Speaker 1the macro trading floor with me alfonso peccatillo founder of the macro compass and former head of investments at the large european bank and
Speaker 2i am brent donnelly president of spectrum markets i've been a portfolio manager day trader and market maker at the biggest commercial and investment banks in the united states i'm also the author of alpha trader and the art of currency trading if you want to know what's going on in markets and where they're going you found the right podcast hi
Speaker 1everyone and welcome back to the macro trading floor alf and brent with you um i just came back from a trip in another continent where they call us rushed westerners we do everything way too fast way too rushed we run to everything it's in africa where i went for a bit of a vacation and i'm gonna start this podcast with a little gem that i learned over there they have a way of saying called pole pole which basically translates into like just go slow think slow act slow and they basically say when you have a problem in life or a decision to make which also would work for trading i believe um it's generally speaking much better to think slow rather than thinking fast i think it adapts very well to markets where the nasdaq is drawing down seven percent in a day so you feel the urge to think very fast and maybe in this podcast we try to do that but i'm not sure if that's the right way to do it think slow about it i don't know at least we try to go polly polly brent what do you say
Speaker 2it's i mean i think that's great advice and sometimes you see that if you go somewhere like i've not been to africa but somewhere like thailand where the perspective is just so different and the world's just spinning so much slower um your pole pole reminds me of this quote um between stimulus and response there is a space in that space is our power to choose our response in our response lies our growth and our freedom and it's sort of the same thing of like are you just reacting to everything around you uh are you taking a pause thinking and then you know acting rationally and it applies to trading and investing but it also applies you know to to interactions with your wife and your children and all that too right is do you just react to everything or can you create a space between stimulus and response so here we are absolutely
Speaker 1absolutely so i was off for maybe two weeks a bit less than that and you said you did a lot of research and you said you did a lot of research and you said you did a lot of research and you said you didn't miss mom you didn't miss much i'm like what is he talking about actually actually the fun part has been that aside from the high beta momentum basket being down 20 on the year after being up 60 on the year in june i repeat something was up 60 percent in june is now down 20 on the year in november apart from this roller coaster in momentum the broad um implications for what we trade most effects and rates has been actually not much if i really didn't see the screen i came back the euro is trading again around 112 and jpy hasn't moved and even emerging market effects to be honest hasn't done a lot over the last 10 to 12 days and in rates yeah maybe you can say okay a few basis point of cuts have been taken away from the front end of the fed and that's pretty much it so in the meantime as the nasdaq drops seven percent in a day how can we explain that there is such little follow-through in broader macro asset classes
Speaker 2well in fx i think it's pretty simple so and i was just looking at the chart uh my chart of euro with uh so french spreads and interest rate differentials are exactly now where they were you know at the start of october so and same with the currency so in but to answer your question i think the issue with the dollar is this that there's this split time frame thing where when liquidity gets sucked out of the market it's it's a automatic buy dollars against most currencies that's just like the reflexive you know the algorithms are tuned that way and humans just tend to you know when you see stocks down five percent you sell aussie yen or whatever people are tuned that that way as well and then the bigger picture macro is that money flowing out of the us and slower ai capex growth is bad for the dollar because you know if you believe in the one-legged stool thing of ai capex kind of being the thing that has propped up stocks and the economy at the margin you know obviously there's lots of other parts of the stock market in the economy but the marginal gains mostly have been ai capex driving the the economy and inflation and everything then that should be bad for the dollar because at the margin you know the fed will be hiking less and you'll have less less growth in 2027 as ai capex becomes a drag instead of a tailwind and so essentially you have pretty strong reasons to buy dollars on one time frame and pretty strong reasons to sell dollars on another time frame and then it just gets super confusing and then normally the other factor that would come in when there's a really big risk uh degrossing kind of trade like this where you hear about funds shutting down and long short people getting shutting down and things like that normally when that happens you will get just just unwinds of positions so whatever the positioning is like in 08 the market was massively short dollars and you know in 2000 the market was long dollars etc you would get an unwind but actually the market didn't really have that big of a position going into this the the dollar longs had already kind of been cooled off a little bit so you didn't really get a positioning push either so you know here we are i mean dollar yen if most currency of the major currency pairs are pretty close to unchange other than aussie because there there was a large long position and the rba was kind of one of the big reasons for people to be long aussie and they were kind of shockingly dovish
