I think this dip in currencies is a good opportunity to get short USD as we move to the middle of the USD smile.
AI image prompt:
“Weak CPI drives dollar lower”
It makes no sense, really.
But it contains a zero-dollar bill and the cutest shopping cart ever, so I thought you might like it.
Long GBPUSD at 1.2450
Stop loss 1.2364
Long EURUSD at 1.0856
Stop loss 1.0764
Short CADJPY at 108.90
Stop loss 110.26
Long 10DEC EURMXN
18.70/18.20 put spread
~50bps EUR
off 19.16 spot
November 15, 2023
Interesting how the S&P 500 is following the average seasonal path almost perfectly this year. The bottom was a bit late (normally 2nd week of October, this year 4th week of October) but the general waves have been right on schedule.
Left y-axis is average, right y-axis is 2023
You can get the signals in advance by using the Spectra Trader Handbook. Grab it here.
Yesterday’s move in the dollar was obviously significant as the Goldilocks soft landing in the US combines with improving data on German and Asian economic expectations to put us smack in the middle of the dollar smile for the first time in recent memory.
We have now breached a bunch of 200-day moving averages as you can see here:
Despite the big moves yesterday, I would think the path of least resistance from here is a lower USD. A daily close below 1.0800 in EURUSD or 1.2395 in GBPUSD would be cause for serious concern. This little USD rally post Retail Sales should offer good entry points and I’m adding long EURUSD with a stop at 1.0764 and long GBPUSD with a stop at 1.2369 to the sidebar. I will consider these to be one trade (short USD) and allocate risk to each 50/50.
I try my best to remain agnostic, pragmatic, and open minded when it comes to markets. Bear markets are more fun to trade, but they don’t last very long, and you can’t have a very productive career if you’re bearish all the time. It’s expensive to be short most things, you pay carry and negative skew on options and you’re fighting the long-term upward drift in profits, global standard of living, GDP, technological innovation, money supply, government intervention, and inflation. There is a time and a place for negativity in markets, but my experience is that you have to trade both long and short to do well over a long time frame.
In contrast, I lean optimistic in real life all the time, by nature, and with intent. I believe that if you are grumpy and pessimistic, the world will reward you with bad outcomes that match your worldview. The energy you put out is reflected back at you. If you are optimistic, bad outcomes are lessons or stepping stones, and good outcomes are well, good.
But it’s hard to be as optimistic today as I was in say, 1999, when the polycrisis was years away, geopolitics were an afterthought, social media had not yet destroyed a billion minds, politics was boring, and government barely interfered in financial markets. I try to have faith, but I also have one eye on the risks, because I don’t want to be a naïve rainbows and lollipops kind of guy.
Yesterday, Ben Hunt, my favorite finance-adjacent writer and one of my favorite humans, sent an email that I thought was a useful reminder that optimism is great, but current times may call for something more like pragmatic realism. Let me share the whole thing with you and you can absorb it and internalize it (or reject it!) as you see fit. Worst case scenario, the writing’s really good.
Ben has directly or indirectly influenced my thinking in many ways:
I’m not saying he advocates all of the above; his writing just influences how I think.
Here’s his email from yesterday. Oddly, the email was an advertisement for his website/organization: Epsilon Theory. I say “oddly” because it’s just about the most compelling and literary ad copy you’ll ever read.
Reprinted with permission from an email sent by Ben Hunt
Dear Epsilon Theory subscriber,
“There comes a time maybe every six to eight generations where the world changes in a very short time. We are at that time now, and I think what happens in the next two to three years is going to determine what the world looks like for the next five or six decades.”
– President Biden Holds a Bilateral Meeting with President Gabriel Boric of Chile, Nov. 2, 2023
I think Biden is absolutely right in what he says here. I also think it’s really depressing that it might be Biden calling the shots over these history-determining next few years, although I get even more depressed, to the point of despondency even, to think that it might be the other guy. But I’m getting used to these depressing thoughts, because that’s what it looks like to live during a Great Unmooring and a Great Ravine.
The Great Unmooring is the end of an age. In this cycle, it is the end of cheap money, cheap labor and neoliberal trade policy. It is the end of the unipolar moment of American global dominance and its wars of choice and drone. Most importantly, it is the end of trust in our most crucial institutions – all of them! – charged with the core social functions of public health, public education, public finance and public safety.
The Great Unmooring marks the start of the Great Ravine, a time of violence and chaos between one age of shared social values and the next. It marks the return of man-abetted if not man-made pestilence, famine and drought. It marks the return of inflation. It marks the return of Total War. It marks the return of the Strong Man. It marks the return of the worst impulses of the mob.
Many of us will embrace the mobs of the Great Ravine. Why? Because it’s fun! It’s LARPing with your buds, wearing your scarf or your mask, waving your flag, doing your little chant, breaking a window or two, owning that lib, putting that Karen in her place, showing that Zionist that his kind isn’t welcome around here. Yes, many of us will embrace the Great Ravine. Many of us already have. And if you doubt that, take a look at your social media feed. The Great Ravine doesn’t require the inconvenience of getting your hands dirty as you stain your soul. You don’t need to physically march or storm or insurrect to give yourself over to the Great Ravine and start hating ‘those people’ as traitors or enemies of the people or genocidal maniacs. You can wear a virtual mask, wave a virtual flag, break a virtual window.
