This series of posts cannot really be described as a blog or a column; the highly irregular timing of the posts have killed all my hopes of monetizing this gem of a series and becoming a thought leader or fin-fluencer. I won’t be selling passive income courses and posting social media videos about how to retire at 23.5 years old.

So be it. Having accepted my fate as a second/third tier blogger (not even with a paid Substack subscription ffs !), I have thought today would be good day to look back at some themes I pointed out a few years back - in particular in a post back in 2020 about some very long term trends.

Janus, who was the one of the few Roman gods that did not have an origin from ancient Greece, represents change. He was depicted with two faces, one looking at the past and the other at the future. January is named after Janus and for good reason. The beginning of a new year is a good time for reflection about the past and some planning about the future, notwithstanding the capriciousness of Tyche.

“However beautiful the strategy, you should occasionally look at the results”

Winston Churchill

So in that spirit, let’s look at that old post from 2020 and see if there’s anything to add circa five years later.

Trend #1 - Climate Change

If anything this trend has accelerated in terms of planet scale weather anomalies. While it is still debatable what causes this climate shift and how we can address this effectively on a global scale, what is undebatable is the amount of “greenwashing” and virtue signaling (at the government, corporate and individual level) on a scale never seen before in human history.

The major issue is that the world has different priorities in different regions. We do not operate as a “human species”. We operate as factions in terms of climate change. I do not see that changing soon - the trend will remain intact. On the back of this one way trend there’s a bunch of opportunities to be positioned long term directly and indirectly.

Trend #2 - Ageing Population

That is a slow but unstoppable trend as well. The world still has population growth but not at the rates curves predicted a few years back. If anything we may be reaching a peak earlier than expected around 2040-50. This following podcast, although commodity focused, is a great listen on the topic.

The ramification of better longevity and less fertility will be a massive thematic for decades to come. Once again multiple angles to play here either directly related or affected by this trend.

Trend #3 - Global Leadership War

Well what can I add here … an AI generated image tells 1000 words ! The trade that keeps on giving volatility to what would be otherwise dull markets. Imagine the VIX levels without this thematic ! Given the current cast of players I do not see any geopolitical alignment soon with massive ramifications for inflation, global debt levels and multiple regulatory positioning & arbitrage opportunities.

Trend #4 - Artificial Intelligence

Anyone say NVDA? ARM ? AI everything ? While we are close to reaching the limits of the current LLM stack capabilities we have by far surpassed the original Turing Test criteria. This is an exponentially accelerating trend.

Now the question is, can we achieve true Artificial General Intelligence? Do we want to ? Who will own it ? Can or should anyone own it ? Many questions here but still a massive, albeit super volatile new phase for this mega trend.

For the more technically inclined (geeks) here is a very interesting thesis on the trend by a new fund : https://situational-awareness.ai

This is the one trend that can impact all others, especially if the holly grail of AGI is achieved. You can’t ignore this, whether you like it or not, whether you believe in this or not, you will be impacted sooner rather than later. Ignore at your peril.

Trend #5 - Digital Assets

Ahhh !… The one trend that has more near death experiences that any other ! Volatility, “Concerned” Regulators, the SEC, bankers with nice ties, academics with beards and your uncle that knows everything … they ALL predict with alarming regularity the death of this asset class.

With the new US administration pro digital assets and the biggest fund manager of the world giving institutional credibility it is a trend that will continue unabated. Expect volatility but also expect B2B payments globally to shift to blockchain, passive asset management to become protocols and financial instruments to become code.

Trend #6 - Brain Science

I had the privilege to attend the XPANSE conference in Abu Dhabi last year. If you have read up to now you may have the patience to hear Sir Penrose discuss the link between quantum mechanics and consciousness - the human condition type, not the AGI one. And it led me to think the reason this trend is still not apparent or significant is due to that yet undefined link. We need to understand consciousness to understand the brain. Maybe no matter how good our data capture becomes, it is simply not enough to understand and move forward significantly in this domain. Something to watch but not an area which has shown the breakthroughs that I expected yet.

So what, one may I ask ? Apart from patting yourself on the back for making these calls why should I care ? How do I take advantage without losing my sleep on volatile positions that may take years if not decades to play out ?

Being lazy I will just copy a segment from the 2020 post.

Realisation of the existence of a trend and acting upon it means exposure to assets and sectors that will be impacted long term by it. It also means actively managing liquid market risk, keeping your account healthy and yourself sane while still believing (think a bit about Bitcoin volatility). It also means focusing your skills and life to benefit from these trends while actively avoiding the negative effects they may have.

On the back of this I also have some new ideas this year on how to actively manage directional and tail risk in these supertanker trends - stay tuned !

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I occasionally share market commentary and random musings here. None of this should be taken as financial advice - just the ramblings of a trader with some experience. Connect with me on LinkedIn before I leave that platform as well.

Gm readers ! Late last year I had the privilege to be invited to the Nalu FM podcast on the subject of digital assets, hosted by my friend and ex Salomon Brothers colleague Stefan Wagner. We talked about some basic stuff on crypto, some not so basic (but kind of important) topics around trading and risk management plus … movies.

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Spotify

Podomatic

Louis Winthorpe III : [approaching the New York Commodities Exchange]  Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. Nothing you have ever experienced will prepare you for the absolute carnage you are about to witness. Super Bowl, World Series - they don't know what pressure is. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?

- Trading Places (1983)

You can find me from time to time on Twitter and also occasionally playing with charts on TradingView or posting updates on Telegram. Happy to connect.

First things first: Wishing all my subscribers and readers a healthy and deeply meaningful 2022 ! May Omicron (and any other Greek letters of doom) never trouble you or your loved ones. May you be hedged against (temporary or less temporary) inflation. May you find Alpha of the financial kind. May you skilfully avoid bullshit, time-wasters, frenemies, office politics and fake news. May the year 2023 find us all to be a better version of ourselves.

I have spoken.

My 2020 thesis that crypto & digital assets will develop into a major asset class has proved 100% correct as the ecosystem has grown to circa 2.3 trillion dollars market cap1. 2021 has been a breakout year for these assets and I expect in 2022 digital assets will gain much wider recognition and adoption globally but still at the beginning of a decade long supertanker trend.

I would like to quickly revisit my early 2020 static pandemic portfolio as I think it is time to rebalance it substantially or even unwind it.

• Why stop out a winning trade up 533% ?

  Well in short: inflation and the associated uncertainties around monetary policy adjustment speed. Markets that have been a one way street will become more choppy and an active management approach is suitable for the coming year. I had written an article on tactical asset allocation here. In my view (and after admittedly being wrong about beta last year) active is the way to go.

• How about the virus ?

  I think we are close to the end of the tunnel. This virus will be with us for a long time and I think markets are already pricing in the most probable scenario of weaker mutations. In the case of a killer mutation there is a larger epidemiological and monetary toolbox to fall back upon and I think this is also priced in to some extent. If there is a multi-sigma black swan event hitting the markets it won’t be coming from this theme.

• What about digital assets ?

  • BTC: The “Digital Gold” of the asset class has significantly reduced its dominance in the space as other L1 protocols and Altcoins have grabbed investor’s attention. Expect BTC to grind higher as more institutional investors and corporate treasuries allocate. The era of retail driven rallies is mostly over but this also means we will see fewer and less severe liquidations from highly levered accounts. Stay long, don’t freak out, ride out the vol. The HODLers abide.

  • ETH: As transition to Proof of Stake nears and supply of ETH reduces I can easily see ETH outperforming again BTC in the new year. The one investment I think should be in every portfolio together with BTC. Relative value plays vs solid L1s are interesting. Gas fees still a major turnoff.

  • Altcoins: L1s will compete with L2 scaling solutions. It is unclear if L2 scaling can detach itself totally from L1 scalability but that will be a secondary point given the noise in the space. Expect ecosystems with many DApps to outperform. As always the number of scams will continue to be high so credible teams are going to be a key point in asset selection. The anonymous builder trend will fizzle out and the meme coins will have a harder time this year. This universe of assets is the most interesting trading space.

  • DeFi: Similar to the explosion of startups in the dot-com era, a lot of DeFi will be gone in the next years. The ones that survive will be the new capital markets infrastructure of the 2020s. Avoid complex incentive mechanisms and tokenomics and focus on the utility. Finally beware of algorithmic stablecoins that claim they have solved the under (or zero) collateralization issue. It is only when you-know-what hits the fan that this can be proved, not in the white-paper. The most interesting and deeply intellectually stimulating area of crypto.

  • Metaverse & Gaming: A massive darling of both investors and retail punters. I will be in the minority and say it is bound to disappoint given massively inflated expectations. Few understand that game dynamics, storytelling and community are not created easily (and at scale), especially when one faces challenges of real time delivery using AR/VR on legacy hardware. Having said that, the potential launch of Apple hardware in this space could be a catalyst for some massive winners here.

  • NFT: This is the year that NFTs break out from ape/penguin/punk jpegs and massive insider trading to take their rightful place as core financial lego building blocks of modern portfolios. In the same way people were debating if a 1% allocation to BTC made sense they will soon debate if a 1% allocation to an NFT index or fractionalized NFT portfolio makes sense. And remember : NFTs can represent anything non fungible ! Not only stoned cartoon characters.

