Wandering Stock

The Blind Squirrel's (delayed) Monday Morning Notes, 17th April 2024.

• Back on the grid after a week in the Outback. Glad I did not miss anything! But do not miss the 🐿️’s Top Gear moment…

Welcome! I'm Rupert Mitchell aka The Blind Squirrel and this is my weekly newsletter on markets and investment ideas. If you've received it, then you either subscribed or someone forwarded it to you (add yourself to the list via the button below). Please also consider becoming a paid subscriber or gifting to a friend!

Wandering Stock

Quick update. Team 🐿️ got back last night from a week ‘off the grid’ in the central Australian outback. A trip to the ‘Big Red Centre’ has been high on my bucket list since moving to the ‘Lucky Country’ (and before). It did not disappoint.

Yes, there was mobile phone reception in a couple of the most popular tourist destinations such as Uluru (above). Otherwise, it was pretty much a markets-free week for the 🐿️.

We even survived the camping / RV / red dust and fly swarms (everywhere!) etc. However, some significant mileage on unpaved Outback roads did see some major ‘Top Gear’ re-enactment moments for our ‘wheels’!

It turns out that we also picked an ‘interesting’ week to miss out on live markets. Like the jackaroo’s cattle, stocks were wandering well away from the strong trend lines that have been in place for the past 6 months.

Moving average mayhem. NQ (Nasdaq 100) futures, continuous contract, daily chart. Source: Tradingview

It turns out that the ticks up in implied correlation, equity vol VIX and treasury vol (MOVE) that we eyeballed before our departure were indeed the start of something bigger.

An update to last week’s chart of implied correlations, VIX and MOVE. The upticks now look like the start of a trend.

Our SPY 0.00%↑ straddle hedge against a breakdown in the (crowded) dispersion trade and our long bond ‘fire insurance’ both did their job admirably while we were away.

Long bonds did not take kindly to the hot US inflation and retail sales data that printed while Team 🐿️ was ‘on the road’. Yesterday’s messaging from Jerome Powell on the pace of interest rate easing does not feel like a surprise.

Our long bond insurance is expressed via a put backspread on the $TLT ETF. TLT has now failed the ‘fib’ retracement of the advance from last October’s pivot. Is it possible that we now test new lows? TLT ETF (candles, upper pane), TLT implied volatility (VXTLT, turquoise, lower pane). Tradingview.

We obviously did not emerge completely unscathed from the week. It turns out that ‘deep value’ plays on AI become even better value when some of the fizz comes out of the headline narrative. With Nvidia starting to lose momentum, we have been stopped out of our play on coherent optics. We have also been moved to the sidelines on our Brazil basket (a price, not an Elon Musk related move).

On the positive side, leaning into the strong momentum in gold has worked very well so far. We have been a skeptic of ‘yella fella’ derivatives (silver, precious metals miners etc.). Nevertheless, our one ‘alternative’ precious metal play (‘D2C’ bars and coins) A-Mark Precious Metals AMRK 0.00%↑ did get a very helpful

Kuppy

-shaped kick ‘in the behind’.

I believe that ‘coming off the top rope’ is a professional wrestling analogy from (yes, the ‘Big Short’ one) Vinny Daniel. Clearly, Kuppy’s battle with the pod shops is in early innings! The 🐿️ has not sold a share! Love this name.

Just a quick note this week. Normal service (plus podcasts) will resume next week. The trip to Australia’s ‘Red Center’ had catalyzed a number of longer-term thoughts that I want to build on in next Monday’s (yes - back to schedule!) letter. This is going to be called ‘The Great Rain Robbery’.

In Section 2 this week (for paid subs) we will look at some risk management strategies around our bond and volatility hedges and core portfolio positions.