Three Observations - August 2022: Index Rebalance Arbitrage Edition.

The perception of inflation’s impact on stocks is mixed. A pair of researchers in the late 1970s sought to find out why. Their conclusion? A Money Illusion.

Part I of a series on inflation: we survey the literature and establish a base rate of asset class performance during different inflationary regimes.

Three market observations - dated May 25, 2022

Myside Bias, as detailed by Professor Keith Stanovich in his wonderful book The Bias That Divides Us is a unique risk. It is uncorrelated with intelligence, as many other forms of bias are. This makes it a silent killer for investors.

If monetary policy is making an abrupt U-turn, can hedge funds adapt to the old ways of managing risk?

It is our belief that capital markets are becoming increasingly reflexive. They are more financialized, reflecting flows ahead of fundamentals and all that entails. An excerpt from our 4Q21 investor letter.

Macroeconomic risk for investors has bifurcated. On one hand, duration looms large for growth assets and fixed income. On the other hand, secular stagnation has been an impediment to rate normalization. What are investors to do?

Assuming stationarity in long-term trends can lead to a poor application of base rates. This plagues various “mean-reversion” market calls. To avoid this, we must understand the principals and formulation underlying long-term metrics and find ways to unearth potential non-stationarity