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Yy89's profile
Yuan Yao
Yuan Yao
Yuan Yao
@Yy89

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Yuan Yao

@Yy89

purveyor of irrefutable truths

Perth, Western Australia
Joined May 2009

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    Yuan Yao‏ @Yy89 18 Apr 2020

    The Fed's Franken-Bull of 2020. It’s a term I made up for a market that has bearish fundamentals, but experiencing a bull run.pic.twitter.com/XkEyoFrGIf

    5:11 AM - 18 Apr 2020
    • 4 Likes
    • eggman 荊楚土農 🤷🏻‍♀️ Falling Markets Are Functional
    1 reply 0 retweets 4 likes
      1. New conversation
      2. Yuan Yao‏ @Yy89 18 Apr 2020

        https://medium.com/@yuanyao89/the-feds-franken-bull-f0e84c7d61f9 … (original article with graphs n shit)

        1 reply 0 retweets 0 likes
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      3. Yuan Yao‏ @Yy89 18 Apr 2020

        Post 2008 GFC: low interest rates & pumped liquidity for firms to invest in real growth. These conditions lent to creation of the "carry regime,"

        1 reply 0 retweets 0 likes
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      4. Yuan Yao‏ @Yy89 18 Apr 2020

        "we define all carry trades to share certain critical features : leverage, liquidity provision, short exposure to volatility, and a “sawtooth” return pattern of small, steady profits punctuated by occasional large losses (p. 3, LL&C)."

        1 reply 0 retweets 0 likes
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      5. Yuan Yao‏ @Yy89 18 Apr 2020

        examples: "undertaking classic currency carry positions , writing insurance or selling credit default swaps , buying higher — yielding equities or junk debt on margin , taking out buy — to — rent mortgages to finance property investments , to writing put options on equities or...

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      6. Yuan Yao‏ @Yy89 18 Apr 2020

        ...equity indexes or buying exchange — traded funds that do so — but that is not all . Carry trades can also include dealings such as companies issuing debt to buy back their own equity or private equity leveraged buyouts, plus a whole gamut of more complex financial strategies.

        1 reply 0 retweets 0 likes
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      7. Yuan Yao‏ @Yy89 18 Apr 2020

        Classic carry trades use borrowed money to take positions in high — yielding assets with less liquidity . This is precisely what private equity funds that focus on leveraged buyouts do . Use debt to purchase a portfolio of companies with yield above the cost of debt (p. 78, LLC).

        1 reply 0 retweets 0 likes
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      8. Yuan Yao‏ @Yy89 18 Apr 2020

        Here's the spicy part about the Fed shorting vol Since selling volatility is providing leverage and providing liquidity, the most important volatility seller must by definition be the lender of last resort (p. 101, LL&C).

        1 reply 0 retweets 0 likes
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      9. Yuan Yao‏ @Yy89 18 Apr 2020

        If the Fed is seen as the greatest volatility seller, then the claim that volatility selling is extremely important to the stock market is closely related to the quite conventional claim that the Fed is extremely important to the stock market (p. 101, LL&C).pic.twitter.com/YPY5Hx9TGL

        1 reply 0 retweets 0 likes
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      10. Yuan Yao‏ @Yy89 18 Apr 2020

        The idea that the stock market rose so much over 2013–2014 purely because the Fed pumped so much money into the economy is not credible (p. 102, LL&C).

        1 reply 0 retweets 0 likes
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      11. Yuan Yao‏ @Yy89 18 Apr 2020

        The Fed is carry trader and the S&P500 is a carry trade: The true reason that the US stock market rose is that the S&P 500 has become a carry trade and the Fed’s QE policy represented a massive selling of volatility. The Fed became possibly the biggest carry trader of all:

        1 reply 0 retweets 0 likes
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      12. Yuan Yao‏ @Yy89 18 Apr 2020

        its balance sheet is a huge carry trade with large holdings of yielding securities, such as Treasury securities and mortgage-backed securities, financed by very low-cost liabilities including zero-interest cost cash currency in circulation (p. 103, LL&C).

        1 reply 0 retweets 0 likes
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      13. Yuan Yao‏ @Yy89 18 Apr 2020

        The carry regime creates an illusion of liquidity: this expectation of ample liquidity runs counter to what has actually transpired when consensus views have changed and investors have sought to reposition their portfolios accordingly. In May–June 2013, when Chairman Bernanke

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      14. Yuan Yao‏ @Yy89 18 Apr 2020

        uttered that famous word — “taper” — and raised questions about the Fed’s continuous support for markets, many investors were unable to complete their desired transactions for even the most vanilla-type securities (p. 115, El-Erian)

        1 reply 0 retweets 0 likes
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      15. Yuan Yao‏ @Yy89 18 Apr 2020

        Remember how carry trades involve leverage: carry traders are often forced to close positions when prices move against them. This necessarily means selling assets that are falling in price (or buying assets that are rising in price). Thus, the dynamics of managing carry trade

        1 reply 0 retweets 0 likes
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      16. Yuan Yao‏ @Yy89 18 Apr 2020

        risks create fire-sale effects in which initial movements in prices are often substantially amplified. The expansion of carry trades always increases liquidity; the reduction or closing of carry trades leads to liquidity contraction (p. 3, LL&C).

        1 reply 0 retweets 0 likes
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      17. Yuan Yao‏ @Yy89 18 Apr 2020

        This fact leads to a pernicious feature of carry. Leverage increases the risk of ruin, and carry involves leverage. Carry drawdowns are therefore likely to involve the risk of some participants facing ruin. This means the aggregate growth of carry is likely to represent a

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      18. Yuan Yao‏ @Yy89 18 Apr 2020

        systemic risk to the financial system. It is therefore no accident that the increased involvement of central banks as lenders of last resort has coincided with the growth of carry. They are intimately linked (p. 72, LL&C)

        1 reply 0 retweets 0 likes
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      19. Yuan Yao‏ @Yy89 18 Apr 2020

        systemic risk to the financial system. It is therefore no accident that the increased involvement of central banks as lenders of last resort has coincided with the growth of carry. They are intimately linked (p. 72, LL&C)

        1 reply 0 retweets 0 likes
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      20. Yuan Yao‏ @Yy89 18 Apr 2020

        Chuck Prince, the former CEO of Citigroup, said: When the music stops, in terms of liquidity things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.

        1 reply 0 retweets 0 likes
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      21. Yuan Yao‏ @Yy89 18 Apr 2020

        Welcome constructive feedback & jpow memespic.twitter.com/QnU2j0Qhbh

        1 reply 0 retweets 0 likes
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      22. Yuan Yao‏ @Yy89 18 Apr 2020

        @kcold1

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      23. End of conversation

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