A mental Doji candle for the 🐿️
A mental Doji candle for the 🐿️
The Blind Squirrel's Monday Morning Notes, 16th September 2024.
The 🐿️ finds himself in a Doji candle frame of mind when it comes to both the economy and the markets.
Are we on the verge of a bull run in real assets or does a return of carry unwind put everything at risk.
In Section 2, we go through the process of re-underwriting the full Acorn portfolio.
A mental Doji candle for the 🐿️
In Japanese, “doji” (どうじ/ 同事) means “the same thing”. In the world of crayons technical analysis, a Doji candle on a chart, created when the price of a security closes at the same level at which it opens, is viewed by technicians as a sign that buyers and sellers are undecided as to the path forward.
The 🐿️ finds himself in a Doji candle frame of mind when it comes to both the economy and the markets.
This ‘back door’ assurance could not have come at a more critical time for the semiconductor sector, arguably the beating heart of the AI rally of the past year. The sector is currently in a ‘knife fight’ to hold on to its positive trend.
SOFR futures continue to pencil in 4+ rate cuts by year end. I still think that the market is getting way over-excited about fixed income. The 🐿️’s whiskers are sensing that some of these cuts need to be priced back out fast.
Meanwhile the Bank of Japan continues with hawkish messaging on rates, notwithstanding some emerging squeamishness from the political class in Tokyo. Yen appreciation is accelerating. However, breathless discussion of the Yen carry trade unwind appears to have disappeared as quickly as it arrived.
Momentum indicators would suggest that Yen appreciation might soon pause for a breath. On one hand, the recent move appears to look like an overdue catch up with yield differentials.
The risk of a continued revaluation of the Yen has implications for all risk assets. Not a mainstream dialogue yet, but I am starting to see mentions of potential re-hedging flows around structured products such as those infamous PRDCs is giving this rodent some PTSD reminders of some of the great risk unwinds of the past! Japan is not referred to as the ‘Saudi Arabia of Savings’ for nothing. Bad things happen in risk markets when those savings decide to go home.
This places your favorite macro rodent in a dilemma. A weaker US dollar should benefit many of the trades and themes that I favor, and the mighty greenback certainly looks like it is trying to probe some new lows.
Are we really entering a market regime that will favor real assets?
The 🐿️ has a new favorite website, Euonia. It celebrates words (in over 80 languages) that do not easily translate from the native tongue. My word for the day is Kintsukuroi. Euonia translates this Japanese word as follows: ‘To repair with gold. Understanding that a piece is more beautiful for having broken and been repaired.’
Well, for much of the past couple of years, it’s commodity investors that have been broken. However, is the (barely discussed) advance in the price of gold a harbinger of a more broad-based move up in real assets or just, as my new friend JJ
describes, a function of an Eastern hemisphere buyer base that cares more about quantity than price.
In the past few months, we are finally seeing signs of a catch up move by the ‘yella fella’s second derivatives, namely silver (and, more recently, the platinum group metals) and the gold and silver miners.
Although might the latest move by the miners be simply a function of the fact that the M&A departments of Canadian broker dealers are finally beginning to see some action? With falling energy prices, miner earnings have been inflecting higher for months. Yet mainstream institutional money has not cared one bit.
Based on shares outstanding of XME 0.00%↑ iShares Metals and Mining ETF, investors have been fleeing from the sector in their droves since the Ukraine invasion highs.
Yet last week, the mining stocks were running like they had stolen something!
The 🐿️ does confess to have found himself getting quite excited about these moves last week. This week I was even on the verge of writing up the opportunity in selected oil and gas producers (a market I have barely touched for nearly 2 years)! I walked myself back from the ledge. For now!
I do, however, believe in this latest breakout in the gold price. Precious metals are already an overweight position for me. However, I restricted myself (for the time being) to writing a few gold puts and put spreads.
It feels like the world and his wife would love to add to their gold positions a “few hundred dollars an ounce lower”. This usually means it never gets there! However, if the ‘Yen Carry Trade Unwind’ headlines have indeed subsided prematurely, let’s not forget that (most of the time!) gold is a risk asset too!
With ‘coin toss’ setups for this week’s Federal Reserve meeting and November’s US elections, the 🐿️ is going to exercise restraint in strapping on more risk in assets that hurt when you drop them on your foot. In fact, we are going the other way!
Inside Baseball with Old Chestnut’s legendary Morris Sachs always discusses the importance of periodically getting out the trusty yellow legal pad (IYKYK!) and going through the process of re-underwriting all of your existing positions.
In Section 2 this week, we are going to do just that. We cover it all: from our new Asian stock ideas to our current fixed income views, via luxury baskets, Ags, F1, healthcare, tires, refiners, UK midcaps, drill ships, nukes, and US tech and utility shorts.
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