Speaker 1yeah i'm trying now to go into rates and the december meeting at the fed has moved between 16 and 20 basis points priced in all the time so yes a little bit of you know some odds being taken off but at the end the market doesn't seem to think that the drawdown in the nasdaq is enough for portion company not to deliver on a very telegraphed hike and then in 2027 the distribution of outcomes is still towards hikes and if you really were to think brand that this is a proper ai capex unwind where we have reached the part of the cycle that the second derivative of capex is flattening or slowing down and therefore that nominal growth will slow down as a result of it perhaps it's a bit of a reflexive thing where share price is dropping limits the amount of capex even less than forecast because these companies can't go up and borrow all this money if their share prices are collapsing it becomes then a reflexive mechanism where capex is going to be quite lower earnings are going to be quite lower as a result that's not an environment where the federal reserve hikes a few more times if anything if you get to that point then the market should be pricing 50 50 of hikes and cuts like they're doing in australia right now for example right and they're not they're still pricing a few more hikes next year so overall it seems like the macro implications of this sell-off are close to zero at the moment there are like cross currents and it has it has mostly been so far a very technical liquidation event of highly leveraged positions in momentum and in tech that's what it looks like at the moment also in rates when i look at the distributions yes people have beat up a bit of the optionality for cuts or calls in bonds that does make sense but at the margin i don't see a big shift or a big impact on rates or effects which really makes me think what about next year because everybody like i get a lot of questions now like is 27 000 for the nasdaq the level where we should buy man i honestly like it's literally a technical market so up to you and your resistances and your whatever you use bollinger bands i don't know i am much more interested because of my time frames into next year and i was asking my new friend claude hey can you show me examples in the past of capex driven uh cycles possibly that funded capex can you show me what you know what happens during these cycles this question comes because an old friend of mine told me this morning hey do you know that uh korea's 12 months forward pe is now 3.5 x so i said you know the cost piece is absolute massive value it's 3.5 x forward pe and i thought to myself okay but how do i think about pe in such a binary outcome you know like this is not a standard cycle we're talking about the massive debt-driven capex so you ask claudy goes back and he says okay do you know there was a 2018 drum cycle memory cycle i didn't even remember to be honest where samsung and sk inix and micron and these companies were going to the moon and it was capex driven as well of course much much smaller than today and then claude says you know at some point um prices of compute go down these drum prices start going down earnings are flattening and you know the earnings estimate goes down and the pe at that point is 3.5 or 4 or 5. it looks very cheap but the reality is that because those earnings are still inflated when the capex cycle unwinds this pe means nothing because the year after those earnings aren't going to be realized and therefore the pe doesn't really mean much the The E basically is completely off. That's what Claude is trying to say. And if this time you're again at this point where the cost-per-earnings have been revised down already plenty of times this year from July, August onwards, the argument by which SK INEX is trading at 3X is absolutely irrelevant. The 12-month forward return after peak CapEx, let's say second derivative, are negative 30, negative 40% 12 months forward. So I'm really like asking myself, how do I think of the distribution of equities next year? Because it looks to me like there is a 50% chance that equities are going to be down 20, 30% next year as we are at peak CapEx cycle. And those PEs don't make any sense. Even if you say the P of the S&P is now 17, doesn't really matter, guys, if the CapEx cycle is unwinding. And then there's a 50% chance where the CapEx cycle isn't unwinding, at least not to the extent that people think. Next year, we will really have 1.2 trillion. We will really have the earnings up 20%. And then you're buying companies that will deliver 20% earnings at valuations that are much cheaper than they were over the last three years. So it looks to me like 50% chance down 20%, 50% chance up 20%. That looks to me the distribution of outcomes for next year.
Speaker 2And the thing is, so it's funny that you mentioned this because three different people, I put a chart in AMFX this week showing like the standard narrative cycle and how potentially we're at the peak of, you know, after CapEx. After three years of ChatGPT, we've had enough time to reach the peak of the narrative cycle potentially for this round of AI or whatever. And three different people came to me and said, yeah, but look at price earnings ratios. And a couple of things about that. So first of all, I'm not sure I know anyone that's ever made money using price earnings ratios. Like essentially what it tends to be a lot of times is a sentiment indicator. So, you know, like you said, the E compounding into infinity is the assumption in a price earnings ratio. And, you know, the earnings are volatile and mean reverting in some of these sectors. Historically anyways, obviously that's the big question this time. But the other thing too is that you, in 2023 or whatever, 2022, the Mag7 was money printing machines, basically. That's all they did was print. Money. They had no capex hardly at all. And they didn't really have a lot of physical presence in the world. They were just super cashflow machines, capex like cashflow printing machines. Now they're factory building machines that are spending more money on capex than any industry in the history of the world by a pretty big margin. And so they're not even comparable. Like if you look at a price earnings ratio of a company, in 2023 versus now and you know, like Meta say, and in 2023, they were all they do is print cash and now they're, they're cashflow negative. They're building these giant, you know, physical factories in the world that, you know, 80 million Americans just said they don't want in their backyard. That's a completely different company. So the, to look at like a chart of this continuous line that, and the PE went from 25 to, to 19 or whatever, it's not even the same company. So why are you looking at the price earnings ratio? And then most of those things that show like when price earnings are this forward returns are this they're essentially just like a regime. So like, you know, you bought stocks in 2003 or you sold them in 2000 or at the end of 1999 or whatever, there isn't like a lot of truth to those charts, in my opinion, like they look really good because you're bundling a whole bunch of years. There's that we're all the same regime, but I don't know. I guess what I would say is unless you, and also like, look at how value investors have done since 2009 as well. It's I don't think price earnings ratios are a useful metric. It's like, I don't know. I understand. There's a lot of books been written about value investing and all that. And maybe if you're really, really in the weeds and you understand a company and you can say, okay, yeah, these earnings have robust compounding, power, et cetera. Sure. But someone just looking at, okay, P's went from 25 to 19 on this company or 25 to 18 just literally means nothing because first of all, multiples can compress to 15 just because, and also earnings can come off. And, and then, you know, the pro cyclicality of the market is the market looks at these earnings and, and says they're going to go on forever and they don't. So it is amazing though. Those numbers like SK Hynix, their earnings projected, just their us dollar earnings projected for the next three years are bigger than their market cap, which is like absolutely insane. They're supposed to make like $800 billion in profit in the next three years. I mean, maybe they will. That's the thing. Maybe they will, but, but anyways,
Speaker 1that, no, but, but, but I want to reflect with you on how one has to think about the distribution of outcomes for next year. It's very different. Like if I tell you stocks in any given year, Brent, you will tell me, okay, dude, like there is a 70% probability. We're going to be up between seven and 12%. Then there is a small probability. We're going to be up 20 and there is a small probability. We're going to be down something. Okay. That will be your typical return distribution of a stock market next year. Next year. I think I have to tell you, no, no, no. We are like either 50% we're up 20 50% we're down 20 or something like that. I signed your subjective probability. But my point is that the distribution is very, very different. It's much more binary. Like normally you have a very fat body of the distribution where people say, you know, valuations are going to be unchanged, that earnings are going to deliver. So let's say up 8% in a year or 10% in a year, right? That's where a lot of the projections would be next year. I find it very different. So I'm more trying to figure out what is the right framework to approach a market that has such a probability distribution.
Speaker 2Yeah. It's a really interesting question. So I was just, checking the stats. So 39% of years are up 20% or more. This is NASDAQ. So obviously the most volatile index 40% are up 20, 13% are down 20, which is actually a bigger share than I thought. So but I agree with you that essentially a big part of the question here is, okay, we spent like more money than the railroads inflation adjusted. And is there going to be a payoff, right? Like that's the question. And then but then in the interim the mini question is can the market wait to find out because you don't you don't really have visibility in like January of 2027 so it's all faith and then once the faith starts to crack then the problem is then the financing starts to become more difficult and more expensive CDS widens and all that and so now my question that is relevant for short-term traders as well is is anthropic going to be more difficult and more expensive? going to postpone their ipo because it's a really tricky condition here for for market for a company to come to market however maybe the baller move is just to keep pressing on like they're talking about November 16th pricing trading November 18th is kind of like the rough window of where this thing is supposed to happen and generally like any other company would probably be delaying probably next week you'd be hearing about a delay. but I'm wondering if anthropic maybe tries to grind it out however either way I think if they announce that they're not or that they're postponing the market will take that as a negative because you know financing conditions have tightened and all that but then ultimately I think that might be a sign of the bottom because it does remove a massive chunk of supply because obviously they're not ipo and anyone else that's thinking about it's probably going to stop as well and then also just from a sentiment point of view. you know for them to capitulate is probably a kind of a sign of the bottom as well so I'm that's one thing I'm looking for next week is is anthropic going to keep going or are they going to are they going to postpone what do you think do you have any thoughts on that I think they will
Speaker 1go through and I think I think this also might be an important clearing event for the market I agree with you at the end if they go through there's a lot of people that two months ago would have died to get an anthropic shares literally right would have given an arm and a leg for some anthropic shares it would be very interesting because if there are like people that have still the ability to come in and say I still want anthropic shares they're cheaper now oh thank you very much I want more of them this might actually be an interesting clearing event for the market I was also thinking about oh by the way when I was off I told you this offline but people should also hear it in the podcast I was reading your book when I was there and man what a book guys if you haven't bought it please go ahead it's fantastic it's a mix of like stories frameworks how to how to basically think of this like a metagame at the end of the day right and it's typical alpha trader type of stuff but this is probably even better I should say to a certain extent it's more like a little bit more philosophical story based I really I'm really enjoying it and as I was reading this I There was a point in which you basically talk about something that is happening right now which is uh if i would have told someone that the nasdaq would have drawn down 12 or 13 percent and that um the high beta momentum basket would be down 20 on the year after having been up 60 on the year in june so in a few months would have dropped a lot ask and i would have asked somebody where is the dollar the answer would have been the dollar is down i mean that's like a typical capital outflow from us ai focused thing and the dollar isn't down actually yesterday with the nasdaq down seven the dollar was flattish something like that and in the book you mentioned the part where where you say if there is something that is clearly happening and it's in the news and everybody's seeing it and an asset isn't responding as you think it should yeah that is the typical uh bad news good price action type of framework right so that's not an environment that you should push for your like your belief to come through because the market doesn't care about your beliefs right this is something also you stress out in the book so that happened yesterday and then yes they happened something else happened which is i saw that the top bloomberg journalist for hedge funds sent me something like 13 headlines i swear i'm not kidding 13 separate headlines that said something like hedge fund xyz is getting blown up uh pod shop xyz pod team xyz in this pod shop is getting fired uh this other hedge fund is down 10 in a month blah blah blah 13 of these right which really made me think um hey hey maybe we have liquidated enough down here just a little sentiment check uh to throw out there but mostly the dollar reaction i found i found incredibly interesting it's typical very bad price action in stocks that you would expect to you know trip over to the lawyer and it doesn't but really this is a very good marketing message for brand book just go and buy
Speaker 2it it's fantastic straight outside the box is the name of the book thanks elf very good marketing there
Speaker 1because i didn't even mention the name of the
