessment of the market's controlled dips and the expectation of bullish momentum post-Opex.
Weak CPI data's impact on market movement and the concept of time and price digestion.
Forecast of a potential two-week window for market weakness and momentum.
Structural bullish sentiment for markets despite short-term market corrections.
Identification of a bullish period similar to late October following market pullbacks.
Medium to long-term bullish outlook for markets, with a focus on strong action setup.
Discussion on the importance of the five-week cycle and its potential for market activity.
Explanation of the impact of mean reversion and macro news on market pullbacks.
Unpinning of Va and its implications for market positioning and momentum.
Strategic positioning for medium to long-term investments with a focus on long call and risk reversal.
Macro trend analysis pointing to stagflation and its impact on market behavior.
Trade strategies during stagflationary environments, emphasizing calls on precious metals and Bitcoin.
Political considerations and their influence on the Federal Reserve's policy decisions.
Historical analysis of election years, particularly populist elections, and their impact on market performance.
Outlook for the current election year, with expectations of positive market performance and support for risk assets.
Transcripts
hello and welcome back to another macro
and flows update
video here we are in March big quarterly
Opex when we've talked about we've been
pretty adamant about if we didn't get
that F 14th kind of
decline um that was the last shot and to
hold things very you know quickly and
closely ready to to bounce um on the
positive Vana and charm flows that come
from these quarterly
Opex exactly what we've seen right a
nice solid continued push as we enter
this Opex kind of two we and two and a
half week window in
particular
um again to refresh most of our
followers at this point understand but
Bon and charm flows are a function of
skew and there's big open interest and
big skew and big quy aexes with all the
Structured Products and everything tied
to them and that ultimately drives a
buyback a force buyback from dealers at
the index level but another thing we've
highlighted uh really for the last
several months is that there's an exact
opposite positioning in the mag 7 and
the tech kind of complex right so you
have a lot of call buying in that
complex as opposed to put buying
speculative flows um which has driven a
lot of gamma right at the fatter right
tail in those products as opposed to Fat
left tail in the indexes but now that
there is a Decay happening a Slowdown in
those some of those names as you enter
these big Opex Cycles you get an
underperformance of those names and so
we've seen a real Decay and not a tail
kind of counter move but a real slow
gradual underperformance of some of
those names that's what we've been
talking about for a little bit
now um we said after Feb 14th you can
get pullbacks but they're viable dips
it's not a fat tail it's not a b event
these are going to be more controlled
dips that we get here and we were also
adamant that really until uh Wednesday
so so yesterday
of Opex uh to really expect bullish
momentum and what have we started to see
well CPI was uh weak and it pushed up
and then we're kind of getting the
sideways to down action uh we would
expect that sideways to down action a
digestion in time and price we like to
call it again imagine you have a graph
time matters there's another dimension
here that really matters and you can
work out of an overbought situation
simply by going sideways so that that
digestion in time and price right a
buyable dip in time and price is
coming um we've said that and it started
really a couple days ago um but the
question is how much is it is it going
to get enough momentum to kind of
squeeze in this window as we talk about
these kind of these windows um to get
something a little bit bigger we'll see
a smaller Opex with less mod and charm
BuyBacks is coming more importantly than
that it's a five week cycle well five-e
cycle now that doesn't sound like okay
relative to four one week more it's
actually much much more important than
that because the windows and weakness
which are generally about a week in a
four-week cycle maybe a week and a half
go to almost twice that two and a half
weeks so significantly more room for
unpi and some interesting things to
happen here so I would really expect
another two weeks from last Wednesday to
really be the the window here of
potential digestion weakness and
momentum in these windows begets
momentum right there is tail ultimately
if things start to go but but we believe
structurally this is a very bullish set
of action that we're seeing for markets
the flows speak for themselves we're
going to get to that in a second but but
we are in a in a bullish um uh period
much like we talked about last uh late
October after that pullback uh November
December Jan you know uh November
December into mid January was very
bullish very positive time the year now
the backup years all the way till
September really six months or so um are
are very well set up for for strong
action in the context of that a very
short window here of digestion a buyable
dip is what we are looking for in price
and
time a couple of things that that are
push you know we we understand the beach
ball underwater that we've uh we've
talked about during these aexes right
but that leads to unnatural kind of push
in the context of otherwise what's been
poor macro news and this pullback is
really a function of mean reversion or
or
digestion um so that's mean reversion on
top of that you know I think it's
important to note that um you know
