2025.04.22 Weekly
Detached from Reality?
Hope you had a nice Easter weekend. Back late last night from a road trip holiday and I’m reminded of this time of year being my favourite — weather is cool, days feel suddenly longer, cheap sweet and juicy strawberries are bountifully in season, and best of all — blooming cherry blossoms that scatter below trees and over roadsides and pathways is always a sight to behold. If you plan on visiting Seoul one day, I’d say early April is best.
Wanting to focus on my medium-term view for this week’s notes, which is framed around the narrative of ‘US losing its global hegemon status’ that led to ‘regime change’ like moves over recent months with US stocks, bonds, and dollar all selling off significantly.
You may recall the video, recorded as the 2022 bear market was ending, where Gerber Kawasaki gave a bullish rant about the US ‘being the only game in town’. While he may appear to heavily under the influence, which was a rather nice touch I must say, he’s absolutely right about the US being that much more exceptional that other markets. A recent tweet from @prism sums that up nicely:
All this is just to isolate China mixed in with a disdain for the European political class. Meanwhile Russians are advancing and look like they are going to get all their demands. But even in a multipolar world US remains the cleanest shirt of them all. Europe remains a regulation trap for business and China remains an intellectual property theft trap for business. The US literarily has all the cards. Neither Europe nor Russia or China are suddenly going to conjure up capital markets like the ones the US has, get a grip.
In other words, it will take a whole lot more than a slowing US economy and Trump risk premium to change the fact that the US is still head and shoulders above all other markets, and we shouldn’t be quick to over-extrapolate the ‘its so over for US stocks bonds and dollar’ moves in the market to the extent that we are amid a major regime change.
George Soros talked about the “reflexivities” of market narratives creating momentum. That is, when prices moves in the direction of a narrative, that narrative gains traction and fuels more price moves, thus further strengthening the narrative and price momentum into a reflexive loop. That’s until those narratives become “detached from reality” and the reflexive loop breaks. Objectively, it’s difficult to argue against Trumponomics adding to recession risks, and also difficult to argue for a complete loss of confidence in US assets for reasons noted above. What I would highlight however is that both of those narratives are fairly subjective and largely sentiment or perceptions-based to the extent that, though not unreasonable, there is ‘some’ detachment from reality. Take for example the dichotomy between the soft data (collapsing sentiment/perceptions around Trump’s policies) versus the hard data (showing some economic resilience) — it’s clearly been about sentiment more than it has about the current economic reality.
As I wrote last in last week’s “The Art of the Backpedal”, there is the sense that Trump went with a ‘go hard or go home’ approach which, in my mind, is to give himself every chance of achieving some part of his vision within his relatively short one-term stint. Further, there is also a sense that what we saw in recent weeks may well be the most destabilising phase of his entire trade policy with recent developments taking on a ‘shock and rollback into a deal’ type of appearance. Should his team begin to make some progress on negotiations and new trade deals, that should be enough for sentiment to improve, break the negative reflexive loop, and open the possibility for a more positive narrative to take hold.
DATA REVIEW
Retail sales was largely ignored by markets seeing this as temporary ‘bullwhip’ like strength as US consumers attempting to get ahead of potential price hikes from Trump’s tariffs. This was the highest monthly gain since January of 2023 and the rolling 3-month trend is back to looking solid and will probably look that way for the April report also.
Initial claims continued to ease while continuing claims has been stable over the last few months — no sign of labour market stress yet.
FEW CHARTS…
Global equities appear to be stabilising somewhat. US continues to underperform.
Mega-techs along with the major benchmarket indicies still looking rather heavy closing below the 1month average, but higher lows above the prior 2 weekly lows offers some encouragement.
SPX is showing potential of a durable bottom after a strong bounce from the 5yr trendline. Looking for 5100–5150 area to hold as support, though I’ve actually looked at 5200–5250 initially and was very surprised by yesterday’s sell-off. BBG saying it was due to Trump potentially undermining Fed independence but I think that’s an odd thing to sell-off almost 3.5% on. What seems more likely is last week’s OPEX removing a huge chunk of support. Nevertheless, I still favour dips at these levels given the extraordinary amount of negativity in the price and the difficultly of justifying further negativity at this current point in time despite whether that does become justified at a later point in time.
Contextually, we are coming off a very aggressive sell-off and at extremes. Above shows the % deviation from the 20, 50, 100 and 200 dmas and we see current levels being consistent with other bear market bottoms. We may be in a bear market for much longer but the point is that mean reversion trading has almost always been a positive EV strategy at these extremes until those deviations normalise much further.
Gold has made a high at the 3500 handle to the tick and I’ve gone short at 3483 earlier today with a stop at 3507. If the death of the US hegemony narrative has run its course, this should see a healthy reversion particularly in view of the Gold/Silver ratio which shows how extreme the outperformance has become which has historically been associated with major financial crises. I don’t think we’re anywhere close to one, at least not in a way that it makes sense for this outperformance to get even more extreme at the current juncture. I also have Crude Oil on the radar which looks constructive for a move back towards the high 60s and the 70 handle — though perhaps not to trade, but for some feedback on the risk picture and other thematical trade ideas.
Lastly the Dollar, applying the same %deviation from DMAs chart I used for SPX earlier to G10 USD index, we can see how stretched the sell-off has gotten, particularly vs the shorter MAs which can be counted with all of ones fingers for the amount of times it has deviated this far under the MA’s so far in the 2nd millenia. I’ve been getting hosed on dollar longs, but will continue to attempt them have bought USDJPY at 140 earlier today and selling EURUSD yesterday.
Good luck trading!