Speaker 2book but you did very well done i'm very good at marketing the and and what elf's referring to there on the you know good news bad price or bad news good price is the us dollar really has held in very well through this nasdaq sell-off even against the more defensive currencies euro so normally in the in the bad old days you know dollar yen would be down 300 points or 500 points and you know today it's basically flat so the transmission from equities to fx is completely broken i there is just absolutely no connection whatsoever
Speaker 1yeah i'm trying to think um whether we should talk about other stuff uh it's so much tech driven these days basically the uh you know it's the only thing that people are looking at i saw that there are there are a few more interesting things that i would like to talk touch upon at least for a second uh one of it is japan so i'm starting to develop a thesis there because if i look at my indicators brand i see that nominal wage growth is picking up a lot real wage growth is picking up a lot the famous shunto negotiations which are like those uh march april uh labor union negotiations in japan are pointing towards that so i'm starting to think that it's going to be a lot more dynamic and it's going to be a lot more dynamic in japan and i'm starting to think that it's going to be a lot more dynamic and i'm starting to think that it's going to be a lot more dynamic in japan and i'm starting to think that it's going to be a lot more dynamic in japan and i'm starting to think that it's going to be a lot more dynamic in japan and i'm starting to think that it's going to be a lot more dynamic in japan but what if inflation goes to let's say core goes to two and a half or three percent in japan then percent in japan then percent in japan then then what should we think there because then what should we think there because then what should we think there because at the end of the day now you have a very at the end of the day now you have a very at the end of the day now you have a very asymmetric situation where around 160 the asymmetric situation where around 160 the asymmetric situation where around 160 the us and katayama have shown their hands i us and katayama have shown their hands i us and katayama have shown their hands i mean it's pretty clear they're gonna try mean it's pretty clear they're gonna try mean it's pretty clear they're gonna try but if the thesis behind of nominal but if the thesis behind of nominal but if the thesis behind of nominal wage really comes through wage really comes through wage really comes through then perhaps then perhaps then perhaps perhaps it's time for the japanese yen to perhaps it's time for the japanese yen to perhaps it's time for the japanese yen to rally
Speaker 2rally rally i'm still in that camp but it's been i'm still in that camp but it's been i'm still in that camp but it's been extremely frustrating um you know any extremely frustrating um you know any extremely frustrating um you know any options that you bought have expired options that you bought have expired options that you bought have expired worthless or that i bought have expired worthless or that i bought have expired worthless or that i bought have expired worthless and then you're all you're and then you're all you're also short carry being short dollar yen also short carry being short dollar yen also short carry being short dollar yen however however however that doesn't necessarily mean that it's that doesn't necessarily mean that it's that doesn't necessarily mean that it's wrong right we've we've been in a two wrong right we've we've been in a two wrong right we've we've been in a two percent range for more than a month percent range for more than a month percent range for more than a month probably more than almost two months probably more than almost two months probably more than almost two months really with one brief deviation really with one brief deviation really with one brief deviation but if you look at like doyen versus but if you look at like doyen versus but if you look at like doyen versus the moving averages and things like that the moving averages and things like that the moving averages and things like that you know everything is flattened out you know everything is flattened out you know everything is flattened out and you know sometimes that's what and you know sometimes that's what and you know sometimes that's what happens is it just has to shake off happens is it just has to shake off happens is it just has to shake off everyone before it finally does the everyone before it finally does the everyone before it finally does the thing that it should have been doing thing that it should have been doing thing that it should have been doing and and and this theory that gpf and other large this theory that gpf and other large this theory that gpf and other large pension funds pension funds pension funds are buying yen uh repatriating because are buying yen uh repatriating because are buying yen uh repatriating because interest rates are reasonable in japan interest rates are reasonable in japan now could still actually be true because now could still actually be true because now could still actually be true because above 158 30 50 above 158 30 50 above 158 30 50 there has been this massive wall of there has been this massive wall of there has been this massive wall of supply of dollar yen so i i supply of dollar yen so i i supply of dollar yen so i i am a believer too but my faith is kind am a believer too but my faith is kind am a believer too but my faith is kind of low right now just because of low right now just because of low right now just because it's the old it's the difference between it's the old it's the difference between it's the old it's the difference between like okay like okay like okay i do think 