Paper Hands

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Most/all assets, recently, have had the tailwinds of seasonality, macro, and positioning. Now it feels like those tailwinds are mostly gone.

by Brent Donnelly

December 4, 2023

This is the equivalent of calling your business AAAAACME Plumbing in 1984. Dumb and smart.

Current Views

Long 10DEC EURMXN

18.70/18.20 put spread

~50bps EUR

off 19.16 spot

December 4, 2023

PDF version

Failure

There is a broad euphoria in stocks, gold, and crypto and everyone is getting rich all at once. While I have been writing for a while about how the path of least resistance is up in bonds, stocks, and all assets due to seasonality, macro, and positioning… Seasonality will only get you so far, the happy macro picture looks like it’s fully priced in, and positioning and sentiment are euphorically long.

The ugly slingshot reversal in gold during last night’s Asia session could be the first sign that we are hitting the ceiling and there’s not quite enough money sloshing around to pay for another huge bull run higher. I am moving from my super bullish worldview to much greater caution or even selective bearishness.

Gold false break of ATH in Asia time is a big red flag

I wrote last week about how gold tends to trade well after breaching the all-time highs. Obviously that has not been the case so far here. Sure, it could regain its footing and shoot higher again, but such a huge, aggressive failure through a closely-watched level is such a textbook rejection signal that I cannot be bullish gold here. I have paper hands.

My read through to other markets is that everything is probably close to exhaustion, including crypto. January 10 is still a long way away, and most people will stay long BTC until the ETF is announced, so maybe it’s more resilient but overall it looks to me like risk/reward in everything is poor here and I would rather take a seat in the bleachers and watch what comes next.

That also means I will be looking for a spot to cover the EURMXN put as it’s getting near expiry. If spot goes to 18.70/71 support, I’ll look to exit the EURMXN and get to flat. MXN hasn’t traded particularly well as it was 17.36 immediately after the US CPI report in mid-November, and it’s 17.27 now. Close to unchanged despite a rip roaring rally in most risky assets and a steep drop in vol.

Crypto

The replies to this crypto tweet are interesting and give a view into the all-in mentality that still pervades the asset class despite a few washouts. HODLers gonna HODL.

https://x.com/jvb_xyz/status/1731411340860813393?s=20

A sampling here.

Obviously, this is mostly about crypto participants being younger and thus having less net worth:

Age distribution of bitcoin holders:

Still, kind of interesting that the all-in mentality is unbreakable. As BTC and altcoin euphoria is high just as BTC simultaneously approaches the big $48k level and the BTC spot ETF launch date, risk/reward is poor imo. Feels like everything is kind of priced for perfection now and seasonality is the only tailwind remaining.

European inflation

Eurozone inflation, in case you haven’t seen the updated chart.

Seasonally-adjusted Eurozone HICP, 3-month and 6-month annualized

If inflation is dead in Europe, it is deader in Switzerland. The SNB meeting on December 14 is in play and with the currency super strong and the Swiss rent issue not pushing up the inflation data, I would bet the SNB drops the sentence italicized below from their September 2023 Monetary policy assessment.

To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary. In the current environment, the focus is on selling foreign currency.

Calendar

Question: Should I include the calendar on Monday, even though I published it already on Friday? Is that useful? I will do it this week because I find it useful myself as a reminder, but let me know if it’s just a waste of space.