Month: June 2019

Update: 30-June-2019

We remain cautiously optimistic in our positioning across all of Anson’s current portfolios for the rest of 2019, yet at the same time we also realize that the impressive year-to-date surges in major equity markets (many to new all-time highs) have taken place alongside numerous and persistent warning signs.

Global bond markets, commodities, interest rate futures, Eurodollar futures, and other forward-looking indicators all point to concerns on the horizon that we cannot simply ignore. Clearly, a number of serious issues are facing the world’s major economies and global markets. From past experience we know that any number of these issues could potentially turn out to be far more serious than they currently appear to be. While this list is not exhaustive, some of the issues that we believe are worth watching include:

  • Inverted yield curves in numerous debt markets
  • Ongoing trade wars among major global trading partners
  • The unprecedented quantity of bonds bearing negative yields. Current estimates put the global amount at just under $14 trillion, up from almost zero negative yielding debt only few years ago
  • Liquidity scares in high profile funds H20 and Woodford. These funds offered daily liquidity and yet held illiquid  assets, thus creating an illusion of liquidity which did not actually exist 
  • The large quantity of BBB debt (most of which is from mainly five companies: ATT, Dell, Ford, GE, and GM)
  • Corporate stock buybacks exceeding corporate capital expenditures, for the first time since 2008 (right before the GFC)
  • US retail investors comprising about 60% of government debt holders (mainly via ETFs), an increase of about 2x in the last few years
  • The performance of recent (and pending) IPOs of large and unprofitable companies: Lyft, Uber, WeWork, Beyond  Meat
  • Stresses in the global Eurodollar market
  • Deutsche Bank slow-motion collapse 

Obviously we do not know how (or when) these issues will be resolved. But given that so many of them are unprecedented, and given that the combination of such issues at any one time is particularly unusual, we believe that it is only prudent for us to remain cautious. We thus intend to continue to monitor these issues closely, remain vigilant, and maintain our short exposures as ongoing hedges against possible market corrections.

Barron’s on MMT

Or…Everything You Need to Know About Modern Monetary Theory

MMT is actually grounded in old and uncontroversial economic ideas, and its appeal is neither ideological nor partisan. In May, Sen. Marco Rubio (R., Fla.) released a detailed paper on the state of the U.S. economy that repeatedly cited papers and books associated with MMT. Despite his diatribes, Summers has made many of the same policy prescriptions as the MMT thinkers in recent years—and for largely the same reasons.

The best way to understand MMT is to think of it as the peacetime version of wartime economic management: Governments can do whatever is necessary to satisfy the “public purpose” as long as they maintain their authority over the populace. The U.S. government was able to run budget deficits worth more than 20% of gross domestic product during World War II without risking either inflation or its own creditworthiness—but it needed to use rationing, wage and price controls, and financial repression to do so.

As Bill Mitchell, a professor at Australia’s University of Newcastle and a co-author of a new MMT textbook on macroeconomics, puts it, sovereign governments face no “so-called financial constraints,” only “political constraints.”

China illustrates the potential of this approach—for good and for ill.