Notes From Underground: Podcast? Yes, Podcast

It was a pleasure to spend time with Peter Boockvar, David Rosenberg and Richard Bonugli as we prepared a Thanksgiving feast for the global macro world. We cover many relevant areas and provide measured analysis of important financial concerns. Pour your favorite libation and take a listen as you sift through the cornucopia of ideas and develop possible profitable trades.

This not a series tout but rather a roadmap to where the global financial  system is headed and some of the potholes its facing. We at Notes From Underground were early in warning of the coming volatility. On September 17 we a post suggesting possible investments for what was appearing on the horizon. My favorite was VIRTU FINANCIAL (VIRT) as a firm that does well when investors suffer pain.
Yet it’s interesting that GOLDMAN has performed so poorly when it is a company built to profit when markets are in chaos. The basis of Goldman is to be the largest hedge while it gets to examine the flows of its clients. Challenge the premise all you want but you better have more than mere opinions to support your views. CME and ICE have performed fabulously because turmoil increases volume, which leads to revenue based on tolls paid to exit and enter the markets. Is the turmoil over? Hardly. But I would not advise investing in these companies as the smart money was there at the beginning of the volatility.
The recent story of the blow-up in natural gas provided a classic example of market complacency leading to ridiculous strategies. This situation was reminiscent of Amaranth from this perspective: The natural gas equities were falling in price while the NG commodity was rallying ferociously, revealing a troubling disconnect. is certainly not the only firm selling naked options as a sure way to enhance returns. As I can recall, Bill Gross once bragged about his model of selling out of the money options in an effort to enhance investor returns.
As Dennis Gartman is prone to say, there is never just one cockroach. The last few days of trading has revealed a breakdown in the role of haven strategies where investors run to safety in GOLD, sovereign bonds and, of course, the YEN and Swiss franc. The haven dynamic was called RoRo: risk on, risk off. This model has definitely broken down and we will be monitoring to see where the money flows will be headed. Have a drink and enjoy the PODCAST.

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10 Responses to “Notes From Underground: Podcast? Yes, Podcast”

  1. Trader 1 Says:


    How much of this latest crude blood bath do you think is due to Saudis flooding the market with crude to keep Trump off their case for the fiasco in Turkey (If any) vs. margin call washout ??

    • yraharris Says:

      Trader– I would suggest margin because the market was more wrong footed by Trump’s act of allowing relief to some oil buyers.The massive long oil/short natty gas provided some of the impetus

  2. Tom Owens Says:

    Podcasts are for gym, bicycle, lawnmowing. I will listen and drink later. Thank you and Happy Thanksgiving.

  3. margo ranger Says:

    I always learn form you, Yra. Thank you and happy Thanksgiving/1

    • yraharris Says:

      margo–thanks for all your support and a happy thanksgivimg to you and your family and for you I am now playing Kenny Chesney’s She’s From Boston

  4. Arthur Says:

    Druckenmiller’s portfolio

  5. Srdan Dosenovic Says:

    Hi Yra,

    I have to say, as a manager of a small macro hedge fund, I enjoy your blog immensely. Amazing analysis. Where do you see risk on money going these days though? Happy Thanksgiving!

  6. Michael A Temple Says:

    Respectfully, I think you and your two colleagues are missing the forest from the trees when it comes to what lies ahead in the markets in 2019. Quite frankly, everybody seemed to have a mildly bearish view, quite similar to many mainstream Wall Street houses that still believe economic strength will percolate next year and that S&P is not facing any untoward sell offs/collapse next year.

    Your friend, Peter Boockvar, has previously stated that he believes the best way to understand economic cycles in the post-QE world is not to focus so much on the real economy, but to look for cracks in the financial markets as there is just too much damn debt in the system and the “breaking” of markets is likely actually to cause a recession, not just signal one.

    Towards that end, I am shocked that none of you seem to acknowledge that the truly scary 800 lb gorilla in the room is the sudden and violent blow out in credit spreads that finally hit home in the past couple of weeks.

