Galantino Gallo

Vamos — This Argentine 🇦🇷 banking stock is giving NVIDIA a run 🏃‍♂️ for the money! 💸 In case you wondered: Grupo Financiero Galicia S.A. is a financial services holding company based in Buenos Aires, and its banking operations are the fifth largest in Argentina, as well as the largest among all domestically-owned private banks in the country. (Wiki) ➡️The takeaway from this:⬅️ There are many ways up the investing mountain. 🏔️ ( Opinions are my own. Not investment advice. Do your own research. ) #markets #investing #money #wealthmanagement #valueinvesting Tap the bell 🔔 to subscribe to my profile & you'll be notified when I post. 💸

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[📆 Capital Markets' #Chronicle] 6 May 2010: The Flash Crack 📉 On this day, 13 years ago, the prices of many U.S.-based equity products experienced an extraordinarily rapid decline and recovery: major equity indices in the futures and securities markets, already down from their previous day's close (on fears of a potential default by the Greek government on its sovereign debt), suddenly plunged further in a matter of minutes before recovering almost as quickly. A joint report 📖 by the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities & Exchange Commission (SEC) on this flash crash was released on 30 September 2010. 1️⃣ The report noted that volatility was high and liquidity had already fallen in the E-Mini S&P 500 futures contracts (E-Mini) and the S&P 500 SPDR exchange traded fund (SPY), the two most active equity index instruments traded in the electronic futures and equity markets. 2️⃣ A trader initiated a sell program to sell a total of 75,000 E-Mini contracts (valued at approximately $4.1 billion) as a hedge to an existing equity position.  3️⃣ It triggered further sell orders by high-frequency algorithms. The combined selling pressure drove the price of the E-Mini down about 3% in just four minutes. At the same time, cross-market arbitrageurs who bought the E-Mini, simultaneously sold equivalent amounts in the equities markets, also driving the price of SPY down approximately 3%.  4️⃣ Trading on the E-Mini was then paused for five seconds when the Chicago Mercantile Exchange (CME) circuit breaker was triggered in order to prevent a cascade of further price declines. In this short period of time, sell-side pressure in the E-Mini was partly alleviated and buy-side interest increased. As trading resumed, prices stabilized and shortly thereafter, the E-Mini began to recover, followed by the SPY. 5️⃣ However, the equity markets experienced a second liquidity crisis when automated trading systems used by many liquidity providers paused temporarily in response to the sudden price declines: based on their respective individual risk assessments, some market makers and other liquidity providers widened their quote spreads, others reduced the liquidity offered, and a significant number withdrew from the markets altogether. In the lessons learned 💡, the joint CFTC and SEC report noted that: ➡️ 6 May 2010 was an important reminder of the inter-connectedness of the derivatives and securities markets, particularly with respect to index products.  ➡️ Pausing a market with a circuit breaker can be an effective way to provide time for market participants to reassess their strategies, for algorithms to reset their parameters, and for an orderly market to be restored.  ➡️ In stressed market conditions, the automated execution of a large sell order can trigger extreme price movements, especially if the automated execution algorithm does not take prices into account. #capitalmarkets #crack #derivatives #securitiesexchange

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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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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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Chart of the day – Global Z-Score valuation implies a significant overvaluation of the global stock market My global Z-Score valuation indicator of the global stock market, based on the global equity index MSCI All Country World, is calculated as the average of the Z-Scores of four key valuation multiples: P/E, P/B, P/S and EV/EBITDA, based on the time-series since 1995. At the moment the valuation indicator value is 1.5 standard deviations. This means that the global stock market seems to be quite significantly overvalued. With that being said, 1.5 standard deviations also imply that if the global stock market valuations were to mean-revert in the upcoming period there would currently be approximately a 20% downside potential. However financial markets have also a strong historical tendency to overshoot and undershoot the historical average valuations which means that the downside potential could be even higher. Equities can for sure continue their rally into the second half of 2024. However, in my opinion, if this upward movement continues, the probability of a significant correction will be growing every other day, especially taking into account the fact that 1) the global economy growth momentum seems to be peaking right now based on global PMI indices and 2) the significant weakening of global economic data positive surprises based on the Citi Global Economic Surprise Index.

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Global PMI heatmap – Global Composite PMI index declined from 52.9 to 52.5 points in July. On top of that this has been a second monthly decline in a row after the peak in May. That said, the recent data prints are consistent with a gradual slowdown of the global economic growth dynamics. Services sector has kept a solid momentum on average across the global economy as the Global Services PMI index slightly increased from 53.1 to 53.3 points in July. However the global manufacturing sector has slowed down materially in July as the Global Manufacturing PMI index declined by 1.1 point from 50.8 to 49.7 points and so the index reached a level below the key 50 points threshold which means that the global manufacturing sector has slightly contracted in July. Manufacturing slowdown has been evident especially in the US whose both manufacturing PMI indices declined quite profoundly and at the same time below the 50 points threshold. As regards the Czech manufacturing sector, the Czech Manufacturing PMI index declined also quite strongly by 1.5 point from 45.3 to 43.8 points which continues to reflect the protracted crisis, very likely predominantly driven by the still very uncompetitive energy prices in comparison with the US and Asia.

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IMF GDP GROWTH PROJECTIONS FOR 2024 The International Monetary Fund expects : From the Developed Markets Basket , 🇺🇸 US economy to grow by 2.6% in 2024, much above all other developed countries. 🇮🇳 From emerging markets, India is expected to expand over 7% in 2024, the most.

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Delusion of Value Versus Reality Therapy Economics 101