Unemployment Data and The Goat Rodeo: Sight Beyond Sight

For macro-strategy mindsets, the below excerpt from this morning’s note courtesy of Sight Beyond Sight author Neil Azous provides a compelling read…

Neil Azous, Rareview Macro LLC

“…Sunday, April 6th is a “Bradley Turn Date”. The Bradley siderograph – a device to predict the stock market developed in the 1940s – does not reliably predict the direction of asset prices but it does identify turning points in the financial markets (stocks, bonds, bonds, commodities) within a time window of +/- 4 calendar days.

While we don’t normally subscribe to cycle theories or astrology or any other kind of mumbo-jumbo, we will pay attention to anything that supports higher equity volatility and US Dollar strength.

Again, we have no edge or strong view on the chances of an outsized employment number today. However, our conviction is high that a very larger number will turn into a “Goat Rodeo” for asset prices. A Goat Rodeo, for those not familiar with the term, or who have never seen one, is a chaotic situation usually involving several different players, each with a different agenda/vision/perception of what’s going on. It is usually very difficult, no matter how hard you try, to instill any sense or order and 100 things need to go right. The goats just won’t follow orders.

A lot of noise is being made about performance in the professional community. The speculation is that the mean reversions of last year’s winning strategies – Small vs. Large Caps, Growth vs. Value, EM vs. DM, EU vs. US Equities, Beta/Momentum vs. defensive – was a five standard deviation event that led to the largest monthly drawdown in March in long/short equity performance since 2008 for many top-tier funds.

While many would disagree with our view, we would argue that many also do not know how these funds actually operate. The reality is that “piggy-back capital” is very much in vogue in the hedge fund community. While those who borrow the work of true investors (i.e. weak handed longs) may have sold shares, the key funds that are being highlighted currently as losers have likely sold very little. The reasons for this are that a significant portion of their fund consists of partner money and they have seen this movie many times over their storied careers. They care less about their investor base at this stage of their careers, partly because they already have a large asset base, but most importantly, because nothing has changed in their fundamental views around the names that they hold. In fact, many of these companies are severe price pressure are likely to beat earnings in the upcoming season. The point is that until their fundamental thesis changes, they have made a living for decades managing 10-20% drawdowns at the single security or index level and they are not fazed by what is happening in the markets right now. What does this mean?….” 

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