Organizing Thoughts

I'm banned from Twitter for no reason, but I still need a place to put all the things I want to tweet

Hi there,

My twitter account (@citrini7) seems to have been banned for what I can only assume is passing the absolute level of alpha generated per account that twitter’s algorithms permit. Although I’m quite sad I won’t be able to demonstrate to strangers the fact that I called the bottom in European Financials, was short 10yr JGB futures into the last BoJ meeting, got long Chinese real estate ~15% away from the bottom or caught a 100% move in a basket of copper producers in a span of 3 months this year, life goes on.

Since “shouting ideas into the void” has become a relatively integral part of my process, I’m going to continue to do so here until twitter feels the benchmark has caught up and I am below their alpha threshold again. Also, a sincere thank you to the people who retweeted or tweeted on their own accord about my suspension being incorrect. I appreciate you.

Here are the things I’ve wanted to tweet this week:

1. One of my favorite Chinese non-property sector names, Jiangsu Hengrui Pharmaceuticals, posted a monster day up 10% today as they registered a new Chemo drug, while Shanghai Junshi Biosciences dropped (biopharma is the same everywhere, just totally uncorrelated). This comes in the wake of another Chinese Biopharma company, Zai Lab (ZLAB) surging on news their partner NovoCure met its primary endpoint in tumor treating fields paired with standard treatment therapies for stage four NSCLC. In the domestic infrastructure theme, Mindray, Longyuan Power Group, ZTE Corporation, Hongfa Technology and (a recent laggard) Opt Machine Vision Tech outperformed.

2. I took some profit on WIG30 although I think it still has room to outperform and European Financials. The polish 2s10s yield curve went back to being univerted after a brief visit back to inverted territory and looks set to steepen further, while Gilts and US treasuries continue to underperform their

3. TAIEX, the semiconductor heavy Taiwanese index, is testing its 200 day moving average to the upside, while the also tech heavy KOSPI remains ~2% shy. Consistent with “buy undervalued things, sell overvalued things”, NIFTY continues its pullback & INR was one of the few currencies to weaken against the dollar today. Weirdly enough long China short India (the reverse of an amazing trade in 2021/22 that I was lucky enough to catch the bulk of) is significantly outperforming. Maybe it really is that easy? Just do the opposite of what was working before?

4. The recent tightening in the BTP-Bund spread might be a misguided symptom of increasing optimism on the Eurozone in general. I’d like to short FBTPH23 off 118 and think this is a solid hedge for Eurozone equity exposure in general (Italy, unlike its peers, posted Inflation Expectations that are actively worsening today).

5. I don’t want to opine on whether the bear market is over, but my view that inflation tends to come in waves obviously necessitates that there are periods of relief in which equities can stage massive comebacks. Additionally, the reversal in PMIs (Chicago PMI sub 40 to 44.9 in December) is supportive of my view that a recession is not in the cards for 2023 and the yield curve is a massive liar this time (remember, sample size of *eight*). I assume the question “was inflation a monetary/fiscal policy phenomenon solely driven by the covid pandemic?” will be answered in short form as the market executes more easing and we find out if spending and credit surging back causes inflation to return as well. The FOMC could always come out and deliver the “killing blow” to inflation, or Powell could pull another Jackson Hole (although it seems increasingly unlikely). There’s some headline risk from Davos but I think it’s probably minimal.

6. If analysts EPS forecasts are correct, we’ve just had a chance to buy SPX at a well above average earnings yield.

6. I still like and am long anything benefitting from a rebound in Chinese tourism/business travel, including Indonesia Singapore and Thailand. Take a look at this:

Long RoW/Short US?

Occasionally, when you’re focused on making money, you end up doing things that work and not really taking a moment to recognize the broader theme behind them that is making them work. Of course, you recognize the small picture. Some of my specific longs I’ve been in for the past three months have been like this. European Financials have outperformed insanely, something I attributed to the disappearance of negative yielding debt and a much more hawkish Lagarde/ECB. All of China, from real estate to tech to tourism, has outperformed, something I attributed to the rapid pivot on basically every single policy that was hurting FDI in China. Japanese Life Insurers have surged, something I attributed to the BoJ’s ongoing pivot away from yield curve control. Latin America copper producers (indeed, all copper producers) have seen a climb up that can easily top the chart of 3mo rolling standard deviation moves in any reasonable basket of them. And, of course, the US Dollar - plague of all countries not the US - has fallen to lows.