You can go on Twitter and from a perfectly safe distance join the Renfield mob of Elon and Tucker and Tate, all “just asking questions” about every Q-adjacent raving and every Putin-adjacent talking point, all in service to the grift. Plus dick jokes and cigars. You got a problem with that? You must be one of those statists who hates free speech.
You can join the MAGA mob from the comfort of that recliner you never seem to leave, basking in the end times glow from OANN or Newsmax or Victory Channel or Daily Wire, gorging on a never-ending movable feast of Two Minute Hate served up by the absolute worst people in the world. Why, just look at the WEF-loving, Soros-funded, war-mongering globalist on today’s menu, not to be confused with yesterday’s WEF-loving, Soros-funded, war-mongering globalist. Doesn’t it make you furious? Don’t worry, you’ll feel soooo much better when you write another check to stop the steal.
You can immerse yourself in the doubleplusgoodthink of CNN and WaPo and the NYTimes, also from the comfort of that recliner you never seem to leave, and join the Team Blue mob to cheer this, the best of all possible Bidenomic worlds, where inflation is not a problem at all, the border is perfectly secure, two plus two equals five, and if this isn’t obvious to you … where did you say you went to school again? Hey, look, it’s another indictment against a political opponent! Oh well, I’m sure he had it coming.
You can join the Woke mob from the safety of that DEI seminar required by your megacorp or your university, so that you, too, can experience those old-fashioned religious thrills of self-flagellation, book-burning, confession, and accusing your neighbor of heresy. Sure, the vibes are more Stasi than Spanish Inquisition, but tomato tomahto. Remember, it’s not a homeless person, it’s a person experiencing homelessness. Words matter, you non-anti-racist! Thank you, ma’am, may I have another?
For most Americans, this will be the most entertaining Great Ravine in human history, full of sound and fury but signifying nothing, salved by on-demand dopamine and norepinephrine like any good video game.
Until one day it’s not.
Until one day the LARPing violence becomes real violence, maybe from within, more likely from without. Until one day we discover that we actually NEED competent institutions of public health, public education, public finance and public safety, and that – haha! – maybe it was a mistake to Trumpify/Vivekify/Gaetzify them into nihilist, populist oblivion, no matter how much these Faucified/Uvaldefied/Swampified institutions deserve every bit and more of the anger they provoke. Until one day we collectively realize that there is no turning back from the Great Ravine, and we have no one to blame but ourselves.
The Great Ravine is a name I’ve taken from Cixin Liu and his magisterial Three-Body Problem trilogy. In volume 2, The Dark Forest, Liu mentions almost in passing a 50-year period of immense societal upheaval, destruction and (ultimately) recovery that he calls the Great Ravine. He never goes into the details of that period. He just waves his hands at it and basically writes “yep, that happened”. Why such short shrift? Because the Great Ravine does not advance the plot.
It’s there. It happens. It would be untruthful and unrealistic to leave it out of his fictional history, but by the same token there is nothing to be gained by examining its events. Like the Cultural Revolution of Cixin Liu’s real-world history, the Great Ravine is ultimately just a tragic waste. A waste of time. A waste of wealth. A waste of lives. There is nothing to be learned from our time in the Great Ravine; it must simply be crossed.
And cross it we will.
Eventually we will come out on the other side of our Great Ravine to discover a new age where the small-l liberal virtues of autonomy and the small-c conservative values of community are reclaimed, where inspiration is rekindled, ingenuity is rewarded and integrity is recognized. I know these words don’t mean much to most people right now – they never do on this side of the Great Ravine – but I promise you that one day they will again.
The question of our day – the ONLY question of our day – is how we conduct ourselves through our collective wandering down and through and (ultimately) up the Great Ravine.
How do we get to the other side safely, preserving as much of our life, liberty and property as possible, without becoming the baddies ourselves? How do we play the long game here as human beings possessed of an autonomy of mind and a community of spirit, in it for our children and children’s children if not for ourselves, all the while recognizing that it is impossible to predict the path or duration of the Great Ravine?
“How did you go bankrupt? Two ways. Gradually, and then suddenly.” – Ernest Hemingway
I’ve been chronicling the gradually and then suddenly unmooring of our world for the past ten years, and for the past five years Rusty Guinn and I have been researching a new science of narrative detection and measurement. The combination of this researching and this chronicling is Epsilon Theory – a lens for seeing the invisible world of narrative and the words for understanding it.
It’s a powerful combination!
—
Ben Hunt
Co-founder, Chief Investment Officer
Second Foundation Partners
Hope you enjoyed that.
I remain optimistic as this seems like a good time to prepare for the worst and hope for the best. Sometimes you brace yourself as you get that funny feeling something bad is about to happen. And everything works out just fine.
Have a triangular day.
That first image of “Weak CPI drives dollar lower” included a zero-dollar bill and that prompted me to ask for more images of “zero-dollar bill.” Here are a few:
