Sanctions, GOAT v. Pangram, and crypto

Policy policy policy policy policy policy policy policy policy policy

The U.S. policy / intervention firehose continues to blast markets as delayed tariffs on Canada and maybe something new on Iran featured Monday and now, we wait to see if any specific bank or banks are named by the U.S. following yesterday’s announcement on Iran which proved to be fanfare-and-metaphor laden but light on substance or specifics.

Continuing what Obama started way back in 2012, Bessent announced that the U.S. will sanction anyone, anywhere, all the time, if they operate in specific sectors of the Iranian economy. Details were thin, so people are taking that to mean China, mostly, and now the question is whether one or any Chinese banks will be sanctioned. This could have follow-on impacts and perhaps lead to a cancellation of the Trump/Xi summit that is scheduled for one month from yesterday. Here’s what our strategist Simon Flint has to say about it:

USD/CNH/ LONG SEEMS GOOD

It’s better to be long USDs here, as (let’s say) there is a 15–40% chance of the Trump/Xi meeting being postponed or cancelled. We’re at 6.7196 as I write, so I’d have a stop at 6.7080, with an initial target of 6.75, but will monitor daily fixings for signals.

I’d be looking only two weeks out (initially at least) because if the meeting isn’t postponed, I’d expect some additional short USD/CNH bets to be placed around Sept. 9 (based on past experience of folks speculating on lower USD/CNY fixes).

I’d put postponements/cancellation at ~15% as things stand, given implied threats of sanctions against Chinese entities.

If, by the end of the week, the “major” entity threatened with sanctions turns out to be a Chinese bank or SOE, I’d push postponement risk closer to 40%. (strictly speaking, Beijing has not confirmed the Sept 24 meeting, in the past they have tended to do so only a few days in advance). You can judge better than me whether such a sanctions threat is credible, I’m concerned that the FX mkt prices the risk at close to zero.

That said, generally, the hurdle for China to cancel is high. Beijing probably believes that the best way to manage Trump/minimize the damage is to deal with him face-to-face and treat him with public respect.

If the meeting is postponed, one of the key motivations for allowing CNY appreciation is diminished.

Note also that, despite the major downside surprise in last Wednesday’s fixing, the last four fixes have all had positive errors — i.e. they point to a slight depreciation bias for RMB.

Plus, USD/CNH is at a -0.93% discount to the fixing (when it was around -1.13% immediately prior the Iran war, China tightened FX regulations to reduce appreciation pressure).

The key risks are: weak USD, continued corporate USD-selling, &/or random fixing behaviour (as per my previous emails).

I like Simon’s view. Then again, given the current path of North American geopolitics, maybe we should be just as worried about sanctions on a Canadian bank(!)

The other topic du jour is the Stanley Druckenmiller op-ed. U.S. deficits have been a concern of Mr. Druckenmiller’s for decades, of course. See here, for example. In that 2013 piece, he said debt and entitlement costs “will swallow our kids in 15-20 years”. His call on timing seems about right, as the 2017 TCJA and then COVID have turned the debt problem up to 11 just as 2028/2033 approach. The three most interesting aspects of the Druckenmiller article are:

• It reflects how it’s open season on Bessent. While it felt a bit edgy to criticize him three months ago, it’s now the common wisdom that Bessent doesn’t know what he is doing and bond yields are going to do what they’re going to do. It is now fashionable to highlight his Key Square track record and roast him on Twitter. Make of this what you will, but to me it signals that people are no longer walking in fear of the current U.S. administration as it enters its lame duck phase. Tech VCs will probably start to turn against the Trump admin next.
• The piece was almost certainly written by AI and people don’t really have a problem with that. We have hit the cultural AI is OK “Farming with tractors is still farming” amirite. While writers will fume and stew over this, as they fume and stew over literally being used to mean “totally” and impactful being used at all, the reality is that we have crossed the Rubicon to the place where most people just say: “So what, he dropped bullets into ChatGPT, and it wrote out his thoughts.” You can agree or disagree whether this is a good or bad or neutral thing. But it’s definitely a thing. The mainstream has decided that any further handwringing over “BUT IS IT AI?” puts you in the clan of the pedantic Luddites. Go get your artisanal prose somewhere else, we got bonds to trade.
• The bond market rallied after the piece came out; it didn’t sell off. If the bears were fully in control, they saw a WSJ op-ed from the GOAT saying: I am on your side! You would think they might press. Instead, yields are a bit lower. Is that a tell? James Aitken thinks it might be.

