Scarier

Rising toxicity

A bit of a toxic cocktail here as U.S. military policy once again pushes down on the macro vibes with the war raging again and tariff jitters resurfacing. This has taken yields up and introduces the risk of restrictive real rates and tightening financial conditions. The market is hesitating and does not want to react too quickly as the experience from April 2025 and March 2026 both reinforced the “nothing ever happens” meme. When all was said and done, selling stocks on both of those occasions was a bit of a disaster, but that’s not to say stocks did not sell off. They did. They simply bounced in a v shape afterwards. We are coming off a max overbought setup in stocks and fear is picking up.

671/682 is where the 100-day moving averages come in for QQQ (EMA and SMA) and if we are at the start of a major turn, those are the levels to watch. You can see in the chart that the break in 2022 was a good signal for a year-long bear market, but in 2023 it was just routine AUG/SEP seasonal weakness. The break was clean again in 2025 on Liberation Day and then another false break in 2026 on the war. There is the potential for tough slogging here for stocks as we have:

• Fed itching to hike.
• Yields close to breaking out.
• War getting worse. Tariff news starting up again.
• Gold, silver, and bitcoin unable to hold a bid.

Still, none of this feels particularly super scary because:

• We already did the tariffs trade and the economy was fine.
• We already did the war trade and the economy was fine.
• US 10-year yields are trading at the same level as where they were in October 2023.
• Sure, liquidity barometers like gold, silver, and bitcoin are trading poorly, but maybe that’s just because retail has taken their ball and gone home and so the bubble assets deflated and will not reinflate. Money rarely comes back to chase the same space twice within a few years. Markets need time to forget past pain—and the pain in crypto, silver, and gold is still fairly fresh.

So while I can see that there are scary things going on in the market, I don’t think anything has quite hit the threshold yet where we get a panic selloff like 2025 or bear market like 2022. My base case would be something more boring like the July to October period in 2023 that I marked on the chart above. Several people in my chats are already saying they are praying for a huge selloff so they can get long for the year end rally. That seems premature! In the short run, things should continue to wobble but to get a scary move in stocks you need some or all of these three situations:

One: US 10s through 5.0%. 5% 10-year yield is the most important level in macro right now. We have been consolidating for three years after the runup on the COVID inflation shock and eventual Fed hikes. Note the 2022 high has ended up as the average in the four following years (4.33%). This thing looks like a massive bull flag, and perhaps the slow burn of global fiscal insanity can open up another stair step higher for global yields at some point. But at 4.70%, it’s hard to be super scared. In trading, there is always the question of levels vs. changes—markets react to both. The rate of change is becoming a concern, but a combination of fast move and new highs will be much scarier than the current move within well-worn territory.

 

Two: Oil through $105 and or $125. The market thought the whole war thing was over and now the ceasefire has ceased and while oil is skyrocketing again, related products like EU natgas, crack spreads, etc. were already going nuts before oil even started to reverse. Now, the tight energy situation and the rates vs. energy prices doom loop flywheel have been reactivated. The panic and complacency cycle perfectly captured by the two ungodlily-timed contrarian Economist covers is heading back towards panic.

Check out the ceasefire gap. We are right back into it.

Three: Economic weakness. With deficits completely out of control while Initial Claims print sub-200k and the UR is at 4.2%, the recession that would truly club stocks is not on anyone’s bingo card right now. Things can shift quickly, so that’s something to monitor as energy squeezes, real wages go negative, and rates move higher. A recession is the real thing to be afraid of, but it doesn’t look possible right now. If high interest rates and raging energy prices have no transmission to the economy because of various factors including deficit spending, stocks have a hard time staying fearful for long. So ultimately, we can get all the energy and political and policy and supply shocks we like. But if the economy remains indestructible, so are stocks. The economy is certainly antifragile, but it can’t be indestructible?

---

Carry to vol

The carry to vol chart I published yesterday was a mess. I retrieved a bunch of stale yield data from Bloomberg somehow and so please delete the chart and pretend it never happened. Jonathan Tan has created a super cool interactive carry-to-vol machine, and I attached it to the email with today’s am/FX. Sorry to those who broke a few brain cells trying to reverse engineer my horrifying scatter plot.

---

Final Thoughts

1. I am glad I cut the GBP and MXN and while the bad news is that Aussie jobs was bullish, the good news for AUD shorts is that AUD is lower than it was going in. Good news / bad price, I suppose.

2. To summarize my view right now: I comprehend the softness in stocks and the strength in the USD, and I am here for it. I still believe the run-up into the Fed should see a hawkish trade: Buy USD, sell stocks, sell bonds. This view was outlined here: https://www.spectramarkets.com/amfx/the-runup-into-fed/. Bigger picture, tariffs, a Middle East war, and rising yields are all familiar stories—and familiarity breeds contempt. To get a true selloff in risky assets, you need new levels, not just zippy changes in familiar ranges. 5.0% in the U.S. 10-year yield is the line in the sand. And while it’s impossible to imagine, serious economic weakness would be kryptonite given the fiscal policy starting point.
3. I plan to buy 30% of the notional of the AUD put at 0.6910/20 support if we get there. Then, I have some gamma to trade through the big events and month end.
4. JPY intervention odds start to rise precipitously as 165 nears.

I hope you make it rain today. Just don’t make it rain in Ghana.

What in the name of all things holy is going on in that pic on the right??!?    

The Bank of Ghana (BoG) has observed the increasing misuse and improper handling of currency notes and coins, a practice it said affects the quality, integrity, functionality and public image of the cedi. The Bank said making money bouquets for weddings, birthdays, graduations and other celebrations amounts to improper use of the national currency. It added that the practice of spraying or showering cedi notes at weddings, funerals, parties and other social gatherings is also unlawful.

“The move is aimed at curbing excessive displays of cash and addressing practices that encourage wasteful spending and undermine economic discipline.”

Other prohibited acts include scattering banknotes on the ground, dancing or stepping on them during events, as well as tearing, crumpling, staining, soiling or otherwise damaging notes and coins.

Explaining the directive, the BoG said the country spends substantial public funds printing and minting currency every year and appealed to the public to handle the cedi responsibly.

good luck ⇅ be nimble