12 months from now i would i do think 12 months from now i would i do think 12 months from now i would definitely take the under definitely take the under definitely take the under on you know versus spot right now but on you know versus spot right now but on you know versus spot right now but the real question is like how do you the real question is like how do you the real question is like how do you actually do it actually do it actually do it how do you structure it to make money how do you structure it to make money how do you structure it to make money because because because you're you know the skew and the and the you're you know the skew and the and the you're you know the skew and the and the carrier against you carrier against you carrier against you and it's just a hard trade because you and it's just a hard trade because you and it's just a hard trade because you either have to time it or you need to have or you need to have or you need to have you need to own really expensive options you need to own really expensive options you need to own really expensive options and have a lot of faith because and have a lot of faith because and have a lot of faith because you know owning one year 150s or you know owning one year 150s or you know owning one year 150s or something like that something like that something like that is a really really challenging is a really really challenging is a really really challenging environment right now when realized is environment right now when realized is environment right now when realized is four percent four percent four percent uh you know it's realizing like 30 60 day uh you know it's realizing like 30 60 day uh you know it's realizing like 30 60 day realized is like four percent in yen realized is like four percent in yen it's very hard to make money you know it's very hard to make money you know it's very hard to make money you know long or short or or not or in between long or short or or not or in between long or short or or not or in between um so i guess what the market's waiting um so i guess what the market's waiting um so i guess what the market's waiting for what we're hoping for is a catalyst for what we're hoping for is a catalyst for what we're hoping for is a catalyst and the problem i guess or the and the problem i guess or the and the problem i guess or the frustration frustration frustration the frustration the frustration the frustration is that you did get some catalysts is that you did get some catalysts is that you did get some catalysts actually you got three you got what you actually you got three you got what you actually you got three you got what you described which is like a higher wage described which is like a higher wage described which is like a higher wage negotiations negotiations negotiations in japan pretty good inflation numbers in japan pretty good inflation numbers in japan pretty good inflation numbers and like higher higher inflation numbers and like higher higher inflation numbers and like higher higher inflation numbers in japan in japan in japan uh and so excuses for boj to go uh and so excuses for boj to go uh and so excuses for boj to go you got a collapse in u.s 10-year yields you got a collapse in u.s 10-year yields you got a collapse in u.s 10-year yields from 530 to 485 in pretty short order from 530 to 485 in pretty short order from 530 to 485 in pretty short order and you got you know 6 000 points in the and you got you know 6 000 points in the and you got you know 6 000 points in the nasdaq nasdaq nasdaq and and and those are all pretty good catalysts for those are all pretty good catalysts for those are all pretty good catalysts for lower dollar yen and dollar yen's not lower dollar yen and dollar yen's not lower dollar yen and dollar yen's not lower lower lower and but then like you said there's and but then like you said there's and but then like you said there's really no point being long dollar and really no point being long dollar and really no point being long dollar and whatever is going on because whatever is going on because whatever is going on because you know your upside is probably capped you know your upside is probably capped you know your upside is probably capped at 160 and then you gotta fight the at 160 and then you gotta fight the at 160 and then you gotta fight the the ministry of finance again so it's a the ministry of finance again so it's a the ministry of finance again so it's a it's a weird setup it's a weird setup it's a weird setup and i agree eventually it's gonna be and i agree eventually it's gonna be and i agree eventually it's gonna be right but right but right but now i'm kind of on the sidelines because now i'm kind of on the sidelines because now i'm kind of on the sidelines because it's whiffed on too many catalysts it's whiffed on too many catalysts
Speaker 1it's whiffed on too many catalysts makes sense do you want to talk about makes sense do you want to talk about makes sense do you want to talk about uh a orthogonal topic to the discussion uh a orthogonal topic to the discussion uh a orthogonal topic to the discussion not sure tech or something what is what not sure tech or something what is what not sure tech or something what is what is top of your mind