  • DAO: The ancient Greeks found out the limits of democracy 2500 years ago. The DAO communities will need to attack again this issue if true decentralisation can be claimed for the structures. A force to be reckoned with in terms of crowdfunding, they have a long way to go as effective governance mechanisms.

  • Tokenisation: It has been the theme that is always there but never really takes off. I expect more of the same until the regulatory framework is such so that institutions can be properly involved. I think 2023 onwards.

  • Volatility : Implied vols are relatively low and are headed lower. DeFi projects that are active in selling vega for extra yield are the main driver here but also a sign of the asset class maturing. Look for opportunities in tails long vol or skew trades. I will be doing much more here this year as the liquidity has improved dramatically. I expect complex structured products on-chain to be a major innovation.

  • Regulation: Regulators globally will operate at two speeds. The ones that understand the inevitability of the technology will seek to regulate but not eliminate innovation. The ones that are stuck in the dark ages will try to ban the tech and scare investors. I think there will be regulatory clarity in the US till year end and the bright spot onshore will be the in the UAE.

  • Enterprise: “Blockchain, not Bitcoin” was a stupid statement and still is. It is equivalent to saying “[insert database], not [application]”. That phrase which was created out of fear of ridicule and/or career risk will disappear in 2022 making enterprise blockchain ventures an unexpected winner for patient investors and builders.

One of the resolutions that I have recently made is that I will not be spending any more time in 2022 trying to debate with anyone about the value of digital assets. The only upside of these discussions is that I have found my best contrarian indicators to be super knowledgeable finance OGs vehemently opposed to the asset class. For the crypto FUD crowd I will just leave a few quotes here that may help put things in perspective.

“The horse is here to stay but the automobile is only a novelty, a fad.”

- President of the Michigan Savings Bank advising Henry Ford’s lawyer, Horace Rackham, not to invest in the Ford Motor Company, 1903

“There is no reason for any individual to have a computer in his home”

- Ken Olson, DEC CEO, 1977

“There is no chance the iPhone is going to get any significant market share. No chance”

- Microsoft CEO Steve Ballmer, 2007

I stopped writing this newsletter in early 2021 as I joined the investment committee of a regulated asset manager, leading their digital assets effort. It was a period where I learned a lot about the perception of crypto by traditional finance investors and I also had the privilege to work with a great team. It was however, a grey area from a regulatory standpoint whether I should continue this newsletter, hence the pause.

For the rest of the year, I will try to send monthly posts on subjects that I find interesting and hopefully you as well. There will be a bias to digital assets as a thematic but this won’t be another crypto only newsletter. I am also considering a more frequent weekly format with active strategy ideas if there is demand; DM me to let me know if that would be of interest !

This may be a good point to spell out that this newsletter is not investment advice and it is for information purposes only. It is an open public record of my personal interests and trading (and associated P/L !).

You can find me from time to time on Twitter and also occasionally playing with charts on TradingView or posting updates on Telegram. Happy to connect.

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Nobody will be missing the year 2020 AD apart from the various beneficiaries of the biggest monetary intervention in history (you know who you are). As it has been some time since I posted anything, I felt it would be a good opportunity to look back into some of the portfolios, themes and trades of 2020.

Let’s start by the pandemic portfolio I suggested back in April 2020 - the low equity exposure pandemic portfolio (LEEPP ? … nah have to think of something more catchy). In a year where equities scaled new highs, was it possible to get decent returns from a rather boring portfolio with smaller downside excursion probability than stocks by the strategic addition of small asymmetric upside bets ?

I think the answer is an unequivocal yes. My uninspiring non 60/40 low equity exposure portfolio outperformed handsomely Nasdaq by showing +218% returns from inception in early April to the end of 2020. And it is much higher in 2021 given the massive moves in digital assets.

So what can we expect in 2021 ? Well, in short probably more of the same: rising real asset prices on a backdrop of zero rates and massive global socioeconomic uncertainty while the pandemic is in its (hopefully) final legs.

I think the more pertinent question investors should be asking is: what can we expect in the 20s - what does this decade bring ? Another roaring 20s after a century’s cycle or something more sinister ?

Referring to my Amara’s law newsletter post, let’s revisit those long term trends as a potential guide. Will be focusing on these themes in longer, more focused posts in the future.

• Climate Change: Yes there are still people denying it but there are also a lot of active flat earth groups on Facebook. As the facts are now impossible to ignore expect ESG, Renewables and Electrification to keep dominating investor’s radars in the years ahead. Furthermore expect wake up calls around “greenwashing” and a related tech industry to emerge around monitoring and verification of stated environmental data. Artificial intelligence and blockchain will play a central role in this process.

• Ageing Population: The demographic time bomb, the pensions gap. Everyone keeps hearing it but the message is lost in the ocean of money printing. Nevertheless, expect pension funds to start allocating more in line to my philosophy of strategic smaller asymmetric bets as they slowly but surely move away from the 60/40 model where the bond income cushion is gone. The disconnect of global population profiles with Africa and other emerging markets will also provide numerous opportunities.

  

• Global Leadership War: Back when I was writing about CBDC I felt that monetary wars would possibly be at the heart on the clash between the United States and China. Another possibility is how these two blocks deal with the global debt overhang both internally and internationally. Debt cancellations are not out of the question anymore. Expect to hear soon much more about debt jubilee as an option. Macro trading will be all about this leadership war and the resulting currency moves, associated reflexive digital asset trends and global private and government debt restructuring.

  

• Artificial Intelligence: Linked with population ageing, expect more and more unexpected automation, even in areas that once were considered “human capability only”. By the end of the decade only jobs requiring human level dexterity or unique creativity will be “human only”. That will bring some variation of UBI, an initial form of which we saw during the pandemic.

• Digital Assets: First they laugh at you and so on… Expect to hear about the death of Bitcoin on every drawdown going forward. It’s a long term trend which cannot be ignored anymore. For early believers 2020 has been a vindication after the crash of 2017. For traders it is an asset class to be allocated and traded with a long bias actively. There is no going back.

  

• Brain Science: The “moonshot” technology category. As the disconnect in brain imaging between spatial and time domain resolution reduces exponentially, together with improvements in AI, expect to see a new era of unexpected “network effects”. Not something to be traded easily now but to be followed closely for an engineering catalyst that will create a massive new tech industry.

You can find me from time to time on Twitter and also occasionally playing with charts on TradingView. Happy to connect with driven and action oriented individuals in finance and tech that enjoy building and collaborating on non-zero sum, positive impact projects.

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CBDC will be on your reading list and probably on your phone sooner than you think.

CBDC is essentially electronic money issued by sovereign central banks. It is legal fully state backed e-money. There is a very interesting paper by the BoE on the introduction of CBDC in the UK. However, as global central banks are debating the issue China has already started live testing. And the implications are enormous.

Before any discussion of CBDC lets look at some well known but still startling statistics:

• The US population is just 4% of the global population

• The US GDP is only 15% of the global GDP

• The US Dollar is the currency denomination of 40% of global outstanding debt

• The US Dollar is over 80% of all global trade

• The USD crosses are over 90% of global FX trading

Having settled on why currently there is really only one reserve currency of significance in the world it may be a bit clearer why a digital yuan or other central bank digital currency could impact this equilibrium. As briefly discussed in a previous newsletter on global geopolitics, the outcome of the global confrontation will largely be a war over monetary dominance and determined by who controls the reserve currency. This is not lost on the Chinese Party. It is also not lost on other big and small players that feel the power and leverage of the US sanctions on their banking matters daily.

Despite the hopes for cryptocurrency and in particular for Bitcoin to be a stateless global currency it is unfortunately not the case yet and may never be for a number of reasons. A Chinese backed stablecoin however is a different matter. It would be a state liability and unlike bank deposits that are the liability of private firms (guaranteed up to a certain level by the state), it would be as good as cash for unlimited amounts. But safer, faster, cheaper to transact, peer to peer. It would also be totally trackable by the state.

I guess participants will choose their poison; unlike fully decentralized private volatile unbacked crypto there will be easily traceable state and commercially backed stablecoins. Potentially in this new world, hybrid community currencies can become significant forces as well; some with geographic limits and some within globally well defined activity groups.

If I had to take a bet I think the user experience will dwarf any privacy concerns and the winners will not be dictated by regulation but rather by trust. Can I trust the value of what I hold in my e-wallet ? Can it meet easily and with safety my needs and can I convert it and exchange it without friction and without price volatility? These questions can be answered in multiple ways by various state and private players. The Chinese e-Yuan is the catalyst; expect a deluge of developments.

Will the Fed come out and establish an e-dollar or the BoE an e-pound ? Will the Facebook nation-state manage to do that (semi) privately with the Libra project ? Could Japan with their early legal acceptance of crypto surprise everyone with the digi-Yen ? Or maybe the IMF creates a supranational super-SDR for global trade ?

The introduction of CBDC has one major downside that has kept development slow by governments. It is the banking sector and the availability of loans. In a zero rate world why would anyone deposit in a bank and not with the central bank ? When that happens however, loans to support the economy will dwindle. That fine line is not lost on policy makers. Crowding out of bank deposits can be easily avoided in a non zero interest rate world; CDBC could be set to yield zero while deposits have interest. Given the Japanification of global rates however it is unclear if this strategy can work in large parts of the world; all in all a great monetary experiment.