    One of the best analysts out there right now who seems to grasp fully the precarious nature of the failing credit system is Chris Whalen. I am surprised (perhaps, I should not be) that many more analysts do not see what he sees….Namely, the current rate hike cycle, accompanied by QT, is causing huge stress in key funding markets. Commercial real estate projects no longer “work” with rising rates and cap rates that have been struck at historic highs.

    2019 is likely to see many developers begin to hand the keys back over to the banks….And, the same story is beginning to afflict the huge CLO machines which are similarly overlevered.

    While HY spreads blew out in the past weeks, folks are focusing on the composite index and not the breakdown of the constituents. “BB” credits widened by 50-75 but B/CCC credits got slammed as wide as +200 bp. That kind of swift blowout can close the window for re-financing which will cause a sea change of panic in markets for next year.

    CREDIT situation is actually far more dire, in my view, and way more explosive than the current equity rout, led by technology.

    “Everybody” now believes that the Fed ought to pause to reflect after the coming December hike….Yet, many still believe the Fed will resume rate hikes or just keep a steady hand.

    Frankly, folks are not focusing on the dire dire technicals of corporate credit in the US, especially the BIG story now of how many BBB corporates are apt to become fallen angels in the year ahead.

    I think the Fed is going to be CUTTING rates by Memorial Day, if not a tad sooner than that.

    I am flexible enough to acknowledge that we may yet still see a big recovery in risk markets at year end, especially if Trump plays “Let’s Make A Deal” with Xi in Buenos Aires.

    But, the BIG story that I think you guys never addressed is the huge unwinding of corporate credit that has begun….After 7 years of hyper steroid growth in the credit bubble due to suppressed rates and trillions of QE, I think we may witness the unwind of those 7ish years compressed into the next 12-18 months, and the speed and chaos will be quite similar to 2009, post Lehman.

    That Powell and his acolytes are NOT focused more on the REAL TIME indicators of MARKET STRESS (i.e. credit spreads BLOWING OUT) is proof, to me, that these guys don’t understand that what saved/solved the Debt problem of 2008/09 (which was primarily mortgage-related) was a further expansion of the overall debt BUBBLE….That BUBBLE is far far bigger than the equity bubble, in my view….And, it is bursting now.

    GE is an idiosyncratic story…..But, the overall BBB sector is filled with huge negative convexity, waiting to be unleashed….And the levered loan market, along with conventional commercial real estate financing, are going to experience violent and painful sell offs next year.

    Fed will be confronted with not a garden variety recession, but with the second coming of 2009….RATE CUTS by MEMORIAL DAY!!

  7. yraharris Says:

    Mike–this is a very sound post and deserves a full response–probably a blog but Respectively i would say that Peter in his work and this blog has been warning that it is DEBT,DEBt,DEBT that will drive this market—-Chris Whalen is one I have great respect for but my view on the infrastructure spend is because that the FED will panic as will the ECB for the discussion about inflation is a sideshow to the fear of a deflationary spiral setting in due to what we have long discussed about the FED making a HUGE mistake by embarking upon QT while raising rates.Alexandra Harris at Bloomberg wrote a piece taking the FED to task for this and which the FED was quick to challenge.Simon Potter is no Brian Sack and his continued to maintain that the FED is correct will come back to haunt—but this BLOG has been very consistent in warning about the debt overhang while not necessarily citing the HY corporate sector the warning has been about the onset of Minsky—so that is what I take you to task about—much more to follow

  8. Mike Temple Says:

    I look forward to your further thoughts. I am trying to figure out what you are taking me to task for. Does Minsk’s Moment have to exclude a credit market implosion in which financing mechanisms simply “shut down” overnight?

    If GE did not fortunately have $40 BN of undrawn revolvers (for which those bankers are now sorry they previously extended), they would be facing a true Minsky Moment RIGHT NOW.

    As I said, I look forward to your further thoughts.

    Hope you had a nice Thanksgiving. Gobble Gobble

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