Shorts

It is whispered that the all-in hoo haa seen across risk assets this year boils down to positioning. The doom-laden calls of many high-end strategists at the turn of the year, scarred by the rough and tumble of a 2022 defined by losses, the call was of recession. Woe. More losses. Not so. Up we went. And yet now, per the BAML Fund Manager survey, positioning can loosely be defined by long US duration with a generous side serving of bonds. Commodities have been rinsed; speculative positioning is short. And ‘value’ is no longer on the lips of those sipping overpriced cocktails at the pool bar. No wonder when stocks like NVDA and META are up 100% plus. The upside surprise has in many ways been cathartic, the boom is back; and retail money is coursing into stocks. With the money mandarins confidently plucking the strings, this still hasn’t put off those analysts touting a more cautious line off the tee. One of which is due to mortgage rates closing in on cycle highs, north of a stomach turning 7%. Treasury yields also remain elevated which matters if history is anything to go by. A steady stomp-stomp hike up in yields hits economic indicators roughly 18 months later; and the longer they mooch around at the top, the longer the recession. Nice. All told, they whisper with darting eyes, the full-face impact of the FED’s inflation busting moves will be felt in 2024. That may be so say the bulls but the US economy is doing A-OK, inflation is easing and everyone who wants a job, can get one. Talk of catastrophe remains just that. Indeed, watch Japan, say the eyes; where core inflation is still rising, and speculators are massively short the yen. For the new man at the BOJ, letting inflation expectations bed in further whilst core measures scream higher, is a buttock clenching game of ‘are you there Moriarty?’ The repatriation of all those overseas assets – specifically US Treasuries given the massive issuance coming due – could quickly pull the shorts off those speculative shorts. Here’s hoping they’re wearing pants. For those who identify neither as a bull nor a bear, positioning across thin summer trading is likely to matter more than ever.