Global bond yields continue to make record lows at a seemingly record pace. Bitcoin rockets through the clouds hitting 2.5 year highs. European banks plumbing new post crisis lows. The Chinese Yuan hits new multi year lows reinforcing this massive deflationary push. Gold rises above 1300 again. USDJPY plunges into 103 territory. The Nikkei plunges 3% for the second time in a week. And now the Fed has balked at hiking rates (again) and the market is starting to lose confidence in the most powerful central bank.
In the midst of all this chaos my favorite indicator is the consensus hatred for hedge funds aka ACTIVE MANAGEMENT. Investors looked back at the last 7 years and realized if they indexed and sat on a beach they would have made a fortune. Hence investors dropping ACTIVE management like it’s going out of style. It’s hard to imagine a more inhospitable environment for passive investing than the one we find ourselves in today, and I’m not the only one.
Let’s be clear, bond yields were plunging long before the Fed rate hike. Bitcoin was already on fire. European banks were also hitting new lows, but Gold and USDJPY were kept in check by the Fed’s confidence that it could hike interest rates come June.
I will remind you that it was never the Fed’s objective to hike, but instead to gauge the market’s reaction to a theoretical June hike. Now that the market has come to a similar conclusion, the dollar is getting sold through the floor and the yen is strengthening.
Japan’s savers who have as a percentage of GDP more capital invested abroad than any other nation are getting killed by the rising Yen. Japan’s banks are getting killed by the deflation brought about by a stronger Yen and lower interest rates.
Despite all this chaos, US equities remain within spitting distance of the all time highs.
This cannot last forever, and I’m willing to bet that it won’t even last 2 years which is why I’m buying June 2018 slightly out of the money puts on US equities.