12 Years of VP vs Noise
Sharing the ideas and experiences that have influenced our work
Dollar Funding Shortage set to Continue
The widening of the cross-currency basis (JPY, EUR and GBP, in particular) against the US dollar provides further evidence of a structural dollar-funding shortage, which is set to worsen as the Fed tightens. Although the spread typically widens towards year end, the...
Australian Housing showing further weakness
Since 2016, our structurally bearish thesis on Australian housing has taken a while to play out as cyclical data often managed to hold up as the RBA kept policy loose and as the global economy was awash with liquidity. Now, however, as global-liquidity headwinds are...
Lower Earnings have little to do with Dollar Strength
We have previously discussed that we see the end of the dollar’s rally coming into view, and that further reasonably-sized rallies (~2-3%) over the next 1-3 months should be used to take profits on long dollar positions. The DXY has rallied over 7% this year, and a...
Foreigners’ Confidence in UK Remains
The politics of Brexit have enveloped the UK, and have negatively affected UK growth. However, as recent current-account data shows, things are less bad than originally feared. The top-left chart shows that net investment into the UK has continued to rise. The total...
SNB may soon come under pressure
We have previously argued that the Swiss National Bank has become slightly more tolerant of modest currency strength, given that the sheer scale of previous FX intervention has dented the central bank’s appetite for further balance sheet expansion. The top-left chart,...
Capital Committed to EM for the time being
In an almost textbook fashion, a stronger dollar and rising US rates has triggered a broad emerging market sell-off and surge in volatility. However, somewhat atypically there is little evidence so far of foreign capital bolting for the exit, despite the gradual...
EM Credit Risk faces Repricing
Credit risk in emerging markets has long been mispriced as the impact of unprecedented monetary stimulus and record low policy rates seemingly placated concerns about higher leverage. However, with the rise in US rates claiming its first casualties (Argentina and...
Yield Curve: Forwards Hold some Clues
The 2s10s yield curve continues to grind incrementally lower, but negative carry is becoming a formidable headwind. One year carry on this part of the curve is a punitive 28bps. We are also seeing the forward yield curve struggling to flatten any more (top-left...
Is Fracking Viable?
Bethany McLean has written a book titled Saudi America on fracking and how it might contribute to the next financial crisis. She writes: Some of fracking’s biggest skeptics are on Wall Street. They argue that the industry’s financial foundation is unstable:...