weather vane

Flows

PWC reports that Global Assets under management are over $140 trillion between hedge funds, pension funds, and sovereign wealth funds. Global output, GDP, is estimated at $85 trillion. 

The Bank of International Settlements reports that the notional value of derivates exceeds $600 trillion with $12 trillion at risk.  That $12 trillion is a neat 2% of the notional value and is more of a spreadsheet toss than science. 

Not in the $12 trillion is the potential for counterparty failure, or the AIG moment 14 years later.

The herd has been long dollar hedged into the currency from which it came. As the dollar increases in value the cost of the hedge, rolling a short dollar position forward, exceeds the gain in the underlying asset or loss as it may be if the asset of choice is down 30% for the year.

Hedge funds have $4 trillion under management and the implosions there are just starting to make headlines with redemptions to follow.  Private equity has about the same $4 trillion under management with longer lock ins and egregious fee structures.

The Fed balance sheet of $9 trillion is promised to be $4 trillion by 2027. The market prices in a 5% fed funds rate in 2023. 

High yield bonds trade over 9% with secured and unsecured places in the capital structure.

Money has a choice between assets that did not exist in the bubble of zero rates. 

A ten percent rotation of $140 trillion is $14 trillion, a guess, or about a quarter of the $46 trillion US equity market.

US equities trade $200 billion trades a day on average.  $1 trillion in a week. Assume even distribution of bids and offers then $500 billion one way a day. 

Eight months to roll a $14 trillion rotation.

Not to pick but to pick the most weighted and owned picture out of 8500 securities with the market cap of France and a 14% index weight in the Nasdaq 100 is the weather vane for price.