@Petr Pinkhasov I stole the name, hope you don't mind ;)

 

I talked yesterday about the mimicry of the hedge fund community. During a period of dominance at the end of the '90s in the '00s where they had a large position in the market, their winning trades and styles were mimicked by others.

What I want to discuss today is a trade that I think may not be repeated anytime soon. George Soros' shorting of Sterling against the Bank of England. The mimicry I opened with occurred when George Soros and Stan Druckenmiller by discussing openly their position permitted for others to copy. Permission was not explicit what I mean was by talking about it this gave a "smart money" safety net for other traders to do the same. Eventually, the BOE had to give in and the GBP was devalued by 25%.

Now let us separate a winning trade for a moment and think about this. In 1992 the UK had a population of 57million people. On Black Wednesday, September 16, 1992, 57million people had their wealth cut by 25%.

Today what is the trade de jour that everyone must be in? ESG. Environmental, Social and Corporate Governance. The positive flywheel is that everyone must be doing their part. Everyone must pick a side and that is the side fighting inequality, climate change and social justice et al.

Now return to Mr Soros could you see any Hedge Fund, asset allocator or investment vehicle openly backing a trade like the one above with today's ESG backdrop?

Whether the trade was correct in its thesis regardless of if it was executed perfectly. The current mimetic schema is that of ESG.

On top of that, the hedge fund community is no longer the dominant force in the marketplace. Add to this trying to get any kind of "bond vigilante" trade or "breaking the back of currency x" past an investment committee.

In the ESG could family offices, large capital allocators face the social media backwash of their capital impacting millions of people in such a direct way?

I guess we found out that the best play was to be long the "crap". What fell the most bounced the most.

SPHB High Beta +3.53% on the day winner and puts it back in the top 3 equity YTD returns of those ETFs I have here.

Another ETF changing over the last couple of months has been MTUM Momentum. Why did it outperform XLK Tech or QQQ Secular growth so much? During its last rebalance in April, it had a large allocation shift into Financials. Risk-off sectors/factors like XLU Utilities SPLV Low Vol came out at the bottom of the list although still positive on the day.

XLP Consumer Staples remember that transitory inflation thing everyone keeps talking about? Staples are some of the largest employers (rising wages) producing high volume (raw material costs) low margin (passing price increases) goods producers. That little concoction smells a lot like margin compression to me. Even if we are transitioning to a risk-off period I would not be seeking safety in staples.

 

Have a great day everyone.