Central banks have given multiple reasons on why they are looking at CBDC now. On the slides by the BoE however only one reason really stands out. The rest are cosmetic. Fiat money is on shaky grounds. Global fiat debt is exploding to dizzying heights. Gold is an alternative but not a viable solution for most. Crypto is also an alternative but too volatile. More and more people understand that their faith on a fiat currency is just that; a faith.

Central banks have to retain their long term significance and power to keep the monetary wheels in motion while inflating like crazy their balance sheets; the only way forward is via digital money that can spread widely and fast. An illusion becomes a reality when a lot of people believe. And central banks need people to believe right now more than ever. Central bank digital currencies are a solution for everyone from Manhattan to the remotest areas of Africa. And if they are backed by the state, as a bonus they help keep the global debt ponzi scheme alive and kicking.

The path for the unfolding of the above is unclear but the end result is uncomplicated. A war on the dollar as a reserve currency is underway and the nation or nation-states that can create the next generation of borderless stable money will dominate the global leadership race.

“Novus Ordo Seclorum” means “A New Order of the Ages”. It is printed on a widely circulated physical green piece of paper which currently anchors the global economy.

I am an experienced finance and technology professional with a 25 year track record in global financial markets quantitative macro trading, portfolio management and deep technology startups.

You can find me from time to time on Twitter and also occasionally playing with charts on TradingView. Looking to connect with driven and action oriented individuals in finance and tech that enjoy building and collaborating on non-zero sum, positive impact projects.

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Well … here is a chart of the ratio of growth stocks over value. Looks like two decades where we had two massive trends only to end up more or less where we were back at the turn of the century. Value outperformed growth after the 2000 dot-com bubble burst until the financial crisis of 2008. Rational investors would have expected an acceleration of value outperformance given state of the global economy at the time. Lo and behold growth stages a massive comeback up to date. The fuel ? Cheap money, bailouts, Fed backstop in fixed income markets. Sounds familiar ?

It is even clearer as a historical review, where instead of a ratio we just show return charts. Anyone invested in value stocks not only underperformed growth but seems to have lost decades worth of investment upside …

And the final nail in the coffin: Warren Buffett YTD has underperformed both value indices and growth indices. How is that possible ? The Oracle of Omaha !

There are so many academic papers on the subject and an avalanche of opinions; some more informed than others. I am not here to preach. For one I am not an Oracle.

The Roman philosopher Seneca said : “Res tantum valet quantum vendi potest” or “A thing is worth only what someone else will pay for it”. And here lies the crux of the matter.

Helicopter money will keep favouring growth names. It will also keep volatility subdued (but not risk) and markets extremely fragile to downside multi standard deviation moves. Value investing is not totally dead but I cannot see how it will come back from the twilight zone easily. For one, the new generation of investors (the Robinhood crowd) are “brand” investors without any valuation metrics in mind when they hit the buy button. The older generation will not take risks; their bond holdings are about to yield negative and they will hold on to what is left of their principal. And the rest will hang on for dear life on the passive index strategies (favouring growth) hoping the miraculous Fed put does not expire before they retire.

So what is the value of value ? For choice, I will go with Seneca. It is what most investors will pay for and it currently looks to be a discount to growth. Now and in the near-medium term. And the only way to navigate any potential shift back into value is not hope or belief. Rigid beliefs in investment themes is one of the worst mistakes investors can make. The way to follow and trade back into value is via systematic, quantitatively driven methods of allocating capital between equity factors that have persistent trends.

When the herd votes value, vote with them; not before.

I sometimes post markets commentary along with random thoughts on Twitter. Occasionally I post trading strategy ideas on TradingView or on Telegram. Feel free to connect with me on LinkedIn.

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• Climate Change

• Ageing Population

• Global Leadership War

• Artificial Intelligence

• Digital Assets

• Brain Science

What defines a long term trend ? Well for one it is usually not a relatively obscure new subject that gets attention. In all long terms trends the data has been available for many years if not decades. It is the gradual awakening of an ever increasing number people to the direction of the trend that creates the mechanism of wide recognition. There is no “eureka” moment. The pieces of the puzzle are visible to all that are willing to look. The ones with more imagination may recognise it first. But eventually the trend becomes clear for all.

The reason why those larger trends do not become widely recognised earlier is not only a failure of imagination. It is also due to the constant pre-occupation of the human race with what is immediate. The tyranny of short term thinking, quarterly reports, incessant (mostly negative) news-flow and our brain wiring that nature has evolved to recognise short term patterns in order to survive, are all factors to our bias.

“We have no future because our present is too volatile. We have only risk management. The spinning of the given moment's scenarios. Pattern recognition.”

- William Gibson

There is an interesting principle, called Amara’s Law. Coined by Roy Amara, it states that we tend to overestimate short term effects and underestimate long term effects. He spoke with respect to technology but I think the same principle is applicable to most transformational trends. We think linear as our pattern recognition biological inference engine hums along between our ears. Linear is almost never true long term.

In terms of investing these long term trends present massive opportunities shaped by Amara’s Law but not without risk. As an example lets take e-commerce. When Amazon was starting 20 years ago it was becoming clear technology and the Internet was a long term trend. Looking at the stock price in log scale however one has to admit the ride early on was really scary.

From over a 90% drawdown between 2000-2004 to now becoming the most valuable company in the world. Imagine believing in the trend in the early 2000. Would you have stayed long ?

So for investing in any long term trend the realisation is not enough. One needs to time their exposure in order to stay in the game and sane at the same time. Buy and hold doesn’t work in long term trends if one wants to be in early.

IS PE or VC a solution ? I mean they do tend to lock you in for years so you can ride the long term thematic without visible volatility. The answer is unfortunately not. PE buys cash flow businesses, levers them up and then de-levers via operational efficiency to rerate their assets. Doesn’t work if you dont have a lot of sustainable cashflow, which is the case for most transformational businesses at the beginning. How about VC ? They make risky investments, right ? Well … although better positioned than PE firms, they suffer from that terrible disease called groupthink. Amazon raised a tiny amount of VC capital. Same for a lot of other truly transformational businesses. On top of that most investors cannot really access the good PE or VC funds. Their high minimum entry tickets make them only available to very high net worth investors or institutions.

All is not lost however. Realisation of the existence of a trend and acting upon it means exposure to assets and sectors that will be impacted long term by it. It also means actively managing liquid market risk, keeping your account healthy and yourself sane while still believing (think a bit about Bitcoin volatility). It also means focusing your skills and life to benefit from these trends while actively avoiding the negative effects they may have.

It is not as easy as buying an ETF but why should it be ? When it’s as easy as that you’ve most likely lost a big chunk of the upside and its probably a bit late in the game.

“Follow the Trend Lines, Not the Headlines”

-Bill Clinton

I sometimes post markets commentary along with random thoughts on Twitter. Occasionally I post trading strategy ideas on TradingView or on Telegram. Feel free to connect with me on LinkedIn.

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The historian Thucydides (460-400BC) describes in some detail how the plague originated in Africa, the wide and fast spread in Athens, the suffering of the patients and the struggle of doctors to contain it while putting themselves in harm’s way with many falling ill in the process. Sounds familiar ?

“Words indeed fail one when one tries to give a general picture of this disease; and as for the sufferings of individuals, they seemed almost beyond the capacity of human nature to endure. The most terrible thing was the despair into which people fell when they realised that they had caught the plague; for they would immediately adopt an attitude of utter hopelessness, and by giving in in this way, would lose their powers of resistance. As for offences against human law, no one expected to live long enough to be brought to trial and punished: instead everyone felt that a far heavier sentence had been passed on him.”

-Thucydides

The Athenians were engaged at that point in time in a savage war with the Spartans. And although the war kept on going for two more decades, the plague determined not only the outcome of the war but also the path of Greek and world history. Pericles, the leader of democratic Athens perished in the epidemic along with a lot of significant statesmen. At the end of the war a pro-Sparta oligarchy of tyrants ruled Athens and its people. That was the first blow to Demarchy, the ancient Greek method of democracy that is not really mentioned or taught extensively nowadays as it is democracy possibly at its best, without the burden of self serving elites that our current “democracy” suffers; but that is another long story.

One can make their own parallels to the current situation but before looking at what this could teach us, let’s move to the present. Harvard professor Graham Allison coined the term “Thycydides Trap” to describe the situation where the rivalry between an established power and a rising one often ends in war. In the same way Athens’ meteoric rise to power (via trade, technology, science and the arts) triggered a reaction by the dominant military power of Sparta, the current setup of a dominant United States vs a rising China may trigger the same clash. In fact history suggests war has inevitably been the outcome of these tensions between dominant powers and challengers. Many doubt WWIII is a viable path in an era of mutually assured destruction nuclear weapons. But is war the only possibility ?

“Knowing where the trap is—that's the first step in evading it.”

― Frank Herbert, Dune

Before the pandemic, the trade tensions between US and China were at the center of attention and the drivers of market volatility. Post pandemic they may or may not return to the foreground. The realities of the post-covid world are becoming clearer every day. In particular globalisation has stalled and is probably in reverse. The Chinese focused global supply chain will slowly but surely change. Global travel will not recover soon. Demand patterns will fundamentally change. Less “stuff” will be moved around the world and used. Tariffs will have gradually less of an impact. Digital business will thrive.

