Four Things

Themes

There are four main things going on:

1. Scott Bessent and Elon Musk are using moral suasion to send a message that lower 10-year yields are a target. This sort of verbal intervention in markets by government officials has validity and steers market behavior. Eventually, it must be followed by action, or the verbal volleys hit diminishing returns. This can be thought of as a put for the bond market because if yields are falling, the government will not do much, but if yields are rising, Bessent will be motivated to take action. Much as selling put spreads on Chinese indexes is a bet on the Xi Put, selling put spreads in TLT might be a similar play.
2. Re-rating of US growth expectations. Skyrocketing policy uncertainty has damaged consumer and business confidence in the United States. The bad stuff is scheduled first (immigration, job cuts, tariffs) and the good stuff comes later (tax reform, deregulation). Yesterday’s Consumer Confidence and the S&P PMI showed a big drop in confidence, though the Richmond Fed quietly beat and it’s the best regional in terms of correlation to ISM. Also worth noting that the survey data has been absolutely useless post-COVID as it reflects all kinds of things that have nothing to do with US economic performance (politics, survey sample sizes, nihilistic views of late capitalism). I would watch the hard data closely to see if it confirms this drop in confidence because forecasting the US economy using weak survey data has been a losing game for at least 36 months.
3. Peak capex? Capex is cyclical as we have seen cycle after cycle, including the optical fiber capex in the late 1990s and the commodity supercycle capex in the early 2010s. Picking the top in the capex supercycles can be the difference between a timely exit from megatrends and riding the big huge upside down V.

That poll result from State Street (conducted yesterday) shows a near 50/50 split between capex peaking now, or later. The MSFT and DeepSeek news could be harbingers, or they could be red herrings. This article is relevant.

DeepSeek’s AI models drive surging orders for Nvidia H20 chips in China

4. MOMO wipeout. Pretty much all the favorite momentum and/or Trump trades have seen reversals as all the new year money got deployed and then everything hit a brick wall. TSLA, crypto, and PLTR are the poster children for this turn. PLTR traded to $125 and became arguably the most overpriced megacap in stock market history and is now around $90. At 69X sales and a 206B market cap, PLTR probably still is the most overvalued megacap stock in US stock market history!

Interestingly, Palantir a company that relies on government largesse for almost half its revenue and yet its CEO maintains a smaller government view. I think it’s admirable that Karp has a consistent worldview despite its possible impact on his stock price while most tech billionaires simply reflect the prevailing winds.

That is, most tech elites leaned politically left in the 2010s and veered hard right when they realized it was economically optimal. Some earlier than others. A good theory is that the economic elite generally don’t drive the political consensus, they reflect it to ensure self-preservation. Anyhoo, here’s a chart.

Perfect test and hold of the earnings gap. A close below $85 will not look nice.

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FX

The corporate USD buyers are winning as yesterday’s move in yields, the rally in copper, a rebound in equities, and a new cohort of specs willing to consider USD bear trades couldn’t offset the seasonality, corporate month end, and the countdown to probably no tariffs on Canada and Mexico. Whether or not the 25% tariff is a real thing or a media strategy, who is going to be long CAD into March 4?

Furthermore, as I keep mentioning, Japan keeps selling JPY. Every night. A robust trend in USDJPY is usually accompanied by Japanese participation but this mini trend lower has been denied by Tokyo night after night.

x-axis is NY time, xls via JR Cleveland and Sons

There is a USD short and possibly EUR and AUD long trade simmering on the back burner, but it’s still not ready. Maybe soon? Without clarity on tariffs, it’s hard for the big money to properly engage short dollars.

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Final Thoughts

Small update to Current Trades section. Have a snowy day.

Nathan Pyle is funny like the Coneheads.

good luck ⇅ be nimble