During the past week, Global Markets experienced an increase in volatility as capital left the US Equity markets. Geopolitical unrest is the most common term I have heard to explain the past weeks down markets.
The asset classes that increased in value are : The US Dollar Index, Gold, US Ten Year Treasuries and the VIX. These assets tend to be purchased as US Equities are under pressure.
The investments that gave up ground include: Digital Assets and US and Global Equities.
Among the years most crowded trades as of the end of Q3 were: Long US Equities, Short Gold, Short Blockchain (via BTC as a proxy,) Short Emerging Markets Equities, Debt and Currencies.
It is an interesting development that throughout the majority of the year, US Equities and the US Dollar would rally while EM Equities were in a Bear Market, as many investors felt the US economy could shine without the help of countries abroad. This made little sense to me, but the last market price is what counts in most instances. Fast forward to today, and now many managers (who had these crowded trades on the books,) are trying to convince others that as the US slows, so will the rest of the world. I do believe this, but it seems many of the equity market making algos forget EM markets were already down sharply on the year.
The digital asset market experienced some selling as well, starting the week near the 130 billion dollar valuation and is currently trading at the 110 billion dollar total market cap.
In the area of “crowded trades,” Short EM and short Blockchain seem to be the last two fund darlings that are being held. At this current juncture, it appears these two asset classes have continuous pressure from the sell side.
Below are a few of the charts I spoke about.
US Ten Year Treasury Futures
US Dollar Index Futures
Coinmarketcap.com Blockchain index
SP Futures (ES_F)
NASDAQ 100 Futures (NQ_F)
Earlier this year, Bitcoin and the other digital assets had fairly clear correlations, or inverse correlations to different asset classes. Currently, these investments continue feel a bit heavy. With Bitcoin comprising 55% of the Coinmarketcap.com blockchain index, the pricing of all cryptocurrency not named BTC is moving with the tide. In volatile times, I have found it is useful to look at multiple entities across asset classes and look for correlations that are working and for new ideas which may be starting to develop.