So putting together the plague of Athens and the Thucydides trap narrative where can one see things going ? Given 21st century technology I would say the current pandemic is not in itself enough to topple the US as the dominant global player, at least not immediately. However, the effects of the plague were felt decades after its end in ancient Greece and there are hints the same long term thematics may be at play.

A reduction of democracy, centralisation of power driven by monetary policy (the big enterprises benefiting disproportionally), a widening gap between rich and poor and dominance of technology platforms. At the same time China is already there. There is no hint of democracy, the party holds absolute power over public and private enterprise. The elites function differently in the US and China but the effect is the same. The pandemic will only accelerate the transition of the US into a power that is closer to China in some ways than its former self surprisingly.

What about Europe in all this ? In my view, the EU is quickly moving to the role of an irrelevant coalition of trading partners, inwards looking and bureaucratic; a coalition of the weak. A strong coalition (or even better a federation) with common economic and foreign policy, might have been able to emerge out of this as the new global leader. This is not the case; cultural and historical reasons sadly explain why.

“War is a matter not so much of arms as of money.”

― Thucydides, History of the Peloponnesian War

In the end a “war” will happen. But this time it will be an all out war around the global reserve currency and spheres of economic influence rather than guns. Debt capacity vs inflation and monetary trust will be a central theme. Technology will play a central role in this conflict, only this time in controlling the flow of information with AI devouring jobs at an increasing rate while creating all powerful data monopolies. The reversal of physical globalisation may hurt China mortally or force it to grow and evolve in other unexpected ways. It remains to be seen who comes on top in this “war” as the situation develops over the next decade.

The pandemic just pressed the fast forward button on all this and the choices we all make now will determine much more than next quarter’s GDP. The outcome will not only shape the lives of billions of people but also the future of our planet.

“Those who fail to learn from history are condemned to repeat it.”

-Winston Churchill

Some tweets from this past week

Markets

Let me take a step back after two months of weekly newsletters to asses the situation. The market has been flooded in liquidity. In the process, both equities and bonds are now untethered from any kind of economic reality. The type of value opportunities I was hoping to explore within say a 6-12 month timeframe disappeared in an ocean of printed money in a matter of days.

I would have preferred a different short term outcome, where active strategies in more asset classes would have shined. For the curious and independently minded investors I still advocate to look into those; I am available to discuss with interested readers.

I believe there will be a new and harsh reality check around the end of the summer. August to October has been historically a time of financial market stress. After the written-off Q2 results are out, the handouts spent and the pandemic cheques used up, there may be another bout of reality triggered volatility. Maybe that also gets solved by another few trillion dollars or so; maybe not. I have decided I will refrain from publishing trading strategy ideas here, at least not in the same open format. If there is enough interest, I will resume posts with markets strategy ideas in some form, probably for a closed group of interested and engaged participants. In the meantime, I will continue to write shorter occasional newsletters with mostly a markets thematic.

Transparency Time

As a trader I found in the last two months some compelling opportunities that I posted in the newsletters and other channels and in the spirit of transparency I will make a quick recap. This is not to prove that there were valuable nuggets of advice in these posts (there were !) but mainly to demonstrate money can be made in all types of market regimes and not just by passive equity long beta. I am also a numbers guy; P/L never lies. Macro stories are nice and make good blog post material but the investing bottom line is about committing capital and the associated profits and losses. Skin in the game and performance is the part of the equation that often gets lost in follower counts.

So here goes for the record:

1. SP500 Mea Culpa : I did not believe the equities rally. I did not short it (thankfully !) but I had nevertheless a big opportunity loss on a decent move up. I am thinking we may see a melt up in the region 3100-3400 till a new reality check. In my defence I thought levels around 2000 were entries but did not expect the rebound would happen from higher levels and so fast. PL = 0.

   
   

2. Short Equities vs Long Gold : SPY/GLD PL = +6.66%

   

3. Short volatility VIX @ 80 : PL = 40+ vol points in the money - call it +50% but it depends a lot on how this was executed (futures, options, …). This one was my favorite trade for so many reasons …

   
   

4. Crypto : ZRX token long PL = +223%

   
   

5. Commodities : CRB PL = +4.9% (chart here)

6. Airlines : Lufthansa cheeky long PL = +1.3% (chart here)

7. Refiners Crude recovery trade : CRAK vs SPY PL = 0 (chart here)

8. Balanced Defensive Portfolio (suggested 5th April) : PL = +28.2%

   

9. Metals: Silver long PL = +0.6%

10. ETF Value play : DVP PL = 0

11. ETF Value Play : VLUE PL = +3%

12. ETF Value Play : IWN PL = +5.4%

13. Energy majors : XOM PL = +9.65%

14. Energy majors : RDS-B = -4.49%

15. Energy index options : XLE Sep40 & Sep45 Calls PL = 86%

So net-net this quick transparency exercise shows :

• 15 bets (14 really as I never stepped into the SP500 index trade either way) : 11 positive, 3 flat, 1 negative.

• Best trade up +223%, worst trade down -4.49%.

• Average Return : 27.6% over 2 months

• I have not included positive p/l on my longer term outright positions in Gold & Crypto or my systematic models; only the trading sample of the last 2 months that I have posted real time in public is here.

I will take that as a good open experiment with major indices flat(ish) on the year including a major drawdown/death dive towards the abyss.

Onwards and upwards !

“There is only one side of the market and it is not the bull side or the bear side, but the right side.”

​- Jesse Livermore

I sometimes post markets commentary on Twitter and positioning ideas on TradingView and on Telegram. Feel free to connect with me on LinkedIn.

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The aim for TAA is theoretically to manage the risk return profile of a portfolio so as to maximize investor returns while reducing risk. TAA is theoretically what gives investment advisors their edge over a simple passive index investment and is used to justify fees for robo-advisors. Most portfolios are built using exchange traded funds to give access to passive strategies and easy rebalancing options. Some however do actual security selection on various factors trying to outperform the market on a risk adjusted basis.

It is important to ask the question: What exactly is better risk adjusted performance ? Some would say lower risk for same return without too much thinking.

OK return is clear but how is risk defined ? Again the standard deviation of returns blah blah - is that it ? Lets see some scenarios.

• A -10% return has same risk impact as a +10% return - is that reasonable ? (Nope)

• Straight line smooth positive returns have low risk due to minimal standard deviation - however they seem to be followed by blowups (option writing) or frauds (Madoff) - but till blowup they look stellar ! (Whatever looks too good, probably is)

• A portfolio has constituents that are de-correlated to some extent hence shows good risk characteristics until a crisis develops, correlation goes to one and the portfolio melts down pronto … (always think of worst case correlation scenarios)

• Risk in an illiquid portfolio of a REIT or a credit hedge fund is hidden and the daily NAV gives the sweet illusion of liquidity and low risk as small daily returns accumulate. Then unexpectedly the NAV is suspended/redemptions are gated. Just because you cant see the risk doesn’t mean its not there. (if you are on a bumpy flight but you are sleeping soundly in your seat it doesn’t mean the flight is not bumpy).

• You have a fully backed commodity ETF like USO. It is supposed to track crude oil. You think you carry crude oil risk only ? Is the variability of crude prices the risk ? Think again. You carry credit risk (somebody is managing the vehicle) and as recently seen you carry futures roll risk plus delivery risk. (find out what exactly you are exposed to).

• A portfolio has a 20% loss from the peak (drawdown). Does the recovery time and path change how risky the TAA portfolio is ? In other words, are prolonged drawdowns which are psychologically easier to stomach better ? (answer is no)

• Bonds have been less risky as they have coupon payments and in that way “hedged” an equity portfolio. How safe/risky are bonds in a zero rate environment? How do they hedge (or not) a TAA portfolio ? (How much do you trust the Fed or central banks ?)

• Is a Trend Following CTA risky if it works really well in the times you need it to do so ? (no - it is one of the best portfolio diversifiers that exist).

• Among two return series that have the same standard deviation risk but one is more predictable which one is more risky ? (entropy as a better measure of risk will be the subject of follow on post).

These are some of the questions to ask to your advisor or wealth manager when they are selling you their TAA magic showing you a nice smooth chart going up.

For those that have asked me for a list of ETFs I am providing one below. It is not exhaustive and there are a ton of other similar structures in AMCs (actively managed certificates) in Europe and other structured products. It is a starting point if you want to do your own allocation or discuss allocation choices with your advisor.

SPY : S&P 500/US Large Caps

IWM : US Small Caps

QQQ : Nasdaq

IWF : Large Cap Growth

IWD : Large Cap Value

MTUM : Momentum Factor US

VNQ : US Real Estate

REM : US Mortgages

TLT : Long Treasuries

IEF : Mid Term Treasuries

SHY : Short Term Treasuries

LQD : US Corporate Bonds

HYG : US High Yield Bonds

EEM : Emerging Markets

GLD : Gold

SLV : Silver

DBC : Commodities

There are thousands of ETFs (by some estimates 5000 !), so the above short list is just a starting point for the curious. One needs to consider credit risk, liquidity, tax treatment and transaction costs. Happy to point our specialised ETFs and vehicles that may be of more interest to you.