The big problem here is that this is all pretty boring. The market consensus was already that Bessent’s action won’t turn the tide. Druckenmiller is endorsing that consensus. And yet the tide, so far, has neither turned, nor not turned. Until 10s go to 4.55 or 4.85, the jury’s still out.

If we believe that markets will ultimately set the price, let’s see what price they set. For now, they are confused. So am I.

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Debasement

The debasement trade has gone multi-SD bananas after the long bond buy announcement, but the starting conditions are probably more important than the news itself. Gold had been basing for months, gold puts were bid vs. calls, bitcoin shorts were large, crypto was left for dead, etc. Bulls were licking their lips but could not buy a bucket for months until Bessent’s move.

Given that electric starting point, one might not be able to safely compare the current moves to past moves, but I am going to do it anyway, just to see. Creating a vol-adjusted basket of gold, silver, BTC, and ETH and indexing to January 1, 2018, here’s the running P&L of the debasement trade. Note that I originally included DXY in this because that was my first thought, then I realized that the USD is 10% higher over this time frame, so it’s not exactly a debasement trade.

And here is a smaller version of that chart, where I added DXY inverted. This is so you can see how the dollar has not been nearly as good of a debasement trade. All fiat currencies are being debased by global monetary and fiscal policy, not just the USD.

Sometimes it’s a USD story but sometimes it’s a Japan or U.K. or another story. Anyway, let’s look back at times when the debasement trade has been this overbought.

Was it bearish?

Yes. It was. The sample size of “average RSI over 80” is super small. There are just five instances, and today is one of them; so there are four to look back upon.

Here is the 20-day forward performance for the four assets when their average RSI is >80. Using only the first signal and ignoring all overlapping signals. That’s why there are only four.

Again, I realize the sample size is small, but when I am filtering for mega extremes in overbought and oversold, the sample sizes are going to be small by definition. I am highlighting the most extreme past occurrences and pointing out that this one is similar. A useful takeaway from this is that you can see gold is not like the others. When crypto and silver are leading the charge, and they pull back, gold does okay.

Here is that same debasement index chart, with the times that the average RSI of the four inputs was above 80.

I said yesterday that it feels like a reasonable place to take a shot short something like BMNR and this reinforces my view that a zippy correction is probably the favorite here over continuation. Reassessment trigger: If BMNR breaks 26.10 or bitcoin breaks 85k, my view on a tactical correction (lower) in the revenge of the debasement trade is wrong. The way to play this view would be short silver, crypto, or DATs, not short gold. And if you specifically want to play “I am fading Trump’s crypto pump tactics,” you would be short PURR.

The good thing about any of these tactical shorts is you know where you are wrong and there’s potential for a rapid resolution of the idea. I like trades that are either right or wrong fairly quickly. They utilize less mental capital. If I am right, I win. If I am wrong, I stop out and move on.

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Final Thoughts

With another 24 hours to think about it, I still think there is no trade in CAD on the latest geopolitical storm. The economic impact is small, the tariffs are barely credible as policy changes so often and so quickly, and the very long fuse on escalation (tariffs double January 1, 2027) implies a lack of seriousness, too. Be long or short CAD as you would like, but don’t be long or short because trade skirmishes.

My bearish cross/JPY view is getting stale. Core PCE and NVDA tomorrow.

Kinley Rasmus is the daughter of former MLB pitcher Cory Rasmus and the niece of former MLB outfielder Colby Rasmus; her father is an assistant coach on the 2026 Phenix City team, her uncle Case is the manager, and her cousin Ryker is on the roster with her. Cory and Colby were teammates on the 1999 Phenix City squad that won the U.S. championship before losing 5-0 to Hirakata, Japan in the final — coached by their father Tony, himself a 10th-round pick of the Angels in 1986.

Full highlights of the game last night, pretty awesome.

Not playing for money. Playing for the love of the game.

good luck ⇅ be nimble