Investing In The Age Of COVID…
April 20, 2020
Takin’ My Foot Off The Gas…
May 7, 2020

It’s Getting Strange Out There…

I’m one of those guys who’s always believed that certain truths are sacrosanct. Interest rates would always stay positive, commodities would always be worth something and the US government would pretend to care about the deficit. Over the past few years, I feel like the hedgie who’s learned that the Easter Bunny doesn’t really exist.

Honestly, a lot of what I accepted as being immutable last decade has been proven false. Incredibly, people will pay governments for the right to hold onto worthless bonds. It doesn’t make any sense to me, but after trillions of dollars in transactions, I’m coming to believe that negative interest rates are a real thing. Today, we learned that people could spend years searching for oil, billions of Dollars in drilling for oil and then pay someone to take their oil—yes; oil is worth less than zero. What’s next? Which sacrosanct asset class will trade at a negative value tomorrow?

I know that we are in a brave new world of government manipulation. Prices move faster than bureaucrats and all, but what is the right price for anything in this world? If the rules are made up and changing, how do you invest? Why is one price right? I am increasingly convinced that public markets are arbitrary; more opportunity and more stupidity. While we can always debate the opportunity, no one can debate the inherent stupidity of oil trading at a negative price.

In a world where valuation is arbitrary at best, how do you know the right price for anything? If you are running a 130:100 book, how do you adjust your VAR if equity valuations are also potentially trading negative? Oil going negative seems like the ultimate signal to de-gross and see what happens. If oil can print negative, anything is suddenly possible.

I suspect very strange things come from all the money printing and market manipulation. How can anyone possibly run 230 gross any longer? It’s time to de-gross, because it’s simply too strange out there. Are you listening to the markets?

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