I have included a quick example of TAA curves below. In black, the typical 60/40, in hopeful orange a dynamic quant TAA. If you like the orange curve feel free to reach out. It is never too late to think of the next “unexpected” crisis or leg down in equities.

Some tweets that caught my attention last week :

I sometimes post markets commentary on Twitter and positioning ideas on TradingView and on Telegram. Feel free to connect with me on LinkedIn.

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Dow to GDP Ratio

Inflation Adjusted WTI Crude Oil

“As the Chinese say, 1001 words is worth more than a picture.”

- John McCarthy

Happy to answer your questions and hear suggestions for subjects to explore. I sometimes post markets commentary on Twitter and some markets ideas on TradingView. Feel free to connect with me on LinkedIn.

I have recently started a Telegram channel where I post intraday live news and ideas and you should join it at t.me/entropycapital if you trade more actively or want to hear more ideas than the occasional email newsletter. This past week I focused on opportunistic trades in energy stocks and options catalysed by the oil storage problems.

In these times of uncertainty I am happy to offer all my newsletter subscribers free private 30 min consulting sessions on their portfolios & strategies. Not investment advice but rather strategy building. You can book a slot on my calendar here. I will be keeping this option open till the end of April only.

If you find this newsletter useful or interesting, and want to show your appreciation, the best way to do that would be to sign up, share it on your social media, or forward it to someone you think might get some value out of it.

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Passive management (also called passive investing) is an investing strategy that tracks a market-weighted index, for example the SP500. The theory goes that no investor however skilled can outperform the market so it makes sense to hug an index and invest long term. The data support this hypothesis, especially if you choose to exclude market crashes.

“Two-thirds of professionally managed funds are regularly outperformed by a broad capitalization-weighted index fund with equivalent risk, and those that do appear to produce excess returns in one period are not likely to do so in the next. The record of professionals does not suggest that sufficient predictability exists in the stock market to produce exploitable arbitrage opportunities.”

-B. Malkiel

I will not discuss the merits or the pitfalls of passive investing per se. I am more interested in discussing the orthodoxy that allocating one’s savings and investments in passive strategies makes sense. This allocation definitely has implications for individual investors but it also has long term unintended consequences not only for the investors but for pension funds, the overall allocation of capital in the economy and finally the fragility of the markets which require every so often saving by central banks. No better time to think about all this than now; in the middle of the largest central balance sheet expansion of all times. And possibly in the eye of the storm.

The passive investment revolution rests on the theoretical basis of the “Efficient Markets Hypothesis”, which in essence says prices reflect all available information. A direct implication is that its is impossible to beat the market legally (insider trading set aside) given current prices will only change in the face of new information. Beating the market is impossible.

How does that work with the latest crisis ? Is the current rally another justification of the hypothesis and passive investing ? Well … yes and no. The fact the the majority of players expect a miraculous V-Shape recovery can explain the last two weeks bull run. The Fed backstopping the markets (including junk bonds for the first time in history) and the government bailing out private companies means people feel safer than ever that their own money is used to prop up the markets. That information is priced in. What looks like not priced in is the non zero probability of the demand side of the equation not matching the supply side quite soon. The market is simply trading as if the outcome is crystal clear.

In my view only the following five things are clear:

1. This pandemic is of historical magnitude

2. The economic contraction of this global hard stop is unprecedented

3. We are witnessing the largest monetary policy experiment in history

4. The world’s most traded commodity (oil) is collapsing

5. Globalisation has clearly stalled and is reversing

In my view the uncertainties are still too great be able to say anything valid about the outcome. If you want a good explanation about the recent market moves, the following cartoon by Kal says it all.

So what is the “Market?” How do we define those indices that passive investors track ? Mostly they are capitalisation weighted indices. The larger the cap of a company the bigger the weight it has in the index. And in an interesting feedback loop the more money that goes into an index, the more is invested in the largest companies. In short, the winners are rewarded by an ever increasing capital allocation against other companies.

Hang on a second, what does that mean ? Well it means that the moves we see in major indices are driven by a handful of stocks. Currently those stocks are technology companies. Five or six companies make up the majority of the recent moves in the index. How representative of the US economy is that ? Not very. Would the “market” have snapped back without the Fed’s actions ? Probably not. In fact a lot of under the radar equities are going nowhere. So in summary passive investment focuses on a few winners and really seems to work well when policymakers intervene. Not a very anti-fragile setup !

And even if fragility is not problematic in the short term, these passive investment distortions impact the long term outcomes of the more needy pension funds in the world. The ones that do not depend on continuous injections of capital from natural resources but rather have to rely on long term performance to finance their future liabilities. The downside of passive investment not working in a stellar fashion as expected is very large for the weaker members of the chart below. Furthermore, countries that cannot legally just hug US indices in their pension fund allocations do not benefit fully from the proverbial Fed put.

As a parenthesis, on top of the passive investment shortcomings of pension funds, it is clear that by allowing many fixed income zombies to persist they will end up where they will create the maximum damage. But really does it matter ? Money can be printed at will, if we can save bankrupt malls (TALF 2020) I think we should be able to save the pensioners … Another discussion for another time !

Let’s briefly discuss the current equity cycle - how good has passive investment been ? The following chart is from Chartr.

Passive managers have had a great ride in this bull market. In fact only the period of 1987-2000 was longer in duration. Note all three recent crashes were stopped by the Fed (Greenspan put 2000, Bernake put 2008 and now the Powell put). The previous two bull markets started 2 years after each respective crisis, the market taking approximately 24 months of volatile trading to find the right base and to shake off excesses. I really don’t think the market this time has been able to do in two weeks what took two years in much smaller crises…

One of the major benefits of passive investment is that it carries low fees. Indeed some large ETFs have fees in the range of 0.2%. However most ETFs and index products have layers of fees that are difficult to see. And finally most investors are exposed to them via financial intermediaries that really add zero value. Most investment advisors and Robo Advisors buy a few ETFs and charge “advisory fees”. Never to rebalance substantially or ever go short.

And there, to a large extent, the fee discounts of passive investment disappear. How convenient however for the vast majority of financial advisors and long only passive managers ! The underlying ETFs have such small fees they can add a nice markup for nothing. Well almost nothing - some may hold your hand when the market crashes.

In fact the typical 60/40 allocation (60% equities, 40% bonds), that closely mirrors what most passive managers and robo-advisors track, has substantial drawdowns that in recent history would have been much deeper without central bank intervention. So if you are paying any fees to your advisor or fintech startup for this type of drawdown profile I urge you to rethink..

What about the active managers ? The hedge funds, the Wall Street insiders ? Well it looks like most are hidden passive managers !

Giants of active investing like Bridgewater had dramatic reversals in the current climate. To some extent its understandable; you cannot grow to 150 billion without making sure you do at least as well as the indices. And to do that you end up one way or another following them if not directly, then indirectly via the market factors that drive eventually the fund returns.

On the other hand, some bright spots do exist and will continue to exist. Good macro funds, solid CTAs and niche funds managed to thrive in this volatile environment. And then one has to look at assets like precious metals, farmland, industrial real estate, infrastructure, crypto and associated strategies (long, alternative and niche) that will thrive longer term regardless of liquid markets direction.

I think that the liquid equity markets will not move straight back into bull mode. The fixed income market is now fully distorted given the Fed’s actions. This provides a great environment for a come back of active strategies which in my view should be the majority of a portfolio allocation with passive around 25% or so. Fee structures have to change in the active investment landscape to align managers and investors better. I think this alignment of interests is what will accelerate the shift back to active management and outside the “heretics” circle.

For reference here’s the 2008 net performance of a quant trend following CTA I run personally, ICM Diversified. A 60% outperformance differential in difficult markets. This what true active investing is all about: not just good returns but returns that fortify your portfolio in tough times.

• Equities: at critical point round 2850 on SP500. Sep to Dec 2500 puts seem interesting.

  

• Fixed Income: Don’t fight the Fed. Decent risk reward high yield names are interesting. Avoid CCC still.

  

• Metals: Silver is worth a look - the ETF is SLV.

• Alternatives: If you don’t own a CTA (trend follower) it is time to think of adding one or utilising that philosophy for partial rebalancing of your portfolio.

• Currency: DXY trading at an ever decreasing range - a breakout is imminent.

  

• Crypto: Bitcoin halving event in May - buy the rumor sell the news ? Bitcoin goes through a process called halving every four years. The bitcoin algorithm reduces the reward per block mined on bitcoin’s blockchain by half, essentially halving cuts the pace of supply expansion by 50 percent every four years.

The amount of retail interest as evidenced in the google trend search for “bitcoin halving” makes me feel that a lot is priced in already, however I would not rule out a squeeze higher if risk-on mode in fiat markets continues.

“I remember almost exactly how I felt and what I saw my first day at Salomon Brothers. There was a cold shiver doing laps around my body, which, softened and coddled by the regime of a professional student, was imagining it was still asleep. With reason. I wasn't due at work until 7:00 A.M. , but I rose early to walk around Wall Street before going to the office. I had never seen the place before. There was a river at one end and a graveyard at the other.”

-Liar’s Poker, Michael Lewis

Happy to answer your questions and hear suggestions for subjects to explore. I sometimes post markets commentary on Twitter and some markets ideas on TradingView. Feel free to connect with me on LinkedIn.

