Hedge Funds *JUST FLIPPED* | The Great Reset

folks the 10-year treasury yield is

Going Bonkers again it's a knocking on

the door of four percent something we

haven't seen until after we got the

January hot data from an unseasonably

warm winter where a lot of retail sales

were being pulled forward the only

reason we dipped with the 10-year

Treasury and March was well of course

the banking crisis where we had a rapid

deceleration of uh interest rates uh and

then of course the time before that was

October November before the real

December sell-off that we saw on the

stock market where we had a four percent

10-year treasure yield in fact as I was

recording this this just popped from the

upper three uh nines to over four

percent so what's going on and why might

these yields be going up and what could

it mean for the stock market and is

there a giant irony happening I

personally believe there is so we'll

look a little bit at positioning but I'm

want you to think about logic here first

and then we'll get into some equity

research from uh Jeffries and some other

sources so let's think about logic first

what does it mean when a bond yield

Rises well usually when a bond yield

Rises what you have is you have more

people

selling that particular Bond then you

have people buying it so when you have

more selling you increase the yield

because the price is lower so if the

yield is constant and the price goes

down you get a higher percentage on your

money but why would people be selling

bonds well I have a theory I think

people might be selling bonds because

they're realizing they're under

allocated to stocks now that's actually

really interesting because it suggests a

reiteration of what we've seen in the

stock market over especially the last

six days with the s p where you get this

morning sell-off or or low and then you

rise into the close it seems to me

institutional investors are potentially

vastly mispositioned and every bit of

negative news is seen as an opportunity

to increase their positioning to

equities

and reduce their positioning to bonds

because even though you're getting a

nice juicy four or five percent yield on

the ten to two year treasure yields

you're missing out on the potential

returns of the stock market and most

institutional investors thought 2023 was

going to be horrible we were going to

have a Chinese re-inflation with the

Chinese reopening that was going to push

inflation up throughout the rest of the

world earnings were supposed to be the

worst and the stock market was supposed

to sell down even more as a result of

this wild earnings recession well we

didn't end up getting that kind of pain

in 2023 we got a substantially stronger

economy with stronger sales in January

stronger sales in February Powell

powelled howled powered through the

banking crisis potentially with the help

of Powell although that could reignite

as bond yields continue to rise you

actually put more stress on the banks so

you can see more of the fed's liquidity

facilities being tapped because because

of this and we have been right if you

look at the bank term funding program of

the Federal Reserve and we can pull up

charts by going to the St Louis fed on

that uh you can see that liquidity for

uh this facility has generally been

trending up let's zoom in on it here

really quick and here it is so you can

see here is the banking crisis in March

we shot up with our usage of this Bank

term funding program we kind of leveled

out but then come may as the 10-year

treasury started Rising again you

started seeing that pressure again now

we've started flattening again here in

just the last few weeks of June uh which

is good a sign of stability but what

could all of this actually mean going

forward and then what does Jeffrey say

well consider this for a moment if if it

is possible that you end up with a uh an

Institutional set that is under

allocated that is people are underweight

stocks which the Bank of America fund

manager survey told us hey we're

underweight stocks right Bank of America

fund survey said institutional fund

managers are underweight 32 percent on

their stocks

well then any dip opportunity is an

opportunity to buy and allocate and dump

bonds which would actually lead to an

environment and this is the crazy part

where you potentially have yields up

stocks up usually you don't have that

usually when yields are up stocks go

down

but now we're potentially in this

environment where yields are going up

stocks are going up because of this

rebalancing combined with obviously

where the FED has rates right now now

let's take a look at this Jeffries put

together a piece here and indicated that

looking at the msci hedge fund data as

of 430 April 30th this piece just came

out as well but this just came out uh

yesterday here July 5. these investors

increased their long position to 230

percent back above long-term averages

these investors look at this lowered

weight and bond proxies underweight

Group by over 10 percent now net short

real estate and utilities secular growth

was bumped to overweight so many

different types of Institutions here but

consider this you've got fund managers

which are your investment advisors so

these are your financial advisors

