Japan, stocks, calendar

日本

The BOJ was mildly hawkish overnight, but not hawkish enough to back up the fifty or sixty yards of dollars sold by the MOF(!) We eagerly await the next move by the Ministry of Finance as Friday seems like a reasonable day for them to attempt another round of physical intervention. In the past, they have done two days in a row of intervention, for example: 11/12JUL 2024 and 21/24OCT 2022 (Friday / Monday).

I suppose I got lucky on my GBPJPY short as the MOF came in at the best possible time, about an hour after I published, and I sent an emergency intraday email explaining how I planned to take profit on the GBPJPY cash and move some of the profit into a GBPJPY put. In reality, 2-week GBPJPY puts were not available as market maker pricing was challenged by the high vol-of-vol and so instead I purchased 1-week 157.50s.

Those are purely an intervention play at this point, and I’ve locked in some money on the trade overall. The AUDUSD option hedge worked okay and I sold it just below 0.7000. That just about pays for the option, but not quite. I continue to like the CHFJPY put spread as we see modestly more hawkish BOJ, GPIF slowly preparing to increase domestic assets, and the MOF always lurking.

Here are the Kalshi odds for September BOJ now. Note how the “no change” odds dropped from 77% to 61%. Right direction, not huge magnitude.

I appreciate the feedback from readers on yesterday’s piece. It’s good to know I was not alone in getting mindpretzeled by the hawkish noise into the Fed meeting. Sometimes talking / writing about stuff like this a) makes it less frustrating because you then find out that others experience the same thing and b) makes it possible to fix the problem going forward because you see the pattern as it’s happening and create a firm plan of action to deal with it. As future economic events come up, I will hope to improve my ability to maintain a strong view while also keeping an open mind. There’s a huge tension between those two.

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Stocks

The liquidation/bailout/risk transfer of the Situational Awareness portfolio tends to be the kind of event you see at the lows in stocks. Much like ARKK in 2021, the Situational Awareness strategy was levered long a single theme and while it seemed like there were some hedges in the 13F (short semis?) it is clear they didn’t work or they were not very large relative to leverage employed. Going from $45B to $10B means you are still a massive fund with excellent life-to-date returns, but that’s a drawdown for the ages. $35B peak to trough is about Cathie Wood and Bill Hwang combined and dwarfs the Saylor/Tom Lee drawdowns.

One thing that is troubling me is that bitcoin and gold are again trading heavy and cannot find a real bid, even as NQ rallies 1300 points in a straight line. The big tech seller disappeared as Citadel took the wheel, but animal spirits remain hard to spot. I can see a good case for bullish stocks (buybacks start up, earnings were okay, Fed is dovish, etc.) but the seasonality in August and September plus the bond market’s angry tone and the complete disappearance of retail demand are concerns. As such, I get the bullish equity view but can’t get on board.

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Calendar

The U.S. jobs report next Friday is the calendar highlight and we get ISM, some CPIs, and employment reports from New Zealand and Canada. I give this calendar 2 out of 5 stars.

Month end today should see some selling of cross/JPY and buying of USD into 11 a.m. WMR. I have kept am/FX short today, as I often do on Fridays, because I know you are tired. I hope you had an excellent week.

If you didn’t, next week will be better. If you did, it will probably be worse. Mean reversion.

Fall down seven times, stand up eight.

七転び八起き

good luck ⇅ be nimble