I recently have started a Telegram channel where I post intraday live news and ideas and you should join it at t.me/entropycapital if you trade more actively or want to hear more ideas than the weekly newsletter.

In these times of uncertainty I am happy to offer all my newsletter subscribers free private 30 min consulting sessions on their portfolios & strategies. Not investment advice but rather strategy building. You can book a slot on my calendar here. I will keep this option open till the end of April.

If you find this newsletter useful or interesting, and want to show your appreciation, the best way to do that would be to sign up, share it on your social media, or forward it to someone you think might get some value out of it.

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Keynes’ work or Keynesian Economics and its subsequent offshoots are at the very core of how western governments exercise monetary policy, using interest rates as an instrument and definitely at the forefront in recessions like the one we are in now.

There has been a long detour to neo-liberal policies but post the 2008 crisis, the Keynesian approach has been at the forefront of policymaker thinking even if it has been baptised something else for political marketing reasons.

“I guess everyone’s a Keynesian in the foxhole”

- Robert Lucas

It would be a massive understatement to pronounce his work as merely “influential”; however given he is relatively obscure for many, the following is a good summary.

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”

-J. M. Keynes

I am not going to make any suggestions about who the “Madmen in authority” may be right now but I would suggest anyone with more time on their hands (and not traumatised by endless lectures on the subject) to actually give it a try to read more of the man’s work or a book about him as it is relevant as ever in understanding the great global economic cycles that govern our lives far more than any politician would like you to believe. While you are stuck at home, you might as well throw in a bit of Thucydides for the geopolitical angle around the pandemic - but more of that on a future post.

Mr Keynes, or JM for short, was not only a brilliant economist but also an active speculator. His wealth was wiped out in the great crash of 1929 (which he did not foresee) but soon he recovered by trading on margin various financial assets, currencies and commodities. He was a believer that market price discovery is not always perfect (you can say that again JM) and he understood very clearly what the role of the speculator was. It wasn’t to understand a theoretical “fair value” but rather understand the positioning and thought process of the herd, to either follow it (trend following) or to trade against it (mean reversion). Or in other words “Successful investing is anticipating the anticipations of others.”

“Professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgement are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”

-J. M. Keynes

Furthermore, he posited that when markets suffer big shocks, they don’t automatically self-correct quickly, but instead deflate slowly like a leaky balloon as demand dries up. In the face of massive uncertainly following a big shock, consumers and businesses refrain from spending until the proverbial dust settles. Let’s add fear of an invisible enemy to the 2020 remake of that movie.

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What can we learn from these two observations in light of last week’s substantial “bull market” run ?

Any link of current market prices, especially in equities and junk credit, may or may not reflect a correct evaluation of their fair value. I believe participants are in a state of denial about the state of the economy, however it can be argued that the market as a whole is simply anticipating a rapid V-shape recovery. That anticipation, together with the daily barrage of news of the Fed buying an ever increasing amount of assets has put a short term floor and provided a great deal of hope to many.

Is that enough ? Will we see daily queues of people packed outside Starbucks to buy 5-10 dollar coffees next month ? Will people pack like sardines for that budget airline holiday away (luggage mot included, 14 day quarantine possible on arrival) anytime soon ? What about those 20 million unemployed only in the US ? You can ask any number of questions reflecting on your own personal and work experience. I have discussed this briefly in my previous post.

Suffice to say, anticipating there is a good chance of another leg down gives us all an opportunity to rebalance. And anticipating that a lot of investors anticipate a leg down means we can trade further out in asset space for when solvency may be an issue.

What about solvency ? Well, liquidity crises, even when well contained short term by massive money printing, have a bad habit of becoming solvency crises. Until consumers can see the personal benefit of the ballooning central bank balance sheets and as long as the virus is on the loose, demand will remain very low. And that reduced demand will soon mean even the best of balance sheets will suffer a lot. And for the worse balance sheets this crisis will eventually mean insolvency.

• Equities: A test of the previous bull market channel is imminent . A failure round 2800-2850 on SP500 would mark the start of another leg down of deflating prices. A solid and sustained move inside the channel to 3000 may be an opportunity to short, especially if driven by short term optimism on crude supply deal (which won’t solve the demand side). In terms of rebalance, value names ETFs like DVP, VLUE, IWN are interesting. Infrastructure names like 3IN a bit lower circa 200p are good value. Simply too many trades to mention here.

• Fixed Income: The rally has been impressive, especially in CCC names after the Fed announced that they will buy junk credit. In light of the “liquidity problems becoming solvency problems” narrative avoid CCC. Buy cheap securities that however won’t have bankruptcy as a possibility in a prolonged recession. That means the majority of exposure above BBB and avoiding high consumer exposure names. If there is a pullback to reality (sub 120) on LQD, given the effective backstop to BlackRock by the Fed it becomes interesting.

  

• Convertible Bonds: Twitter 1.5% 2021 converts given the cash position of the company and its pre-eminent position for instant news dissemination during this crisis look interesting. Again too many opportunities to mention here.

• Silver: The next commodity to rally after gold - good level to start nibbling.

  

• Alternative Investments: Suffice to say for now the vast majority of hedge funds showed once again they do not hedge anything significant and cannot be seen as providing any significant risk mitigation value. With some exceptions … to be explored fully soon.

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Going back to JM, it is is interesting to read an essay he wrote in the last century about life in what is now for the the near future, 2030. In his essay “Economic Possibilities for Our Grandchildren” (free PDF here) he gave a hopeful vision that warrants a quick re-read. Remember this was written 90 years ago just as the Great Depression of ‘29 was starting.

I will just quote some sections; my hope still remains that this crisis will create a better future for all of us, not in 100 years but on the next decade.

We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth century is over; that the rapid improvement in the standard of life is now going to slow down --at any rate in Great Britain; that a decline in prosperity is more likely than an improvement in the decade which lies ahead of us. I believe that this is a wildly mistaken interpretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another.

We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come--namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.

The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.

Happy to answer your questions and hear suggestions for subjects to explore. I sometimes post quick markets commentary on Twitter and some markets ideas on TradingView. Feel free to connect with me on LinkedIn.

In these times of uncertainty I am happy to offer all my newsletter subscribers free private 30 min consulting sessions on their portfolios & strategies. Not investment advice but rather strategy building. You can book a slot on my calendar here. I will keep this option open till the end of April.

If you find this newsletter useful or interesting, and want to show your appreciation, the best way to do that would be to sign up, share it on your social media, or forward it to someone you think might get some value out of it.

Sign up now

In a similar fashion, but with far less typographic style and visual impact, politicians everywhere are trying to convince the quarantined public that the unprecedented times we are all going through are temporary and a return to the good old days of the last ten years are just around the corner.

On the virus front they are probably right. The social distancing measures are effective when the public respects them (however outright impossible to implement in some poorer emerging markets). Once again I will refrain from making any statements better left to virologists and statistical epidemiologists but rather just say this will be contained eventually and any second wave of transmission will be dealt with aggressively until there is a vaccine.

Most of the forecasts assume this contagion will be controlled within the next 2-3 months. This optimistic view is the only one compatible with a V-shaped recovery and the possibility of return to the previous economic path. Our way of life is disrupted but reverts to what we see as “normal”. Bull market resumes, fuelled by low rates and the global central bank backstop. I would call this the Rainbow scenario. It is still raining but you can already see the lovely colours before the sunshine.

A middle of the road scenario is that the contagion will be controlled by the end of the year as we tackle secondary waves of infection that create random new lockdowns like the one we just saw out of the blue in Singapore during the last few days. In this scenario the recession is much deeper globally, however the fallout can be contained again by central banks and fiscal policies and a return to economic normality in two years or so. A new “normal” is set for the next few years while everyone adjusts to lower consumption patterns in what may be described as a U-shaped slow recovery. Markets remain volatile and in bear mode for 1-2 years as they digest data and new economic equilibria. I would call this the Tunnel scenario. It is dark and scary but in the distance there is some faint light; unclear exactly how far but clearly there.

A bad scenario is if there is a delay in finding an effective treatment and the virus is still circulating around the globe well into the 2021 winter flu season. Or the virus mutates into something even nastier. In this case the world goes into a longer term depression or as some economists call it an L-shaped “never happening” recovery where the previous normal is never recovered. The pandemic then permanently destroys a part of the economic activity in a period that could last anywhere from a few years to decades. This is the Black Hole scenario. Pretty descriptive.

A recent paper by the San Francisco Fed on the “Longer-Run Economic Consequences of Pandemics” has looked at a dataset stretching back to the 14th century looking at 15 pandemics and large scale conflicts. This tends to support the Black Hole scenario but for reasons I will briefly touch upon it may not be fully applicable in the 21st century.

“Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics.”

- Jordà, Òscar, Sanjay R. Singh, Alan M. Taylor.

For choice, I would go with the Tunnel scenario. And it is not because I have any view about the virus spread or the science of vaccine development. It is because the Tunnel scenario view is the best way to risk-manage and navigate this market while at the same time taking into account what is happening in the real world and not just in central bank balance sheets.

