Unbeliever

---

Current Views

---

Long 06SEP 0.6100 NZD put

for around 28 USD pips off 0.6150 spot

Restructuring the NZD short

As discussed yesterday, I think there is too much priced in for the Fed and we will unwind that either this Friday or the Friday of NFP. There is no emergency and therefore no need to cut 50 bps when a more gradual approach looks to be the message from the Fed. The US data is mixed, spending is strong, inflation is falling but remains above target, and even though we are pretty sure rates are rather restrictive, we also have no idea where r* is. The Fed has not shown any sympathy for 50bp cuts right now. E.g.,:

*SCHMID: PAYROLL REVISIONS DON’T CHANGE HOW I THINK ABOUT POLICY

*FED’S SCHMID: NEED TO SEE MORE DATA BEFORE SUPPORTING RATE CUT

FED’S DALY BACKS GRADUAL INTEREST RATE CUTS AS INFLATION ‘CONFIDENCE’ MOUNTS

This Kiwi trade has been a bummer as I correctly handicapped the RBNZ and find the AUDNZD 10 points OTM and the NZDJPY much worse. The roaring risk rally has radically rewritten reality. The USD selloff has triggered unwinds of NZDUSD shorts, USDCAD longs, and so much more. I’m not a believer in the USD selloff and with Jackson Hole and NFP the critical events on the horizon that would most likely reverse it, I’m going to pour all this bearish Kiwi energy into one trade. Buy 06SEP 0.6100 NZDUSD put for around 28 USD pips off 0.6150 spot.

This will allow me to survive the vol over the next two weeks. For context, here’s 1-month NZD vol. It has come back into the fairly priced zone after the early August madness.

If you’re with me on a USD rebound, long USDCAD probably works too. Or long 1-week or 2-week 1.3650 USDCAD calls. They’re cheap!

---

This is random

Yesterday I showed charts of Target and Walmart as potential evidence of a healthy US consumer. I was curious if this was a trading down effect but was then surprised to see that Dollar General and Dollar Tree, the lowest end on the consumer spectrum, are seeing significant equity weakness.

For gits and shiggles, I decided to check how Dollar General trades one year later under the following condition:

If WMT stock is trading in the top 10 prices of the past 100 days, and

TGT stock is trading in the top 25 prices of the past 100 days, and

DLTR stock is trading in the bottom 15 prices of the past 100 days.

What does DLTR look like one year later?

Dollar Tree stock one year change after the above conditions were met

---

Final Thoughts

Interesting paper on sports gambling. Hardly surprising, of course. And would apply to day trading and even individual stock investing too, I suppose! Speculative inactivity can help build wealth.

We estimate the causal effect of online sports betting on households’ investment, spending, and debt management decisions. We find sharp increases in sports betting following legalization. This increase does not displace other gambling activity or consumption but significantly reduces households’ savings allocations, as negative expected value risky bets crowd out positive expected value investments. These effects concentrate among financially constrained households, who become further constrained as credit card debt increases, available credit decreases, and overdraft frequency rises. Our findings highlight the potential adverse effects of online sports betting on vulnerable households.

I will be off tomorrow and next week as I make one last trip to Canada to deliver my son to his institute of higher learning. am/FX returns 02SEP.

If you have a son or daughter heading to college, check out this collaborative advice piece I wrote in 2022 and please share it with them.  https://www.spectramarkets.com/amfx/before-you-fly-the-nest/

Have a spectacular end to your August!!

“AI is the process by which a computer hermaphroditically mates with its own data base, creating successively new data bases with more intelligence…”

good luck ⇅ be nimble