In the immortal words of the A-Team's John "Hannibal" Smith: "I love it when a plan comes together."
It's always nice when posts essentially write themselves, and it's even nicer when confirmatory research pops up unsolicited in your inbox.
As I'm fond of reminding folks, "confirmatory" research ceases to be "confirmatory" if you search it out. That's why I never use the "search" bar in any of the databases I frequent. It's also why I subscribe to research from the analysts I hate just the same as I subscribe to research from the analysts I love.
Well, as the Heisenberg crowd is no doubt acutely aware, I've been talking a lot lately about the chances of a large drawdown in pretty much everything. Rates, credit, equities - all of it.
The arguments for i) a sharp (and by "sharp" I mean even sharper than we've already seen post-election) repricing of nominal yields and ii) significant spread decompression in both investment-grade and high-yield corporate debt are more nuanced than the argument for why stocks (SPY) are due for a correction.
The case for an equities selloff is pretty straightforward: we're stretched on almost every metric you care to consult, volatility is unsustainably low, and if volatility should spike, programmatic selling by risk parity, volatility targeting strats and CTAs will exacerbate the drawdown. Throw in rising political uncertainty and an indeterminate time table for tax reform and fiscal stimulus and you've got a recipe for disaster.
Of course, there's always the "greater fool" theory of investing which, according to Goldman, may be as good a reason as any to stay long stocks.
Ok, so with that as the backdrop, let's get back to "confirmatory" research and loving it when a plan comes together.
When I got back to the desk on Monday