The public markets are trading currently on the Rainbow scenario. I would also call this the FOMO trade. Participants conditioned over a decade to buy the dips are not going to change overnight. They have anchored their reality to the highs of January 2020 and can only visualise closing that gap. Pension funds allocations with 30 year horizons will not change strategy over a quarter. They need multiple quarters of bad returns. In this scenario there is not much to do, just wait for the gap to close while stuck at home. Most wealth managers I know have instructed their clients to do just that - nothing. Upside : hopefully up to flat or so for the year. Downside : another 30% or more of painful losses. Not a great payoff asymmetry for inaction.

On the other extreme in a Black Hole scenario, however unlikely , there is little to suggest. Capital markets will be illiquid and provide sub par returns for any risk an investor assumes. Capital is going to flock to low yield safe government backed investments while investors save a large percentage of any income and consumption collapses long term. I see this as unlikely for two reasons : the massive balance sheet expansion that puts a floor on assets and gives breathing room for recovery and also the state of technology; in all prior episodes of pandemics people did not have access to the healthcare innovations we have today and could not work productively remotely. Automation was minimal to non existent. That made the effects and the outlook of pandemics much worse in the past.

That leaves the Tunnel scenario as the most likely in my mind but also the best risk management mind-frame. It is more defensive and allows readiness for further negative developments plus optionality for new deep value investments.

In this letter I wanted to focus on the qualitative & risk management implications of various views on the future path of the global economy. A portfolio allocation that is defensive and keeps optionality open could be :

• Bonds & Short Term paper : 50%. In terms of bonds, names in telecoms and utilities plus good quality oversold names in non consumer focused sectors. Credit to outperform equity for some time. Developed markets to fare better as funding becomes a struggle for emerging markets.

• Equities : 20%. Low debt/leverage names taking into account dividends wont be the same in the next few years and in a lot of cases will go to zero and recover very slowly. Healthcare, Logistics, some tech names, some Gold streaming & miners, some infrastructure. Banks to be avoided - they look cheap but for good reason. The L2/L3 asset skeletons in the closet are quite scary.

• Cash : 20%. Short term trades and capital ready for deep value investments any time in the next 2 years.

• Hard Assets : 5% in physical gold

• Digital Assets : 5% - actively managed portfolio with long bias

• FX : USD bias

Revisiting the vol trade mentioned in previous letters :

• Volatility is still a sell, however the short suggested in the 80’s is now deeply in the money. Expect a new normal for volatility in the mid to low 20’s.

  

Again I cannot say too many times that this is the time to rebalance rather than try to pick the bottom and hope for a miraculous recovery to the previous market regime.

Happy to answer your questions and hear suggestions for subjects to explore. I sometimes post quick markets commentary on Twitter and some ideas on TradingView. Feel free to connect with me on LinkedIn.

In these times of uncertainty I am happy to offer my newsletter subscribers free private 30 min consulting sessions on their portfolios & strategies. Not investment advice but rather strategy building. You can book a slot on my calendar here.

If you find this newsletter useful or interesting, and want to show your appreciation, the best way to do that would be to sign up, share it on your social media, or forward it to someone you think might get some value out of it.

We will get through this - keep safe and sane !

The total asset base of the Federal Reserve is exploding upwards, currently at 5 Trillion dollars. Expect this to balloon to a figure closer to 10 Trillion US dollars in the coming months. The great money machine has started printing. And not just in the US, but globally. The main global central banks have now a total of close to 20 Trillion dollars of assets on their balance sheets, a figure which will increase dramatically. The process of “internalising” various assets and the associated bailouts is just getting started. On that backdrop, this website is getting a lot of traffic recently as people are sitting at home trying to work … Brrr

Central banks have been vocal and rightly so about supporting the liquidity in the system. Anything less than a global monetary flood would have meant instant collapse of global markets, credit meltdown and depression leading to social unrest.

Following this promise of endless liquidity, both debt and equity markets reversed sharply in what I would personally classify as a classic bear market rally : sharp and cross asset at high correlation. All corporate bond indices turned, as the immediate threat of a credit meltdown evaporated. As discussed in the previous newsletter, policymakers have kicked the can down the road.

Ok are we done here yet ? Can we just buy and hold again ? Nightmare over ? Well in terms of the virus not at all, as the situation is just now starting to get seriously exponential in the UK and US.

In terms of the markets, we are still not out of the woods. Last week saw the highest print ever of US unemployment numbers at 3.3 million. Just a look at the chart below shows the scale of this anomaly. And it is going to get worse.

The NY Times published a very inventive front page to show the scale of what is happening, an event with no precedent in peace time. Expect the April and May jobless figures to set new highs and these numbers to be absolutely horrible globally.

There is good reason to think that many more people will file for unemployment and that even this number was low. Below is a chart for the google searches for “file for unemployment”. As many people try to understand if they are eligible and how to file (don’t forget for many it will be the first time they have to do this), this backlog of claims will show up in the next numbers. A double digit print in the millions is not out of the question.

At the same time the world is grinding to a halt. Quarantines, lockdowns, supply chain disruptions all together with a dose of fear and uncertainty. Global flights are not picking up (despite some recent optimism around that) as the following chart shows.

On the back of this massive demand drop, oil is trading on physical much lower than paper/futures, with cargoes changing hands much lower than what we see on the screens, especially on post April deals. Some traders have indicated prices below $10 for some physical grades.

In terms of consumers, I feel there will be substantial loss of demand long term. It will rebound but a new lower “normal” will be established as households face unexpected income loss, unemployment goes higher, pension accounts are marked to market and housing valuations fall.

Obviously, the fact that the Fed cannot fully solve this problem means that there is a difficult choice societies everywhere have to make : go back to work and balance a bit the economic situation but risk new virus outbreaks or stay at home in isolation, flattening the curve of infections and at the same time extending the depth and duration of the recession. Between the devil and the deep blue sea…

The choices we come to make as societies in the next few months will determine the course of history and how our children will look upon us as a generation. There is no easy answer given the massive immediate uncertainties we face.

In Europe this crisis will determine if the union continues or degenerates quickly in yet another geographic trading bloc. Are Europeans capable of rowing all in the same direction in the face of an asymmetric shock with existential consequences ?

“Under normal circumstances, the two-week delay in agreeing on a response would not be a big deal…But in the current crisis... whether or not Europeans help each other fast in this acute emergency can shape popular perceptions of what Europe stands for - and for a long time to come.”

-Holger Schmieding, chief economist at Berenberg bank

On the positive side, I feel the choices we do make on this great “Global Reset” can overcome many of the problems we saw as “unsolvable” in the past. My worry is that this unique chance may be lost as we collectively try to hang on to what was clearly an unsustainable and fragile past. Unsustainable economically and ecologically; destructive long term for humanity. But that is the subject of another newsletter for someone who writes much better than me.

So with the central banks giving back a sense of hope in the markets, what are the next steps ?

• Equities : We had a sharp bear market rally. Until there is clear improvement on the fight against the virus there is value around 2000 to 2100 on SPX but not up here. We need to trade above 2800 to discuss potential return to previous uptrend. Diversify your portfolio - there is value in smaller cap stocks and niche sectors.

  

• Fixed Income : The wave of downgrades is just starting. Stay ahead of the curve as the major index sponsors delay index rebalancing due to volatility; this means passive titanic size asset managers will rebalance 2-3 months late, leaving a spectacular window of opportunity to exit first or trade against them actively.

• Commodities : Even here we are in a new era for gold on a relative basis. Long GLD short SPY has more room to make money.

  

• FX : USD long - you know as the saying goes “In the land of the blind, the one-eyed man is king”. What’s the alternative ? Bitcoin ? Maybe but see below.

• Bitcoin : It is a risk asset clearly and there are worrying indications that miners are getting out. Keep on the radar but not yet a screaming buy, despite the tsunami of money printed and some macro guys thinking it’s the only alternative.

  

• Active vs Passive Investment : Risk Parity is dead. Like in most areas of life you get what you pay for. My former colleague sums up the challenges pretty well.

Given that hope is not a strategy and the money printing machine has kept the markets open … act now.

“A good plan, violently executed now, is better than a perfect plan next week.”

- General Patton

Happy to answer your questions and hear suggestions for subjects to explore. I post sometimes quick markets commentary on Twitter. Feel free to connect with me on LinkedIn.

In these times of uncertainty I am happy to offer my newsletter subscribers free private 30 min consulting sessions on their portfolios & strategies. Not investment advice but rather strategy building. You can book a slot on my calendar here.

If you find this newsletter useful or interesting, and want to show your appreciation, the best way to do that would be to sign up, share it on your social media, or forward it to someone you think might get some value out of it.

Wishing you a great week ahead !

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Having navigated as a professional trader high volatility markets a few times over the last 25 years, there are three things that I can say with certainty :

1. Bull markets have their unique characteristics as assets are not fully correlated continuously and it is difficult to predict factors and themes that will drive excess returns. That is one reason why passive investing outperforms in bull markets like the one we had since 2009. On the other hand, crises like the one we are witnessing now, share more common characteristics : drive to liquidity, anxiety about solvency, high asset correlations, rapid asset repricing, relatively well understood domino effects and uniformity of participant sentiment.

2. Every crisis presents new opportunities. The opportunities appear across the spectrum of assets (private and public), catalysed by what can only be described as brutal economic “natural selection”.

3. You can only play long term as a market participant and extract outstanding returns only if you understand point (1) and have the patience and firepower to deploy capital for point (2) when needed.