However, amidst all this, I never really stopped and took in the fact that we might be seeing the green shoots of a new paradigm, one where - primarily due to the slowing of the GDP machine that is FAANG and associated technology companies - the US finally begins to underperform the Rest of the World. The last time the difference in performance was this heavily in favor of RoW was February - immediately before the invasion of Ukraine. As the risk premium associated with the war is completely eliminated (something that it has been for a while now), can we continue that trend? We are certainly currently at a level where it would make sense for a technically significant breakout to occur on this pair. Speaking of Ukrainian war risk premium - I’m keeping an eye on EPAM, which has been repriced due to Ukraine exposure but looks set to repeat its summer rally.

You may have seen a lot of charts on twitter this weekend (again, no clue, i’m banned) referring to “THE downtrend”. What’s interesting is that the world market seems to have already closed above that downtrend on multiple timeframes.

China, obviously, could give a shit about your trendline:

Even Emerging Markets Ex-China have long since said sayonara (adjusted for local currency) to the downtrend:

It seems it’s just our lonely U.S. markets (represented by VTI) that have this annoying technical level to deal with:

I suppose the only question left to ask is “can it continue?” or, perhaps more importantly, “can it continue if US markets don’t continue?”. If you were going to base your opinion on the past decade or so, the obvious answer would be “absolutely f-ing not”.

But, things change…

A breakout and inflection point in RoW vs. US might be consistent w/ the recent move to value factor outperformance, as the US (even after the rally) still is not that attractive in valuation terms.

Additionally, if you’re bearish on US 60/40, how about RoW 60/40?

Are we headed for a soft landing?

I feel as if everything that needs to be said on this topic has been said already, and I’m quite partial to the views expressed on twitter by a very intelligent shrub and Bob Elliot, but there is one thing that I feel has been lost in the fray of Powell-Volcker aspirations. Despite the constant comparison, it does seem that the future predicted by the fed funds futures market & the Greenspan soft landing are starting to look eerily similar:

A list for Emerging Market Outperformance:

I posted most of my thoughts going forward regarding EM/China outperformance already, so I’m not going to rehash all that, and I’m already long most of the Chinese names I feel will benefit from the unique path we’re going to see unfold. But at this present moment, I think that most people will likely be deciding whether to chase China or not. I think the answer here is to walk the middle path, the one where you benefit from China’s reopening and the very attractive valuations of their equities, but take on a bit less of their political/geopolitical risk (if, albeit, just a different flavor of it). I speak, of course, of MSTIPS (ASEAN remix). Resource rich countries, benefitting from the current geopolitical shift, with less significant political/fiscal risk and the companies that benefit directly from them. Originally this was just going to include Malaysia, Singapore, Thailand, Indonesia and the Philippines. Now it includes Chile, Vietnam, South Africa, some Australian names, specific Chinese/HK names. It’s definitely not going to be a systematic index any time soon, but I’d bet money it outperforms any of them over the next year. This is essentially the end result of my own discretionary framework for picking names in ASEAN and beneficiaries of the current tailwinds in that area, slimmed down to favor where I thought the best value could be found. It grew a bit, to include companies with economic interests in these areas across the globe as well as to fit thematically w/ the “geopolitically orthogonal, resource scarcity” beneficiaries. It still needs to be slimmed down (although, 170 names is hardly extensive for an index spanning so many countries), and I’ll highlight my favorites. But in the meantime, here’s the list:

ASEAN+ (MSTIPS) Basket (you can think of this as the Investable Universe until it’s whittled down).

& here are some figures relatively related to the list:

Names I’m already long in this area: 358 HK, 366 HK, ABMM IJ, ADRO IJ, ARII ZA, BYAN IJ, NICL IJ, FOCUSP MK, MINEROS CO, LIPIGAS CL, G13 SG, GENS MK, CGN SG, MTC TH, PAD MK, SAB VN, SSW ZA, FNI PH, INCO IJ, ICT PH, H02 SG, U96 SG, FLEX US, SE US and C07 SG.

Worth keeping in mind that when you’re investing in Indonesia & Malaysia a key component of flows is whether or not the company is halal/shariah. There are entire funds dedicated to investment in compliant securities with these religious views. Free screeners exist.

Some other bits that don’t really jive with the substack format:

-SGDUSD is worth keeping an eye on here, as it tests its pre-covid highs.

-I think AAPL will likely beat estimates when they report, and apple dividend futures seem to agree

-I think the China trade still has legs, but will become increasingly difficult for generalists to profit from as it goes from broad to sector specific and finally to specific names. This will likely eventually fit into the mold of 2023 being a stock picker’s year. Property names and property bonds still have some room to surprise, as does hard technology names. Some specific names I own that I think will benefit in the last stage are Hengrui

-Some busted (or recently not busted anymore) converts issued by Chinese ADRs are looking very attractive. BILI, WB, ZTO, HTHT (equity is also attractive, trading @ a PE of ~9 using 2019 numbers!), NIO, TCOM, MEITUA, JKS, PDD, HOPEEDU, BEST, VNET, LI etc. I especially think that the EV company ones could be a good buy here. I didn’t find any BYD ones, although if you know some please DM me comment here.

