Michael Ashley Schulman, CFA

For different reasons China will end up in a trade war with most of the world as they refuse to promote (and for socio-political reasons the average Chinese consumer is resistant) domestic consumer demand. Still ploughing government money into excess manufacturing capacity that they then seek to export. As Krugman says this is bizarre policy. This will create geopolitical pressures internally and externally for China that are very dangerous for the world.

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RAND_PEA1743-1.pdf has a fun title: The contemporary US #MICC is so INSANE that they want a "Theory of Victory" for war with China so that they can "win" in theory. Who cares about what happens in practice? You design a purposefully circumscribed scenario, on your own terms, so you can "win" the simulated war. Then you float that up through 5-star nutcase land until it lands on the desk of the Senile Old White Guy, who says "Yes!". You kids need to pay very close attention, or your kids won't have no kids. This is #RAND Corporation. The modern one is an insane asylum. Everything #ASPI says, or any other think tank... It ALL comes from here.

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"So is the US under Trump now poised to abandon decades of grand strategy built around the retention of strategic primacy and the related denial of pre-eminence to any peer competitor, especially one which seeks to capture the commanding strategic heights of Eurasia?" - Peter Varghese Actually, the USA is going to continue blundering on in pursuit of #hegemony. There is no sign of any realization, in the United States, that the world, at large, has had an absolute gutful of this display of power without purpose. It will just keep doubling down on this destructive grand strategy. What started with the #BRICS rejection of US Hegemony is now propagating to the polity of US allies, where the people within these *democracies* are sick and tired of their own captured leadership dancing to the tune of a foreign power. There is now an elaborate global propaganda network, established by State, and operated through the mainstream media, to maintain the *fiction* that our democracies *represent* the interests of their host nation state. They do no such thing. They are captured. This abuse of US power and influence is now destabilizing Western democracy from within. That process has already started in Germany. Europe has been wrecked by the Ukraine-Russia proxy war. The internal political strife will just keep building until it boils over. In short, the USA is pissing in its own swimming pool. In this Cold War, it is the *allies* that will suffer internal political chaos. The non-aligned movement of the first Cold War saw this one coming and have all moved to the sidelines. They are making their own lifeboat while the West destroys itself by torching its own values at the behest of the USA. The USA is a safe investment destination for now. It is the West outside of the USA which will be destroyed by US Foreign Policy. As a mark of this, the G20 organizers in Brazil could not be bothered waiting for President Joe Biden to turn up for the group photo. He does not matter. Outside of the West, the USA has lost all serious political influence. This will leave US Foreign Policy free to destroy its allies from within. It is all so mindlessly stupid. It is both a tragedy and a comedy.

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Your Next Trade Ep65 "Silver Mooning" In this episode of "Your Next Trade", I cover recent developments like: Silver to the Moon, NVDA earnings, compressed volatility, low quality squeeze, volatility drivers... https://lnkd.in/ef45RCFx

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Most fund selectors have a simple framework for return expectations: #hedgefund > #mutualfund > #etf Or in less technical language Real Deal > Watered Down > Suitable Only for Riff Raff What if this relationship does not hold in #cta land? Simplify launched an "#alpha" focused #managedfutures ETF, $CTA, in March 2022 (good timing, Paul Kim, CFA, Charles McGarraugh, Eric McArdle and crew!). Since inception, CTA has outperformed the SG CTA #index of leading #hedgefunds by 700 bps per annum. In this lovely Year of the Whipsaw, they're up 17%. Oh -- maybe 75 bps expense ratio. Caveat of course: 2.5 years is a short window, a wicked drawdown during SVB, hard to tell exactly what they do, etc. etc. Definitely NOT INVESTMENT ADVICE. But come on.

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#Ukraine has reportedly had a helping hand from #Rothschild & Co on their recent #debt restructuring deal, according to Reuters. #Kyiv announced the successful restructuring of its $20 billion debt last week, having come to the end of a two-year repayment freeze. Reports suggest, however, that initial talks between Kyiv and its creditors had not gone to plan, with lenders asked to take a significant writedown that risked doing ‘substantial damage’ to relations. With just two weeks to go until the end of the repayment holiday, #Rothschild stepped in and later organized meetings in Paris to mediate. Bondholders had initially wanted immediate repayments, however, Ukraine were in favor of a mixture of #GDP-linked bonds and immediate coupon payments. The final agreement, the fastest such deal in history, received over 97% support from bondholders, despite requiring them to accept losses of 37%, equivalent to $8.7 billion. “The deal, compatible with the #IMF’s $122 billion aid package to Ukraine, will help Kyiv save $11.4 billion over the next three years, supporting both its war effort and #IMF program.” #reuters

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United States: Donald Trump Wins and Will Return to the White House, from Jimmy Jean, CFA, Francis Généreux and I https://lnkd.in/gZReAkue The election of Donald Trump for a second term as President is likely to bring changes to our economic and financial outlook. However, it remains to be seen how far he can go with the measures he has proposed during the election campaign. Positive economic momentum is plausible in the short term. In the longer term, sharp increases in tariffs and a drop in the number of immigrants could be damaging to economic growth. Combined with further tax cuts and larger deficits, these measures could also fuel inflation and lead to higher interest rates than currently expected. However, the Federal Reserve is not expected to take these new developments into account at its monetary policy meeting on Thursday. A 25-basis point cut is still expected.