You will be reading a lot more informed expert opinions on the Coronavirus than what I can offer, so I will just add here a couple of charts that will be driving sentiment.

The above chart shows the cumulative confirmed cases (source : JHU SSSE). That doesn’t look that bad . All these non-red areas are not affected. Seems relatively contained. Then you have the following chart, which is not widely shared and for good reason. It is morbid.

Looking at this on a linear or log scale, it is clear the deaths are accelerating - for now. Its not “just the flu” and a vaccine is at best half a year away. The number of deaths, while tragic, is not the point I am trying to make - what is important is the fear this curve acceleration creates among consumers, businesses and policymakers. The number of deaths drive fear, not the number of cases.

“Fear is the mind killer” - Frank Hebert, Dune

On one hand the virus has not yet spread everywhere. China seems to have it partially under control. On the other hand the spread has just started in other parts of the world and it is clear that the initial exponential growth is just starting in large populations like the US and India. Coupled with an unprecedented global monetary response (more on that later), we have markets far from equilibrium where the sentiment of fear dominates and uncertainty is extremely high.

Markets have experienced the fastest crash of all time in the last few weeks. During previous crises like 2008, the falls were nowhere near as violent. We have seen major stock indices enter bear market territory in less than a month and major commodities like crude oil and some sectors drop by over 70%. While recession is still amazingly debated in some circles, it is almost certain a sharp recession is already underway.

Looking at partial data, which is bound to get substantially worse, we see the tip of the iceberg. The following chart will be an order of magnitude more dramatic over the coming weeks.

The number of US jobless claims are already at the levels recorded at the depths of the 2008 crisis. Note the speed of increase vs 2008, where the maximums were recored a year into the crisis. We are only one month into this crisis.

What has made this downturn much more violent are the excesses of the last bull market. The policies of easy money and the willingness of central banks to smother any kind of hint of correction or volatility have left the world more in debt than ever, levered to the max, chasing ever dwindling returns in fixed income markets while driving up stock prices relentlessly for over a decade. At the same time the majority of capital is allocated primarily in blind passive investing strategies, run by a new generation of asset managers that may have read about 2008 at college.

My favourite chart is a stock which is close to my heart (being a space geek), Virgin Galactic. A company which has admittedly the great mission to send tourists to space but however zero current earnings and not a single successful return flight with paying passengers, grew to over 6 billion dollars market cap in the space of a month ! Then it came back to earth…

I have no view on the long term prospects of SPCE, however it shows in a nutshell the excesses of the bull market that accelerated just before the big fall. Commission free mobile trading apps (not really free but that is another story altogether on HFT payment for order flow), social media noise, hedge funds (that do not hedge) buying stocks on margin, and a general strategy that any dip gets bought. There is no downside in owning risky assets like zero income rocket tourism companies, is there ?

And then there is a much bigger problem, a problem that is relatively invisible to retail investors but will determine the outcome of this crisis. Corporate debt globally has ballooned beyond belief. Along with central bank balance sheets, companies across the world have tapped the markets to raise low cost debt reaching levels above 100 trillion dollars for private non financial sector obligations. A large chunk of that debt will be hard to refinance in the coming downturn, pushing a large part of those borrowers at risk of default. This fact was not lost to fixed income market participants.

The HYG ETF (High Yield Corporate) is where it was 10 years ago. Debt markets will lead the equity markets. Approximately half of corporate debt is BBB rated. Any changes to outlook or rating will force further liquidations as it moves outside the holding mandate of many asset managers. So even if banks are not as exposed as they used to be to corporate debt, a self-reinforcing liquidation cycle is still possible if not probable. The proverbial canary in the coal mine is in fixed income.

So what happens with the money every central bank in the world is printing ? Won’t that save the economy ? Why worry ?

There will be trillions of currency printed. Central bank balance sheets will balloon to extraordinary size. Assets will be bought, including ETFs and equities. Funds will be bailed out. Banks will be kept solvent. Consumers will receive direct money, a precursor to wider deployment of Universal Basic Income (UBI). Taxes will be deferred. Policymakers have promised to do “whatever it takes”.

The muted market reaction to the above shows that the combined demand and supply shock of the virus, on what was a fragile and overstretched market, cannot be reversed by monetary policy alone. Unlike 2008 where we had a financial crisis only, we now have an existential crisis: a medical ultra urgent crisis on one hand and longer term a structural change in how the market operates as well. Rates are at zero and in places negative but that won’t stop fear. And as long as a large part of the world is in lockdown then the economy stops to move, rates at zero or not. Liquidity won’t come back for some time in the markets.

What policymakers can and will achieve, is to support short and medium term the functioning of the flows of money in the system and the main supply chains. We will not see systemic blowups probably. The rate of market declines will be reduced and volatility will be muted a bit. Central banks will kick the can down the road.

So how do we trade this ? Sell, buy, liquidate and stay on sidelines, stay put and pray ? What about the economy ?

In no particular order :

• Equities: Further room to correct, previous dislocations of this magnitude brought corrections of 50% or so, so there is more room to adjust. A sell/fade the bounce regime still in place. The long term trend has broken so bull market strategies won’t work for some time. You may want to rethink your Robo Advisor if you have one. Levels round 2000 on SPX are interesting - see log chart below.

• Bonds: If you hold non junk debt it may be about to be junk soon. If you hold western government bonds you hold at best an alternative to cash with bank run insurance if you have amounts over the bank deposit guarantees. Might be a heresy but Chinese and some EM bonds look attractive on relative terms. About to become an interesting playground and the first to indicate the end of the crisis.

• Volatility: It’s a good sell, I see VIX trading in a higher regime in the 30s but not at the highs we saw recently.

• Hedge Funds: Is there really a hedge ? March Q1 performance figures and resulting redemptions will show who has been swimming naked. If there is no hedge get out and allocate to true diversifiers like quant funds, CTA, niche strategies and illiquidity immune themes. If you are in high yield strategies beware of gates and other nightmares.

• Commodities: The Good, The Bad & the Ugly. Gold good (on a relative basis), Oil bad (on an absolute basis), Agriculturals ugly (but lovable). A major long term theme we will explore further as it is also linked to the US dollar and geopolitics.

  

• FX: The world is quite short of dollars currently and the Fed is providing swap lines to central banks like there’s no tomorrow. If long stay long USD, if not, get some exposure. It’s a long discussion and if there is interest will do a post.

• Digital Assets: The liquidation of bitcoin losing 50% in 2 days demonstrated that digital assets are not yet a good store of value let alone a “safe haven” despite YTD outperformance. Having said that, they are inevitable and will play an increasing role in portfolio allocation. A subject of a full post as well.

  

• Real Assets & PE : The fact there is no frequent mark to market does not mean they wont be affected. I think private equity funds will suffer more as they have relied on cheap debt and subsequent target deleveraging to extract value. Real assets should hold better while the whole world is printing money.

• Economy : We will go into a recession. It will be deeper than most expect but hopefully shorter than many fear. A lot will depend on the length to find a cure and the collateral damage in balance sheets till then.

• Cash is KING: Having cash at hand in the next 3-9 months is the biggest single thing you can do to pick up on the juiciest distressed opportunities; there will be many and usually appear once every decade or longer.

  ---

Entropy is a measure of uncertainty and disorder. In my view, it is fundamentally a better way to think about risk and opportunity than the classic standard deviation measure of volatility. Markets have “fat tail” distributions. We just witnessed what people describe as “black swan” events or 5/6 sigma moves. What happened is a manifestation of long simmering tensions in the system. The fact that one cannot observe "entropy” does not mean it is absent. Low volatility fooled the majority of investors in a false sense of security the last 10 years.

In the words of famous physicist Carlo Rovelli, entropy is subjective. And despite the fact that he is focused on the physics of time, his analysis applies to investments and how we interact as participants in the complex adaptive system we call capital markets.

“Order is in the eye of the person who looks…the distinction between past and future, the growth of entropy over time, depends on a macroscopic effect…the way we have described the system, which in turn depends on how we interact with the system.” - Carlo Rovelli

I am looking to send weekly updates on more focused themes and opportunities as the crisis unfolds and I would love to hear your questions and subjects to explore. I post sometimes quick markets commentary on Twitter. Feel free to connect with me on LinkedIn.

In these times of uncertainty I am happy to offer my newsletter subscribers free private 30 min consulting sessions on their portfolios & strategies. Not investment advice but rather strategy building. You can book a slot on my calendar here.

If you find this newsletter useful or interesting, and want to show your appreciation, the best way to do that would be to sign up, share it on your social media, or forward it to someone you think might get some value out of it.

Till next week - stay safe !

Sign up now

The noun crisis comes from the Greek word κρίση, meaning "turning point in a disease." At such a moment, the person with the disease could get better or worse: it's a critical moment. Its meaning derives primarily from the ancient Greek verb for "judge", which originally meant "separate", but quite early (since the Homeric years), also means "decide".

So in the midst of the current market crisis, having successfully and profitably traded the Asian, LTCM, DotCom, 9/11 and 2008 crisis (both on the sell & buy side), I hope my newsletter will help you navigate the challenging investment landscape ahead.

“In the midst of every crisis, lies great opportunity.” - Albert Einstein

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