In The News Today

Posted at 8:30 AM (CST) by & filed under In The News.

Bill Holter’s Commentary

Spoiler alert…In a “de grossing world” the answer is a definitive and very ugly YES!

Will Risk Parity Blow Up…???
October 11, 2021

For four decades, the US stock market has traded up and to the right. During those brief moments of setback, treasuries rallied strongly. The fact that these two asset classes seemed to offset each other, creating a smoothed-out return profile, was not lost on certain fund managers who created portfolios comprised of the two. Then, to better market this portfolio to the sorts of institutional investors who cannot bear drawdowns, the overriding strategy was given the pseudo-intellectual sounding Risk Parity moniker. Over time, the reliability of Risk Parity funds has astonished most observers, especially after being tested by fire during the GFC. As a result, portfolio managers took the logical next step and added copious leverage—because in finance, when you do a back-test, every return stream works better with leverage. Naturally, as Risk Parity continued to produce returns, inflows bloated these funds. Risk Parity strategies, in one form or another, now dominate many institutional asset allocations. While everyone makes their sausage a bit differently, trillions in notional value are now managed using this strategy—long equities, long treasuries. Are they highly-leveraged time-bombs??

Taking a step back, it’s important to ask, what created this smooth stream of Risk Parity returns? Was it investor brilliance or was it a four-decade period of declining interest rates that systematically increased equity market multiples while reducing bond yields? What if all the sausage-making was just noise? This then brings out the next logical question; what happens if the rate cycle has now turned and we have an extended period of both increasing interest rates and declining equity market multiples?

More…

Bill Holter’s Commentary

We have continually told you to watch “credit” as that is where the fire will be no matter where the smoke is. Shortly we will be witnessing a world going through bankruptcy, do you own money that cannot bankrupt?

“It’s A Disastrous Day” – All Hell Breaks Loose In China’s Bond Markets
October 12, 2021

The US bond market may be closed, but it was fully open in China, and locals took advantage of this fact to do one thing: sell.

In the aftermath of our viral post “”Catastrophic” Property Sales Mean China’s Worst Case Scenario Is Now In Play”, China property firms bonds were hit with another wrecking ball on Monday as Evergrande was set to miss its third round of (offshore) bond payments in as many weeks and rival Modern Land became the latest scrambling to delay deadlines.

Having already suffered the fastest drop on record, Chinese junk bond markets – where property developer issuers dominate – were routed once again as fears about fast-spreading contagion in the $5 trillion sector, which drives a sizable chunk of the Chinese economy, continued to savage sentiment. Meanwhile, China Evergrande Group’s offshore bondholders still had not received interest payment by a Monday deadline Asia time, Reuters reported citing sources.

But while Evergrande’s default is now just semantics, and one week after Fantasia shocked bondholders with a surprise announcement it too would stuff creditors just weeks after it had said its liquidity was fine, which sent its bond plunging from par to 74 cents in seconds…

More…

Bill Holter’s Commentary

Oh the heresy!

DIMON: Bitcoin ‘Worthless’…

October 12, 2021

Jamie Dimon, JPMorgan Chase chairman and CEO, isn’t a fan of bitcoin, the largest cryptocurrency by market value.

“I personally think that bitcoin is worthless,” Dimon said during an Institute of International Finance event on Monday, CNBC Pro reported.

But, “I don’t want to be a spokesperson — I don’t care. It makes no difference to me,” he said. “Our clients are adults. They disagree. That’s what makes markets. So, if they want to have access to buy yourself bitcoin, we can’t custody it but we can give them legitimate, as clean as possible, access.”

More…