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Equity Distributions with High Cash Flow CLO Equity is having another stellar year. Reported IRRs for CLO Equity: ~15% YTD for many of the top CLO managers. CLOs start with a warehouse line allowing CLO managers to accumulate/ramp their BSL portfolio of performing & highly diversified loans (~200 BSLs when CLO is priced). The most favorable CLO warehouse lines have non-marked-to-market facilities with roughly 4x leverage. Bank facilities provided with favorable terms are about SOFR +125 to +150bp range. During the warehouse ramp, equity seeks to earn 20-30% IRR, but this can vary widely, however it’s for a short period (~3 – 6 months), so the MOIC is low as it’s just a component that drives the overall CLO equity return. The BSL market is performing well. I expect the credit markets to perform well in this environment with default rates for BSL declining in the coming year, which should prove positive for CLOs debt and equity. AAA CLO tranches represent about 60% of the CLO cap stack and AAA’s have tightened to ~+130 from its wide earlier this year of S+150. The CLO equity arb is driven by the difference between the rate earned on the BSL portfolio vs. the liability costs (and admin costs). Holding all things constant, tighter liability costs are accretive for CLO equity investors. Credit selection and asset management is critical to performance as the best CLO managers employ dedicated teams of investment professional’s expert in loan underwriting, building, and managing highly diversified CLO portfolios. Strong credit profile is key to maintain low default rates, and its best to avoid CCCs, as mitigating risk is critical to performance. CLO equity also benefits from reinvestment during the investment period, active management that can add alpha via relative value, and repricing/extensions of CLO liabilities later in the CLO life span. CLO equity holders earn strong current cash distributions for well performing deals, with the potential to earn mid-teens IRRs, strong DPI and MOICs. The added kick is when the CLO manager shares a portion (10-20%) of its management fees they earn from managing the CLO (~40 bps) with the CLO equity investors. This fee sharing arrangement was first introduced post-GFC when CLO managers raised CLO equity funds required under risk-retention requirements as The Volcker Rule was introduced. Since the Volker rule no longer applies to U.S. CLOs, fee sharing arrangements are less prevalent today, but available from select managers. For these reasons and more, I am a proponent of CLO Equity and believe there is a place within in broader portfolio to hold these high yielding assets. Big shout out to Marathon Asset Management's CLO team who just closed Bryant Park 2024-24, a $405M CLO yesterday, bringing Marathon’s CLO capital market transactions to $2.4B YTD.

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"The potential tradeoffs are painful to contemplate and have received too little public discussion. The United States clearly could not afford to utilize anywhere near half of its interceptor inventory given the acute threats U.S. forces in Asia face from a potential conflict with China." The bodybuilding phrase "Chicken Legs" springs to mind. The #hegemon is busy "containing" its adversaries. They have no incentive to go to war, not directly, but there are 800+ foreign bases which cannot all be protected. It would also seem that Aegis ships must return to port to reload, if they should run out of missiles. The trouble with #WesternStrategy is that there is none. The presumption is that the West faces "expansionist" powers intent on engaging in wars of choice. This is projection. The opposite is true. Consequently, the counter-strategy employed is as obvious as it is cogent. Exhaust the West until the #ChickenLegs collapse. If you are intent on #GlobalHegemony then you *must* defend everywhere. This is a *stupid* strategy for which the #WesternPoliticalClass is locked in. There is no possibility of backing down and it is unsustainable. Therefore, it is destined to fail. There is no wisdom in the Western national strategy community. It is a vacuum of rebounding shibboleths and slogans. There is no actual sustainable strategy.

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My latest Substack post analyzes $XOM once again catching $TSLA in terms of market cap. Last 5 qtrs: $XOM returned ~$40bb to shareholders via divvies, buybacks. $TSLA: $0.00 That is what really matters. But the key to investing is the second derivative, and as EV sales slow (good for demand for oil, obvs, and for $XOM) I fail to see the Silver Bullet for $TSLA. Why? Because Elon let his product line get old. No amount of robotaxi/FSD necromancy is going to change that. Trade accordingly. Excelsior! --Jim

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Freeman's essay is here... he roundly excoriates sanctioneering: "The net effect of American sanctioneering and protectionism is to make the world ever less than the previous sum of its parts. The new U.S. stand on trade and investment: * Substitutes geopolitical risk judgments based on national security paranoia for comparative price and quality as the basis for business decisions, thereby reducing global economic efficiency, growth, and prosperity. * Exempts uncompetitive domestic oligopolies – which now dominate the American economy – from competitive pressures to produce better, cheaper products. *Deprives U.S. producers of economically desirable production inputs and locks in inflation. *Replaces quasi-judicial dispute settlement mechanisms in international trade with zero-sum contests of economic power. *Undermines global monetary reserve and trade settlement systems and encourages the formation of competing currency blocks and exchange mechanisms. *Divides the world into multiple segregated political and economic blocs, restricting trade and investment flows with other blocs or countries to the detriment of global prosperity and economic efficiency. *Constitutes a pivot to further stagnation and technological decline, not a realistic approach to reindustrializing America. *Drives the world toward attempted military rather than diplomatic solutions to problems, most of which cannot be resolved on the battlefield. " Amen to all of that. Huge investment implications for anybody with a brain who can use it. #NewWorldDisorder https://lnkd.in/gwk_nTeN

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Thin volume rally needs help from LFT and less i from LiFT. https://lnkd.in/gPnmMiiN

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Monitor: US BSL CLO New Issue Arb Trend Since 2017 The median arbitrage metric YTD at 195 bps is actually lower than in both 2022 and 2023, but this year’s new issue volume has already far exceeded the past two years’ volume on an annualized basis. Similarly, 2018-vintage deals had the lowest median arbitrage metric at 191 bps, but 2018 was a record-breaking year for new issue #CLO volume at the time. On the other hand, 2020-vintage deals had the best median arbitrage metric at 243 bps, but their new issue volume was the lowest. If you’re interested in learning more about the premium content or would like a walkthrough of the website via Zoom, please don’t hesitate to email me at [email protected]. https://lnkd.in/e6sUTfjw

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