allocating money uh for people then you

have hedge funds so hedge funds are not

actually what I mean they can be but

they're usually not licensed financial

advisors they're just people who are

putting money together for accredited

investors you've kind of already started

to see that transition for hedge funds

they went from under allocated the

beginning of the year to starting to get

over allocated as soon as around the end

of April and that could have been one of

the reasons we've seen bond yields rise

up now you need to see fund managers

also play catch-up and I think people

are realizing that you just can't be uh

short equities right now or you can't be

under allocated and therefore you've got

here hedge funds raising their Equity

exposure back above long-term average

uh let's take a look at some of the

others here hedge funds move back to net

short and marginally shore on sort of

net short real estate marginally

shortened utilities I do want to mention

what this could mean for real estate by

the way when you have this sort of

environment by the way yields up stocks

up

you're actually going to create a very

interesting opportunity usually what's

going to happen is

stocks uh and uh well well Tino returns

for stocks Tina returns Tino returns is

there is no alternative and that

basically says everyone piles into

stocks there's a beauty in that

as real estate uh real estate rents

decline as they are uh real estate

becomes less desirable as mortgage rates

and yields rise guess what real estate

becomes

less desirable which means

much less competition and more

opportunity in real estate because every

Loser on Wall Street isn't trying to

understand real estate and just buy a

bunch of properties everywhere so in my

opinion this actually sets up fantastic

opportunities to ride stocks for a bit

uh and then get into real estate is

potentially more opportunities open up

over the next six months to a year

couple of years in that sort of window

that's sort of what I've been playing

and and sort of knocking on wood on

since January of 2022 the idea of

allocate to stocks before the PIV and

then real estate Lacks

so allocated to real estate after

kind of interesting so okay now let's

continue with this Jeffrey's piece

speaking of real estate by the way uh if

you want to Shadow me as I hunt for Real

Estate we brought back the shadowing

program link down below you can chat

with me and learn from me in person on

real estate uh and uh that's of course

or linked right next to the links for

the courses on building your wealth link

down below uh all right so continuing

with the Jeffrey's piece here so we

continue to track and write about our

version of fang plus called the sweet

16. as of the end of April hedge funds

took down their active weight to this

group and moved to a larger underweight

the underweight versus the S P 500

stands at 5 1 versus 3.3 percent the

month prior so in other words when

you're looking at the top 16 stocks even

though hedge funds have positioned in by

about April 30th in recent weeks you've

started to get back to a little bit

underweight you could see that

represented by this red line here it's

really as we kind of wrote here hedgies

are hit or miss with with you know Tech

basically they're not sure like do we

love it do we hate it where do we want

to be and so here's the zero percent

line if you see my little squiggly laser

right there and when you get this red

line here going under that zero line

right there on the right you're getting

that under allocation again uh which is

actually fantastic because it just

reiterates why we're potentially seeing

these runs of the stock market into the

close remember stocks uh at least the S

P 500 has run into the close Six Days In

the row now and we haven't seen that

since October of 2021 it's usually a

sign of I mean I hate to use this phrase

but it might be accurate here

institutional fomo where you're kind of

just getting this allocation because

they realize they've oopsie dupe seed

right and been misallocated hedge funds

got less defensive and cut their

exposure to bond proxies by almost five

percent underweight Bond proxies now

stands at 10.2 percent however the

historical average is higher than 11. in

other words they're historically more

underweight which means there's more

bonds selling to do and more allocating

to stocks to do now uh Augustine here in

the chat actually asks a good question

how does this relate to the 10-2 yield

curve okay so I said something mean

yesterday about economists and the tend

to yield curve and it could end up like

biting me in the butt but I thought it

was funny I don't know maybe other

people didn't think it was funny but

I'll I'll show you this tweet and it

relates to answering your question which

I think is actually a very valid

question so first I quote tweeted this

person they said this person says quote

son I got a new job Mom got a raise

we have more cash in the bank

gas prices are falling my 401k is up

your 529 College savings plan is up and

my company is expanding things to

Growing profits but Sun

we're not going to Disney World

because the yield curve is inverted

said nobody ever and I thought it was a

great comment because the truth is the

