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Talking NVDA, SEK, and T-bills vs. gold.

by Brent Donnelly

May 25, 2023

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May 25, 2023

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Not sure if you heard about this, but there is a new technology called “artificial intelligence” and it could be a unique investment opportunity.

NVDA daily change ($), 2015 to now

NVDA daily change (%), 2015 to now

One of the most remarkable aspects of what has been a mindblowing series of hypercycles over the past few years is the nearly-seamless handoff from the crypto and Web3 bubble to the AI frenzy. Stocks went down for some portion of 2022, of course, but instead of having to wait another 20 years for the next world-changing technology to arrive, we had to wait 1.5 years.

The American Exceptionalism story is hard to fight with the majority of the world-changing innovation always coming from the 330 million out of 8 billion people that call themselves American. Crypto is more global than AI but has quickly become the ugly stepchild as AI use cases flourish and crypto trading volumes sink.

Crypto is also stymied by the rapid rise in real rates in the US. If bitcoin is a hedge for loose monetary policy, it’s not really needed right now. Neither is gold.

Discussions of gold as a hedge or as insurance or as this or as that tend to rely mostly on what starting point you pick. For the heck of it, and to make Jared mad, I’m going to pick the date that US inflation rose above 3% (May 12, 2021). That is when the inflation excitement started to pick up and the crypto bubble got into full swing. Anyway, the point here is not to show that gold is good or bad, but simply to visually show you how high risk-free rates create a challenge for negative carry assets like gold.

T-bills are the tortoise. Gold is the hare.

GLD vs. US 3-month T-bills, May 12, 2021, to now

Gold was a ball rolling on a flat surface; now it’s rolling uphill. The June 2024 gold future is 2071. Will it get there? Maybe! Again, the point here is not to say “T-bills are better than gold” the point is to show the steepening hill gold needs to climb to keep up with risk-free parked cash. “Are T-bills risk free, though?” You ask. They better be.

Sweeeeden, restin’ its head on a pillow made of concrete

As discussed yesterday, topside EURSEK looks vulnerable as the chart breaks and the policy mix in Sweden is a complete mess.

Sweden’s Riksbank is facing a textbook bad tradeoffs problem as it appears to be the worst-hit country in the world on residential housing issues while the currency weakens, and inflation is still above 10%. Their currency reserves are tiny, and they are struggling to maintain credibility on the currency because the last meeting (4/26) saw 2 of 5 voters dissent to smaller hikes and the statement was talking about slowing down hikes. This was after they had talked up the currency beforehand. You can’t slow-play rate hikes and talk up the currency when your housing market is dumping and inflation is double digits. Here’s the key excerpt from their last statement.

Monetary policy has a tightening effect on the economy and the Executive Board assesses that following the April meeting there will be scope to adjust the policy rate in smaller steps.

In other words, they say they want a stronger currency but they are blatantly unwilling to back it up so far. Like the Robin Williams classic about the UK policeman without a gun who says: “Stop! Or I’ll say stop again!” To get a stronger currency, you need to be credibly hawkish. They are not.

You can see this in how the market reacts to their currency comments.

5-minute EURSEK: Market not scared of Riksbank

Once every few years, the scandies go super bid, no lid as hedgers converge to find nobody on the other side. You see this particularly in EURNOK, but it can also happen in EURSEK. Upside vol and risk reversals are cheap in EURSEK as it’s susceptible to an epic topside explosion in 4, 3, 2 …

Final thoughts

I took the 0.8850 USDCHF digital out of the sidebar because it’s stale and it’s harshing my vibe. The thing trades around 12/14% so it’s a small loss. It’s just cluttering up the sidebar at this point and does not represent a view I actually hold so I’m cutting it. I guess “sell USD on tightening credit conditions after Silicon Valley Bank collapses” was not a good view. The craziest thing is that when I put that trade on (and a short USDJPY)… USDJPY was 132 and USDCHF was above 0.92. CHFJPY is the NVDA of currency pairs.

Have a good day, be generous, not shellfish.