Speaker 2is top of your mind is top of your mind um i guess the one thing that i've been um i guess the one thing that i've been um i guess the one thing that i've been thinking about is um what's going to thinking about is um what's going to thinking about is um what's going to happen to precious metals happen to precious metals happen to precious metals over the next like 12 months or so like over the next like 12 months or so like over the next like 12 months or so like after after after a parabola normally you get like a vol a parabola normally you get like a vol a parabola normally you get like a vol collapse and people just lose interest collapse and people just lose interest collapse and people just lose interest in the things in the things in the things but but but precious metals people just never lose precious metals people just never lose precious metals people just never lose interest right there's always going to interest right there's always going to interest right there's always going to be some some amount of interest be some some amount of interest be some some amount of interest and and and i don't know so what do you think about i don't know so what do you think about i don't know so what do you think about like precious like you can kind of argue like precious like you can kind of argue like precious like you can kind of argue that gold's holding in pretty well down that gold's holding in pretty well down that gold's holding in pretty well down here 3900 here 3900 here 3900 4 000 or you can just argue like this 4 000 or you can just argue like this 4 000 or you can just argue like this stuff's going nowhere and stuff's going nowhere and stuff's going nowhere and really there's no there's no story um really there's no there's no story um really there's no there's no story um so i'm just curious because normally you so i'm just curious because normally you so i'm just curious because normally you have a view on metals and have a view on metals and have a view on metals and i was also thinking about my own pa for i was also thinking about my own pa for i was also thinking about my own pa for next year of like next year of like next year of like how to allocate you know i think there's how to allocate you know i think there's how to allocate you know i think there's an important thing as an important thing as an important thing as you get older you want to have less you get older you want to have less you get older you want to have less risk in in your risk in in your risk in in your in your retirement money just because in your retirement money just because in your retirement money just because you're going to need it sooner and you you're going to need it sooner and you you're going to need it sooner and you don't want to don't want to don't want to you know experience a 25 drawdown so you know experience a 25 drawdown so you know experience a 25 drawdown so you know thinking about precious metals you know thinking about precious metals you know thinking about precious metals from that point of view as well
Speaker 1from that point of view as well from that point of view as well i think um first of all price action i think um first of all price action i think um first of all price action is very encouraging is very encouraging is very encouraging relative to other i mean precious relative to other i mean precious relative to other i mean precious metals are also momentum like if you metals are also momentum like if you metals are also momentum like if you run a regression between precious metals run a regression between precious metals run a regression between precious metals and momentum you'll find a very high r and momentum you'll find a very high r and momentum you'll find a very high r square generally speaking so square generally speaking so square generally speaking so the fact that momentum is getting taken the fact that momentum is getting taken the fact that momentum is getting taken to the woodshed and precious metals are to the woodshed and precious metals are to the woodshed and precious metals are really not i mean silver is basically really not i mean silver is basically really not i mean silver is basically there try to go to trade at 50 dollars there try to go to trade at 50 dollars there try to go to trade at 50 dollars and bounce back already to 51 52 gold is and bounce back already to 51 52 gold is and bounce back already to 51 52 gold is holding around 4 000. it's not that bad holding around 4 000. it's not that bad actually risk adjusted compared to other actually risk adjusted compared to other actually risk adjusted compared to other momentum asset classes makes me momentum asset classes makes me momentum asset classes makes me hope i would say hope i would say hope i would say that most of the bad news is already that most of the bad news is already that most of the bad news is already priced in and the lack of interest after priced in and the lack of interest after priced in and the lack of interest after a parabola that's super interesting i a parabola that's super interesting i a parabola that's super interesting i think think think that's already happened in in big size i that's already happened in in big size i that's already happened in in big size i mean the peak in gold and silver this mean the peak in gold and silver this mean the peak in gold and silver this year was in year was in year was in february i believe uh well we traded at february i believe uh well we traded at february i believe uh well we traded at the highs the highs the highs and yeah that's the last day of january i and yeah that's the last day of january i and yeah that's the last day of january i think i swear from my maybe may to think i swear from my maybe may to think i swear from my maybe may to november there was no nobody ever asked november there was no nobody ever asked november there was no nobody ever asked the question about global civil to me the question about global civil to me the question about global civil to me maybe