biggest bear argument right now is the

tend to yield curve this idea that oh my

gosh you know but the yield curve is

inverting uh the yield curve being

inverted I know that sounds complicated

but it's really not let me show you how

simple it is to see that the yield curve

is inverted you ready you go here search

you put in 10-year so all I'm doing is

going to cnbc.com I put a 10-year on one

Tab and then I put in two year on the

other Tab and so what do you do right

here under 10 year you see okay we're at

four percent okay that's easy math here

on the two year you see you're at five

percent what's the difference about one

percent because usually you get paid

more for committing your money for

longer

this is the opposite of what you would

expect you would expect the 10-year to

be higher and the two year to be shorter

or or lower but it's not hence you have

an inversion

the there are two potential explanations

for this one or screw it and we're going

into a deep dark recession like history

has predicted although there have been

false flags on this

like if you if you look at the history

of the inverted yield curve every time

there has been a recession you've had an

inversion of the yield curve but not

every time you've had an inversion have

you had a recession

anyway

uh the second possible explanation is

that because inflation is high now

people are demanding a higher a higher

basically yield in order to commit to

two-year treasuries now because they

want to be paid more now uh and they

realize that high inflation isn't going

to last long so they're willing to take

slightly less on the longer duration

Bond because inflation is expected to go

down

so anyway I ended up replying to this I

quote tweeted this uh it wasn't as

popular as I thought I thought it was

funny but it wasn't I don't know I said

hence why economists have predicted 10

out of the last two recessions the

actual 10-2 inversion which is basically

to say that maybe the real 10-2

inversion is the fact that we're

predicting more recessions than we

actually get

anyway so point of all this is there is

a logical explanation to the 10 to yield

curve yes it is it is a very legitimate

bearish argument and maybe maybe you

know it's it's wrong to say that the

10-2 yield curve is uh is completely uh

wrong uh and I don't want to suggest

that it's completely wrong but I'm just

saying

there is a logical explanation as well

which is scary because it it makes sense

that if you're under allocated bonds

you start dumping Bonds in a high

interest rate regime for anybody to buy

the two-year you need to see yields

continue to go up above the tenure

and then as people are dumping bonds

they're actually throwing money into

stocks because stocks are rising again

and we're realizing even though earnings

estimates have been adjusted down things

just aren't as bad as they were expected

to be in 2022. the economy just

continues to show signs of strength

anyway so so uh okay a little bit more

on the uh the hedge funds here

so I want to see where they're crowded

here we go Uber crowded names loved by

hedge funds this is the order

of crowded names for hedge funds meta

Microsoft Nvidia Amazon Visa Adobe

Netflix evidence health McDonald's Lulu

uh Lind

Google booking Holdings AMD Pepsi

Salesforce PayPal uh intuitive Procter

Gamble in United Health

notice no Tesla no Tesla no apple

oh that's really interesting actually

I'll make a little note of that Tesla

Apple not here uh you also don't have

your TSM your asml oh by the way I had

the honor of driving

um uh to the TSM plant yesterday which

was pretty cool in Phoenix we were

looking at real estate

and uh studying the rental market there

uh and uh here's the Phoenix Arizona

plant as of yesterday I was talking

about how it's really crazy that the

inflation reduction Act is probably

paying like 25 to 30 percent of all this

which is remarkable I actually ended up

flying over the plant as well which is

also really cool uh so we kind of got a

low-ish fly over the plan I mean that's

probably what 4 000 feet or whatever

which is pretty cool uh and but anyway

yeah that was that was pretty awesome so

uh so point of all of this is really

well here one more chart and then bottom

line this so infotech net positioning

you can see here again I will draw a

line at the zero percent so you could

see it a little bit easier you can see

that negative that underweight

positioning there by hedge funds again

uh in Tech and you can see it oscillates

a lot you know but that's what hedge

funds do they trade a lot but anyway

point of this is this Jeffrey's piece

reiterates

that funds are under allocated stocks

and when they allocate more to stocks

what do they do they dump bonds what

happens when you dump bonds you jack up

the yield curve and it really reiterates

essentially exactly what we're seeing

just pretty remarkable so anyway that

gives us a thought about yield curve and

stocks now I want you to know this when

it comes to AI time is what's going to

make you money and if you can prove that

value to an employer you'll always be

able to be employed so this is another

way of making sure that you don't get

replaced but

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