Conjectures and Refutations

@BobEUnlimited Happy paying customer here. Would recommend it to anyone as all articles throughout the week are pertinent, helpful and, as the fashionable term goes… actionable!

Making this one my free post on the blog app this week. Enjoy! x.com/BobEUnlimited/…

@Crowded_Mkt_Rpt Trading with another man’s securities

what does "swing trading" mean?

@dampedspring @perfiliev Nice. Thanks.

I manage my wealth this way in general and I am positioned this way within this framework today 101 I take $100 of cash And invest in DSSmart Beta which is always long global stocks bonds, gold, and commodity indices. That allocation size is between $50 to $130. At the low allocation I have $50 of cash invested in global money market mutual funds. At the high I am leveraged 30% which I fund by shifting from ETF's to futures and via other low cost leverage With the $100 portfolio as described as my "collateral" I buy options, buy 1x1 options spreads, sell 1x1 option spreads in a strategy called DSAlpha. This portfolio construction results in 💯 certain worst case loss at any particular time. On rare occasions (like today) I also hold futures contracts (long or short) with wide stop losses which could result in unlimited loss but that is unusual. The net return on my $100 is then the dollar pnl of each strategy summed up and divided by my investment amount. Thats DSAlphaBeta return DSSmartBeta can be reported separately but its denominator is $100 regardless of its allocation DSAlpha needs a denominator too. People cheat to show high returns by using low denominators. I do not cheat and simply divide the PNL by the same $100 meaning the total pnl of both strategies, the pnl of beta and the pnl of alpha are all first in dollars and second divided by the same denominator which is my wealth. Their sizing in terms of pnl and risk contribution is roughly the same and targeted at 10% annual volatility AND the two strategies are meant to be uncorrelated and are not "hedging" each other but are diversifying each other Anyway currently this is DSSmartBeta allocation which is long roughly 16% of global equities Based on current marks my DSAlpha book of equity puts, oil shorts and a small STIR bet has $3 of put spreads which will be worthless by June (most) and September (less) if equity markets stay here. The DSAlphabeta portfolio currently has 16% long equities from SmartBeta and the $3 of puts generates a short delta of 50% for an overall portfolio delta of -34%. It just so happens that alpha is short and beta is long and my net is short which would imply alpha is a hedge. Its not. In 2021 SmartBeta was 130% long and alpha was max long. Today one is long (always long) and the other is max short. Beta is always long and had a lifetime horizon. Alpha is long short or no position and has a 2-6 month horizon. I treat them separately because I think they are separate activities. I've though market timing and long only investing are separate skills for my whole career. Bridgewater training further crystallized that distinction for me. Some disagree. Particularly those who want to charge high fees for beta returns (pretty much everyone on the planet grifting you) I can't be more clear than this and if you don't understand what I am talking about feel free to search my feed with the prompt "101" where I articulate basic concepts in money management, portfolio construction and options investing. Also there are great people who can help you through these concepts including @perfiliev and @KrisAbdelmessih (two of my favorites).

The one in which Cliffwater going full Schrodinger. The private debt isn’t risky or not until we look? WTF? Let me help. The right answer, the honest answer, the only answer, is yes it is risky. That this crap makes it past compliance is amazing. If I wrote “our stuff may be considered risky, but maybe not, as it’s always come back after bad times and if you closed your eyes you didn’t even notice the drop, and oh, we are really good at what we do which eliminates (not reduces) risk” my compliance team would turn me into the authorities. Fellas, if you’d like, after HONESTLY admitting there is risk, feel free to add “but we think it offers a superior return for the risk taken, being better than public debt on both measures.” Unproven, never seen a credit downturn, but at least a reasonable goddamn sentence from someone selling a product. I guess this utter crap is a marginal improvement from claiming a 10.0 Sharpe ratio. Marginal. No pattern here at all. Move on.

@NickSchmidt 20 bps

In a good market what % of your account do you risk on new trades?

