Reflect and Move on: Market Market on the Wall
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Relax, and let’s reflect on the week.
From Market Wizards
(My impression is that you often implement positions near market turns. Sometimes your precision has been uncanny. What is it about your decision-making process that allows you to get in so close to the turns?
I have very strong views of the long-ran direction of all markets. I also have a very short-term horizon for pain. As a result, frequently, I may try repeated trades from the long side over a period of weeks in a market which continues to move lower.
Is it a matter of doing a series of probes until you finally hit it?
Exactly. I consider myself a premier market opportunist. That means I develop an idea on the market and pursue it from a very-low-risk standpoint until I have repeatedly been proven wrong, or until I change my viewpoint.
In other words, it makes a better story to say, "Paul Jones buys the T-bond market 2 ticks from the low," rather than, "On his fifth try, Paul Jones buys the T-bond market 2 ticks from its low."
I think that is certainly part of it.)
Paul Tudor Jones/Jack Schwager-Market Wizards
I talk about this all the time. No one gets it right on the first attempt. You have to take swings.
"You miss 100% of the shots you don't take." - Wayne Gretzky
So, what is the next turning point? Most likely, bonds.
It is time to buy short dated bond futures. We have been long from the 2 to the 30 year bonds. Now it is time to buy the eurodollar futures which is now changed to SOFR futures.
Eurodollar bond futures were financial contracts that allowed investors to speculate on or hedge against changes in U.S. dollar interest rates, specifically tied to the London Interbank Offered Rate (LIBOR). However, as part of the global transition away from LIBOR due to its declining reliability, these futures were replaced by SOFR (Secured Overnight Financing Rate) futures. SOFR is a more transparent and risk-free benchmark, based on overnight repurchase agreements, making it the preferred standard for interest rate futures in the U.S. market.
2 year bonds making 52 week highs.
Fed rate probabilities are 74% for a .25 basis point cut.
At this point you should be long bond futures or ETFs across the curve. ZT-ZF-ZN-ZB.
The right environment at the right time. That is the key to what we do!
Bonds would be the last one to catch up but also understand that this is what fuels the commodity cycle.
A promising indicator that we are not entering a bear market just yet is the performance of junk bonds, which are mirroring the broader market's movements. This sign suggests a robust market environment.
The ratio is starting to break down between bonds and gold. The template is working. While the trend is breaking down in the short term we are still just consolidating.
But I know some commodities that we own and will continue to own.
This is the perfect environment for gold and precious metals but you have to understand the template.
Save it-Gold moves first. Then large cap gold miners. Then silver. Then junior gold miners. Then platinum. This is the normal order of operations.
Prepare for lift off.
Gold is closing this week at an all time high.
I mentioned this earlier this week. This ratio is ready to take off!
The next one. Are you ready for the precious metals bull market. Stay tuned.
MACRO
The advance decline line has hit a new high and I am the asshole who said that the bull still had some juice.
Semiconductors also have shown us a big green bar as well.
Mortgage activity has seen an uptick recently.
GS: "MSCI China is trading meaningfully below our estimated fair valuations for the index"
Have I mentioned how bullish I am on China?
Against All Odds Research
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Gretzky also said something along the lines of ‘you have to skate to where the puck is going, not where it is’. The current narrative is where the puck (market) is. Trouble with any of these narratives is that they can tempt you (one) to override the model(s) or hesitate.
The tech leaders are a great example. Maybe they are not so expensive if viewed through the lens of ‘where do I best protect myself against the printed cash sloshing around?’ Balance sheets and businesses that will do really well in nearly all environments and that have huge operating leverage which means that they have a good shot at coming out of cost pressures (inflation) on the right side. I wonder if the smart money doesn’t love them for this as much as their tech / AI etc. Less true for chip makers, more true for the more pure knowledge / network plays.