without those positive flows that mean
reversion can happen it's not that we
have a bunch of negative flows um unlike
what we've been seeing now for over two
months two and a half months this market
up V up which we called for you know W
is very much bottom as long D calls as
we talked about an incredible trade um
on the longer term shorter term periods
where it doesn't work it's not going to
work every day but over the long line
has work very very well we do believe
medium-term that will continue to be the
trade not just for a month or two but
for the next six months nine months for
for quite some time maybe even a year
that is the best trade as you enter the
last chapters of a of a rally as you
start to head into what's the final
trade which is the blowoff top which we
talked about that is the trade you know
I started the markets in 1998 that was
the trade in 19 1998 in 1999 into 2000
it was a good twoyear trade really um
until the blowoff top finally happened
and things ended volatility increases
into the end of markets and upside
volatility in particular increases
because these shorts and markets get
squeezed Hall writing which has been
overr becomes needs to be bought back
into rallies and Things become more
convex and unpinned that is the reality
that we are facing we've been talking
about this for months we have been
spoton with that
the other thing that I want to be uh you
know clear about now that we've got this
for some time two and a half months
we're starting to see for the first time
you haven't heard me say this in two
years an unpinning of va what does that
mean longer date inol meaning two three
four five six months out because it's
been going up for two and months now
dealers are starting to get short that
and what that's dealing doing is
creating a a nice amount of support in
that longer dated Vault now shorter
dated Vault because other structure
elements because of again the March Opex
being high and the Opex is behind it
being low has still had Supply and that
is still relatively well contained but
the tail the back end of the curve the
stuff that's less liquid has less Supply
and that's an important new Dynamic that
can begin to get this ball up market up
and V performance feeding upon itself a
bit of momentum because of the
positioning there um so we like calider
expansion into what we think will be a
digestion into the downside in the short
term short dated Market down V down so
puts in the short term will perform
quite poorly short put short stock
should be quite good there but in the
more medium to long term We Believe
it'll be a more neutral uh move involved
um with with Market you know hard Delta
is probably being just as good if not
better than than puts versus calls there
but not nearly as profitable as short
dated put short long dated call long
short stock so that's really the
position you want to have long call and
risk reversal or CER and then short
stock in the short turn the next couple
weeks two to four weeks depending on
action um but then again long deltas and
long beta calls because the next move
after this digestion will be market up
volup against um in the medium
term again long dated calls uh are the
story the macro trend is still
stagflation again three months ago
everybody was looking at each other they
were looking at me saying stagflation
what stagflation we're seeing a soft
Landing we said that word stagflation
Breathe It in the Air that's all we've
seen since then six numbers five of
which in the last six numbers have been
hot numbers relative to
inflation why is that why is that why do
the mark continue to Rally in the face
of that because the fed and the treasury
and government rid large has been very
clear that in environment where they are
the FED is in a box they have to deal
with both inflation and weak growth
which is what we're starting to see they
are going to choose to to support growth
they are not going to worry about
inflation in this environment they are
not vulker they are going to be Burns
and they've been very clear since
December in their surprise announcement
that that would be the case and they
have continued despite the hot numbers
to stand by that cutting lean not just a
pause but that their next move will will
be a cut the fact that we still have two
cuts in there despite five out of six
numbers being significantly harder than
expected is notable they are telling you
that they are bringing liquidity and
they're going to provide liquidity no
matter what this year why why are they
doing that politics that's a dirty word
but it's true I don't mean it like
they're about they're partisan I mean
that that Powell and other ENT People
BET based on their incentives they're
incentives they have a choice to make
deal with inflation or deal with growth
there's no right answer per se they are
choosing growth because their legacy
depends on it uh there is a high
probability that Trump and the FED not
Trump that the the fed and power will be
under pressure under a trump
Administration that the institutions of
the FED which PO is supposed to protect
will be under pressure by
Trump um the institutions of the FED are
not the only ones at risk uh you know
there is political growth and stability
that that at the current uh in the
current structure uh could arguably be
um at threat and so these are things
that that again
non-politically that power um is
choosing uh to support as opposed to um
inflation dealing with inflation what is
the trade during a stagflationary
environment
we know station Environ we've talked
about this environment um the trade is
to to buy calls to buy precious metal
calls to buy Bitcoin calls and longer
dated calls in um in in certain uh asset
