EUR 23.18 For Business Accounts Only

The Weekly Track always-dreaming

- The Weekly Track – Always Dreaming by Bob Savage
http://track.com/articles/the-weekly-track-always-dreaming/

Different horses for different courses. Markets are grabbing the EUR risk on mood and cutting back on the EM one with oil the main fear and US policy the main confusion. The horse that just won the Kentucky Derby – Always Dreaming - has a lot to teach markets. First the payout on the horse - a $2 bet you got $11.40 – over a 5-1 payout almost sounds like private equity in good times. Second is that the favorite didn’t win – Classic Empire and McCraken – the two other horses with 4-1 odds - didn’t even place while Lookin At Lee came a distant second and was 20-1 odds in the difficult first pole position. Third is that experience paid off as the owner and jockey have both won before at the Derby - that isn’t what you see in hedge funds where many experienced managers are giving up - and fourth is that the track conditions were ugly – muddy and wet – not like the trend following boom from last week. For those that have learned in the last 8 year to never
fade the Fed, there is something to consider that is new – and perhaps that is the muddy course for trading into the future. The FOMC statement last week saw through the weaker 1Q GDP and suggested a June hike is still likely – with the market Friday moving the odds to 80%. This is a different course and there are many things to consider about “normalization” and what it means for the carry and low volatility bets that still dominate in almost all asset classes. The other lesson is about politics – as the focus shifts away from Europe. For the last 8 years, Europe just hasn’t mattered – its share of global growth has shrunk and with it, the capital it draws from the rest of the world. The shift of fears about rising populism and anti-EU voters finds some relief and a redoubling of hope that the core holds. The elections in France aren’t at all the same as the Kentucky Derby –to start, the favorite Macron won, but the long-shot of Le Pen came second an
d while many are relieved that a far-right candidate doesn’t control France. Those same people should take note of the rise of populism and isolationism despite this outcome. The race wasn’t as ugly as the track at the Kentucky Derby but there is plenty of dirt left to go around with the hack of Macron Friday and the bomb threat today in his HQ confirming the troubling geopolitical mess we still have and perhaps the key point, that the politics of France reject the mainstream in such a world. The vote in June for the legislature is going to be that much more important now. The expectation for the week ahead is that much of this has been priced but not all and so the flows to catch up are likely to continue with the key focus EU vs EM still with the US and other G10 just not as exciting.