By Bobby Molavi, Managing Director and trader at Goldman Sachs
2023 has been exhausting. A year of mixed signals and false messages. We’ve spent most of the year playing macro/micro whack a mole and stuck in a re-gross/de-gross, re-net/de-net environment that has been driven by mainly macro factors (rates, growth, regional banks, conflict, China, de-globalisation). Inflation being tamed or resurfacing and what that means for consumers, corporates, multiples and GDP. We are clearly exiting the era of cheap capital, a focus for growth and a reach for yield. That path to normalization will be (and has been) bumpy and will come with false bottoms and fake rallies. That being said, there remains a lot of ‘cash and dry powder’ available from the Covid era that can and will be deployed. The delayed effects of that saving creation has been felt in the resilience of the consumer and consumption habits... for how long that lasts is one big questions with increasing signs of belt tightening.
Last week started with a relief rally, a reflexive bounce after a very challenging September and start of October. The end of the week saw geo-political tail risks come to the fore and broad based risk off move with Vix rallying, Gold and Oil both rallying and investor sentiment extremely cautious. We came into this week with an increasingly bearish tone and with a big sell skew for the systematic community and a geopolitical tail risk that is impossible to model but results in a higher vol paradigm for the foreseeable. September saw CTA's dramatically reduce their Equity exposure with positioning hitting 5 year lows. The Long/short community had once again gone through a bout of de-grossing and marginal de-netting but worth noting the active community still remains long especially the long only and mutual fund complex.