classes particularly hard assets that
has been the trade um but not to buy at
all Commodities to be clear you want to
sell oil puts you want to sell commodity
puts because those will be support Ed
because of the conflict globally between
countries and the underpinning of
commodity prices that H are are uh
protected by sources of power um so
growth will be slow that's what happened
in St inflation area but Commodities
will be underpinned despite that low
growth by the suppliers of those
Commodities and precious metals um uh
and other things that that mimic at at
times like Bitcoin or other things um
will be much more volatile due to uh
cross-governmental deglobalization
forces um but uh ultimately will be the
most uh the biggest benefactor of the de
globalization and the risks due to
inflation so uh those are all things to
keep in mind the last most overarching
thing for the next not just medium-term
but more longer term the next nine
months or a
year is election year news people talk
about the election year you hear all
kinds of opin and some people say oh the
election year if you look at all the
data it's not that strong depending on
how you cut the data um the last since
1928 performance has been about 11% a
year above Trend you know pretty high
win rate 83% 19 of 23 years have been
positive of election
years but a lot of people look at that
data and say well you know it's certain
years it's certain you know it's not as
positive as people say if you cut the
data slightly different it doesn't look
as great I think the biggest takeaway
is that all election years are not
created equal if you look at populace
periods which I have talked very clearly
about how we are in now right what we
are in now which are really five
election periods uh in the 60s and 70s
64 68 7276 in
1980 as well as the 2020 election which
we recently had if you look at all of
those six
election there is an incredibly positive
now 100% of those years are positive
double digit returns for all of them and
an average return of
21% now think about that six of those 23
elections which are populist elections
are all positive all positive double
digits and 21% returns that's pretty
remarkable but what does that mean for
the other years that means for all the
other years combined the return is 5%
So Below par in other election years
other than that and as I've talked about
1968 to 82 the market went nowhere in
nominal terms so take out the five the
four start elections during that
period which combined by the way along
22% average returns 100% positive and if
you take those during that period you
take the those years out every other
year with a few with one exception is
negative and the average returns are
negative 10% per year for all the other
10 years of that 14-year period so
populous periods are weak not just in
real terms but even nominally incredibly
weak in real terms outside of election
years that makes sense what happens
during election years what happened in
2020 massive fiscal spending massive
monetary support massive liquidity
injections um which are very positive
for risk assets and ultimately those
other years you have the give back and
that's what we would continue to expect
so we are bullish of this year this is a
populist year of Elections we believe it
will be positive we are up now the
Market's up about 6 and a half 7% We
Believe into a even small 2 3% pullback
you want to be aggressively looking to
get long into a year like this the
market is telling you the FED is telling
you where liquidity stand in this year
and regardless of the risks you are
going to have positive support for risk
assets that said we have a small window
here for potential buyback uh for for
this potential digestion in time and
price and this is an opportunity for you
to get back in um and and play from the
long side as we have the last three four
weeks
um particularly as we get into the
election really the next after the next
couple months that momentum should only
accelerate into We Believe That
September uh to November
period so as always be water be flexible
be looking for opportunities here to
play from both sides of the short term
But ultimately uh this is a risk on
environment um for the year and after
this kind of digestion uh you know be
water but but take your shot wishing you
the best until next week next month uh
be water take care
this does not constitute an offer to
sell a solicitation of an offer to buy
or a recommendation of any security or
any other product or service by Kai or
any other third party regardless of
whether sub security product or service
is referenced in this video furthermore
nothing in this video is intended to
provide tax legal or investment advice
and nothing in this video should be
construed as a recommendation to buy
sell or hold any investment or security
or to engage in any investment strategy
or transaction Kai does not represent
that the Security's products or Services
discussed in this video are suitable for
any particular investor you are solely
responsible for determining whether any
investment investment strategy security
or related transaction is appropriate
for you based on your personal
investment objectives Financial
circumstances and risk tolerance you
should consult your business adviser
attorney or tax and accounting adviser
regarding your specific business legal
or tax situation
Ver Más Videos Relacionados
Editors Take | Massive Surge in Mid-Small Caps! Get the Full Strategy from Anil Singhvi!
Macro and Flows Update: June 2024 - e29
L'INIZIO del CROLLO dei Mercati: è il Colpo di Grazia (FED+Blackout) ?
Macro and Flows Update: August 2022 - e08
Do Rate Cuts ACTUALLY Send Stocks Higher?
Pre Market Report 03-Sep-2024
5.0 / 5 (0 votes)