-Keep an eye on Chinese companies delisting in the US to go and relist on mainland exchanges or HK.

-I think that, thematically, automation strikes a good balance between real economy and technology. ABB, ROK, TER etc. can all end up being quite excellent buys here.

-MSTR’s converts are potentially a good way of playing the bounce in crypto, although I personally would not touch them. Senior sec (the ones secured by MSTR’s business intelligence company and anything purchased w/ its cash flow (roughly 15k BTC atm) present an interesting r/r that eliminates some crypto beta and, imo, is kind of like a credit default swap on BTC. If the price of BTC goes low enough, you’ll likely recover more than what they’re currently trading at in a bankruptcy (including cpns to that point). If it doesn’t, you’ll also probably be fine. While MSTR’s equity and converts placed an absolutely insane premium on their Bitcoin holdings, it’s more reasonable now. And it’s worth considering that MSTR did make it through the dot com crash, and the company is relatively reliable/valuable despite the antics of its CEO (who now actually is no longer the software company’s operator, he’s only in charge of “Macrostrategy” now - their crypto subsidiary - not a joke). Considering that the Silvergate loan is 200m (but requires a 50% LTV, so let’s say 400m?) and this issue is 650m with a springing maturity on all the converts, all you’d need to ensure that you are paid out in a bankruptcy is for the below [unencumbered BTC - SI loan collateral) - 250m (assumed value of MSTR BI co in a firesale) to be above 650m:

Even when accounting for principal payments out to 2025, it does so as long as BTC is above about 6k.

-Housing and associated names may end up being the surprise winner of 2023 - this includes names like HD, LOW, WSM, LZB, MHK, PHM, LEN etc. Too soon to call now but a decent portion of the “coming recession” has been priced in.

-Another thing to keep an eye on, the 2s5s10s fly is at extreme extremes:

-The recession prone/recession resilient basket from my 23 trades broke out to the upside last week, whether this is ultimately a good spot to go long recession prone names against the bid-up recession resilient names or if it’s worth waiting a little longer to get a better entry on the inverse still has to be seen.

-However, the equal weighted cosmetic basket continues to gain against MSCI world, which means perhaps it wasn’t just the recession-related “lipstick effect” driving this basket’s outperformance (obviously Chinese reopening from zero covid is a big driver as well):

-JP YCC beneficiaries continue to outperform TOPIX, although took a day of underperformance on Monday. The outperformance vs. HY REITS continues to be more significant:

-The yen has strengthened against nearly everything in the past month (but the dollar staged an interesting comeback today), and the most prominently discussed topic for the coming BoJ meeting is that they may begin lowering the maturity targeted in the yield curve framework from 10 years to 5 years. JGB swaps are already pricing in a move on the 10 year to over 1%, which would thoroughly unkink the yield curve…but they’re not pricing in a kink in the 5 year tenor. Market pressures are probably directly pushing against what I view as Kuroda’s preference to let December’s move “sink in” , but 10 year JGB futures have rebounded from Friday lows of 144.32 to 144.77. I think most of whatever they’ll do at this specific meeting is priced in at this point, both on the bond futures and the currency. But, consider that these are the charts that’ll be staring them in the face when they make whatever decision they do:

Everyone that was short JPY before the Dec BoJ meeting is either dead or has long since covered, most of the move since has been residual chasing and I think we’ll probably not get a result from the BoJ meeting as neat and tidy as the markets believe. This isn’t going to be a one and done thing, so some pain in the opposite direction may be in order for USDJPY. As I said before, the risk is to the upside on JGB futures into this print, although that risk may end up giving way to a great short entry if you missed the first one. A lot of big technical levels on the USD FX crosses, I think it wouldn’t be insane to see at least a short term bounce for the greenback. That could provide a decent buying opportunity on some of these insanely extended RoW names!

A big data print later tonight on Chinese Q4 GDP growth, Industrial Production, FAI, Residential Property Sales (!), Jobless Rate & retail figures to start the APAC session. I think this data will likely be good beneath the surface, please don’t compare it YoY but MoM if you want to get a real picture. Maybe I’ll be unbanned from twitter by then? I really did not mean to write this much. Either way, it could be worse. I could be this guy.