Disciplined Systematic Global Macro Views

Investors must have a growing nervous about the grab yield in today’s market. The reach for yield has forced traders into illiquid issues where the risk profile has changed from credit/carry to credit/bring/illiqudity. Traders will get a higher high quality if an asset is illiquid generally. Unfortunately, liquidity premiums are hard to measure; consequently, the original credit betas will never be properly assessed and there may be the mistaken view that there surely is better alpha from managers who keep these kinds of assets.

Holding these investments may become painful if there is a big change in the credit routine and there’s a need for liquidity however the market becomes one-sided. There is a difference between being covered credit risk and being paid for illiquidity. Credit risk will be associated with the underlying threat of the company while illiquidity premium will be associated with the lack of ability to find purchasers whenever a sale is desired.

Illiquidity is the doubt with complementing buyer and seller rather than with the fundamental risk of the credit. Illiquidity, given it is situational, is difficult to price inherently. When there is the belief that liquidity and credit are becoming more expensive, it may be appropriate to change risk premiums. We suggest that the risk premiums switch from credit to macro through managed futures. Managed futures managers will most likely mix risk-monthly premiums like momentum, carry, and value across major asset classes, but take action through using liquid devices exchanged on futures exchanges.

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Since the futures investments require low margin for a given notional value and the reminder of the cash investment can be held in Treasury, the managed futures investment can be compared to a credit investment. Credit and liquidity spreads can be likened against the common surplus return for global macro/managed futures. At this time, the return required to beat a credit play reaches low levels, so a managed futures investment is attractive and will solve the potential growing liquidity risk problem.

Unfortunately for gold traders, the yellow steel has failed to deliver much diversification benefit during recent deflationary carry markets. Having said that, inflationary bear marketplaces may see valuable downside protection from gold similar to the role Treasury bonds have loved in recent years. My blogging colleague Len Penzo offers some excellent advice about buying silver and gold – although he views precious metals as insurance against a potential collapse of the dollar rather than as an investment.

Fine wine is not simply a delicious accompaniment to your preferred steak dinner – it may also be a very important investment. Of course, attaining that a clear understanding is no small feat if you are not already a wine enthusiast. One of my favorite financial benefits of the modern and innovative world is the rise of peer-to-peer lending.

This investment is merely what it appears like: you are financing money to a peer and getting paid the interest. It’s good for both parties – the debtor will often pay a lower interest than they would receive from a normal bank, as the lender’s profits tend to be greater than what they could obtain through other investments.