@dampedspring @AahanPrometheus Well said. If it’s not pure expectation there is premia. If it’s pure expectation there is no premia. Money can be made in both cases, but for different reasons.

Does it matter what a risk premium on an investment is? You can't ever tell but it probably matters no? Does it matter what the market expectation of defaults are for a corporate bond index. Does it matter what the expected rv is relative to iv or an option? Maybe nothing matters

Assuming, as most of you seem to have massive confidence, that the futures curve is not a reflection of true market expectations of future spot. Current Dec Futures are 72.5 ish. What do you think the market expectations for december deliver WTI really is.

@citrini Yes. But not yet.

I feel badly for everyone replying to this who somehow think markets go down in a straight line. I think SPX is not going to put in a longer term before it’s below 6000, but there will be some violent short term rallies. Like these:

@AndreasSteno 🤣

Good to see Iran using ChatGPT to troll Trump. Nothing says “modern geopolitics” like AI-generated shitposting in the middle of a conflict.

@TechCharts Excess supply of oil

Always expect the unexpected. What is the unexpected right now?

@AndreasSteno How else do you bring demand down to adjust? Do you think the oil price alone does that? (Not trolling)

There is nothing more idiotic than raising interest rates because a strait with oil is closed.

@TaviCosta @ThierryBorgeat You’re literally showing a falsification of your point, as your chart ends in 2022 and there was no recession following that spike.

This is a remarkable chart. Oil surges like the one we’ve seen recently have consistently preceded recessions. Chart by @thierryborgeat

@darioperkins Credit always falls way before the wall

Is there ever NOT a "refinancing wall"? Feel like I've been seeing charts like that for 20 years...

@alphacharts365 Within a trend, the relevant MA is certainly potential support.

Are moving averages areas of support?

@Citrini7 It means it has f ck all to do with your process

It’s always the cheekiest positions that work the best. (I don’t even know what cheeky means tbh)

@JackFarley96 It’s a perfectly neutral news headline concealing nothing. Your reaction, on the other hand…..

What’s with this framing? Lebanese people “die” but Israelis are “killed” — what’s the deal with the selective word choice here?

@donnelly_brent The wave function has a growing distribution but it has not yet collapsed

Explain the gap between implied and realized vol this week please

@fejau_inc @WarrenPies @AahanPrometheus I don’t get the argument of those who think the forward curve in oil is 0% expectations. If someone wants to explain would be grateful. Till then I read it like you. Same time, I can hear Jeff Currie in my mind, arguing backwardation is bullish spot.

@WarrenPies @AahanPrometheus Thank you, that’s all I was trying to say! The back months have hardly removed relating to 2022 when the whole curve rerated haha

Who knows whether its valid or not, but the oil curve is fading the Iran war so far and seems to think this wraps up pretty quickly. No idea whether that's valid pricing or not but does increase the tension priced into markets if this drags on longer than what's priced

@fejau_inc @AndreasSteno Dish ish jusht cultural differences

I’m saying that in 2022, the whole curve rerated higher in lockstep This time; the front months surged but that back months have barely moved. That’s hinting at a very different outcome priced relative to 2022. I’d say no need to be a pompous dick but this seems to be a regular pattern with you and your favorite activity is to talk down to me

@EffMktHype Word. A lot of reversion to the mean for now.

Honestly, outside of oil this is all still very orderly despite the degrossing yesterday. Implied vols havent spiked, spreads havent blown out, valuations arent even below average and people are only realizing dollar is the only one fully backed with missiles, bombs, natgas and crude oil.

@AndreasSteno @benjamincowen To be fair, I read that as saying: financial condition tightening shock late cycle endangers the cycle.

@benjamincowen This rise in Oil has 0% to do with the business cycle, which makes your update incredibly weird

Oil is up another 8% today. Remember the rise of oil in a late business cycle environment leads to the beginning of the end of the business cycle.