In today’s briefing:
- NACs: Turning Nature into Gold
- The TARA Risk From Japan
- Portfolio Watch: Navigating Crossroads
- Positioning Watch – The Chinese Disappointment Is Written All over the Latest Positioning
- Will NASDAQ Weakness Unravel the Bull?
- Have Post-2009 Credit Upheavals Imparted Greater US Economic Resilience to Tighter Fed Policy?
- Commodity Watch: Alternatives to Betting Directly on the Curve
NACs: Turning Nature into Gold
- Natural Asset Companies (NACs) are innovative financial structures that monetize natural capital (e.g., water, air, soil) by assigning economic value to ecosystem services and resources.
- NACs attract various investors, including institutional, retail, impact investors, and private equity.
- NACs represent a shift in finance, blending conservation and capitalism. Updated investment techniques consider risk, return, and environmental/social impact, promoting holistic decision-making.
The TARA Risk From Japan
- The case for equities have changed from TINA (There Are No Alternatives) during the low-interest era to TARA (There Are Reasonable Alternatives). One source of TARA risk comes from Japan.
- Japan has long been a supplier of liquidity to the global financial system. The BOJ’s tweak to its YCC policy poses a threat to that paradigm.
- Such a change would also threaten equity risk appetite. So far, any damage from the shift in BOJ policy has been minor.
Portfolio Watch: Navigating Crossroads
- Hello everyone, and welcome back to our weekly Portfolio Watch.
- Here, we delve into the performance of our portfolio and take a close look at the ever-changing landscape of financial markets.
- Our decision to pivot towards energy and other traditional sectors seems to have been well-timed.
Positioning Watch – The Chinese Disappointment Is Written All over the Latest Positioning
- Hope you’re enjoying the weekend out there! Weekends provide the perfect opportunity to review the market’s performance over the past week – and this week has again been full of volatility with the CPI report released this Thursday along with bonds remaining indecisive about the future market direction.
- The overall sentiment this week again has optimism written all over it with equity sentiment still hovering at 2021 highs on some of the short-term indicators, and GBP and EUR are continuing their positioning resilience, while commodity markets are starting to signal weaker demand again after a couple of weeks of strength.
- Follow along as we dissect market sentiment and positioning data below.
Will NASDAQ Weakness Unravel the Bull?
- The weakness of large-cap NASDAQ growth stocks, which comprise over 40% of S&P 500, is a drag on the S&P 500.
- However, the market appears undergoing a rolling correction, which should limit severe downside risk for stock prices.
- Even though the market appears oversold in the short run, the corrective period is probably incomplete and investors face further downside risk.
Have Post-2009 Credit Upheavals Imparted Greater US Economic Resilience to Tighter Fed Policy?
- The upside performance of the US economy in 2023 H1 suggests rising short-term interest rates are having a lower impact on activity compared to historic norms.
- Since the global financial crisis (GFC), corporate access to credit has risen due to another wave of disintermediation, while rising profits have significantly reduced interest coverage ratios and increased liquidity.
- The debt boom since the GFC may have lowered the efficacy of the yield curve as a predictor of recessions due to the reduced role of the banking system.
Commodity Watch: Alternatives to Betting Directly on the Curve
- Recently the MOVE and 10 year yield 3m rolling correlation went back to its 2022 levels, so is it time for a cocktail of a rates volatility wrecking ball ala summer 2022 again?
- Then just short the long end of the curve given the resilient US economy, BoJ’s YCC hikes and a procyclical fiscal policy in the US.
- We see this scenario as one in which high duration generation Y & Z assets get hammered and the boomer trade is en vogue.
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