Markets Stress Test
The ratio of equity puts (bearish bets) to calls (bullish bets) over the last 30 trading days has only been this high a few times in the past: April 2008 and Oct/Nov 2008 . While, flows to equity funds remain at elevated levels, investors vary of looming recession are building up protection in the portfolio via puts. Weak retail data and upcoming Earnings season could continue to keep markets volatile.
Is this the peak of fear or are we yet to see doomsday?
Asset Allocation assumes importance in a Volatile market
The S&P 500 is "on pace for a record number of 1%+ declines to close out a trading week" in 2022. Was 2022 just one off year due to global uncertainty issues or are we entering a new volatile era.
If later holds true, will buy & hold work in an 'investment product' work at all times or 'Asset allocation' and identifying liquidity flow holds the key?
(Chart Source: BespokeInvest)
Bretton Woods II officially ended this month
During the China Arab summit last week, China officially invited Arab nations to trade in Oil & Gas in Yuan on Shanghai exchange; a move that would not have been made unless all Arab nations 'had already' agreed as a matter of joint policy to take action accordingly.
Is this an end to ~5 decade practice of pricing oil in USD? Are these the first signs of shift of winds?
And lastly…’Macro’ dominates
The top three money pools investors want to allocate to in 2023 are macro, credit and equity.
This is in sharp contrast to pandemic years wherein Crypto, Equity dominated thanks to easy money.
Macro Investing is all about identifying the capital flow and asset classes that could be the beneficiaries of this flow.
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