just one small episode which was maybe just one small episode which was maybe just one small episode which was the buyback uh program of besant where the buyback uh program of besant where the buyback uh program of besant where there was a little bit of enthusiasm there was a little bit of enthusiasm there was a little bit of enthusiasm back for for metals but it lasted like back for for metals but it lasted like back for for metals but it lasted like two weeks maybe and that was it two weeks maybe and that was it two weeks maybe and that was it uh so to me the lack of interest is uh so to me the lack of interest is uh so to me the lack of interest is very well established which is generally very well established which is generally very well established which is generally good news to go along these right the good news to go along these right the good news to go along these right the vol is very low vol is very low vol is very low which means when you size you can get a which means when you size you can get a which means when you size you can get a little bit more notional in they are resisting quite well to another momentum drawdown when i look forward metals tend to do well in two circumstances the first circumstance is where monetary and fiscal policy are completely misaligned and that is what we saw at the end of last year beginning of 2026 i don't think that's going to be the case again so if you ask me do you think we're going to be up 50 in gold next year i think the chances are pretty small but do i think gold can deliver a 15 20 percent rally yes it's possible because the other environment where metals do well is when you remove hawkish macro tails which means nominal growth in the us slows down from six and a half to let's say five and the federal reserve delivers another hike and then they stop under these circumstances i think gold prints 15 20 percent next year and which is like a one standard deviation event something like this on a year for gold which would be pretty fine and i think that's quite likely so when i look at my asset allocation i think metals are pretty interesting looking at next year at the end of the day you can argue brent that the slowdown in capex is still going to be there maybe isn't going to be massive but it is somehow going to be there i mean the dams have certain agendas they're going to slow it down a bit u.s nominal growth with a bit of a fiscal drug is a big word but a bit of a fiscal slowdown in the second impulse might also bring down nominal growth in the us so why should the fed not hike in december and just just stop you know rates are 4 inflation is 3 you have positive rates so why should you not pause and if you do pause then i think metals will do fine
Speaker 2so this is interesting because i kind of just threw it out there because it popped into my head but i was just looking at the chart and then also thinking about more micro as you said you know when there's a rush for liquidity a lot of times gold and especially silver gets thrown out and you had the binance hack so that's partly explains crypto but you know so tech is down a lot crypto is down a lot and gold and silver have held in well and then looking at the chart in gold there was a huge support at 3 900 that we broke and now we're you know and then we kind of had a very impulsive move back above it and so yeah and i i agree with like this fed does not want to hike like they're only hiking because they get embarrassed into it and their default is like warsh is very much like yellen in my mind where he's always gonna say that they're trying to fight inflation but never gonna really do anything unless he has to so i think the bar for them to stop is pretty low especially if stocks end up down 15 20 percent you know nasdaq i think was down 14 at the at the lows yesterday and and then you know there is also an argument that all this money you know two trillion dollars of exits yesterday or whatever some of that money will eventually reappear somewhere and maybe it goes into more conservative things like gold so and then you know looking at the chart and everything i wonder if also there might be some trades to like sell put spreads to buy call spreads and things like that because owning outright vol doesn't really feel like the trade given that like i said i just feel like speculative money usually waits about three years before it will reappear in the same spot where it got obliterated um and so normally like you won't see money come back if it if people get blown up in bitcoin in 2018 they're not going to come back till 21 and then they come back again in 25 or whatever and i feel like so it's too early to think like okay gold's going to go to 6 000 but maybe doing some kind of structure where you're flat vol long but long delta somehow um you know or just buy gold and put a stop but below the lows honestly might be the simple trade as well but it is trading quite quite okay and in and also in the face of a stronger dollar right so you have lower bitcoin lower stocks and a stronger dollar and gold is you know actually trading pretty well so i don't know i think i might i might do something in gold yeah
Speaker 1next week yeah i was also thinking about it and by the way let's finish this by reminding ourselves how big brain macro people we try to be here because brent had talked with himself now talking about the dg risk reversal of selling put spreads buying call spreads and then they did a big round and said you know maybe i should just lift some futures and put a stop below below the lows yes that is like in my experience 90 of the cases the right thing to do just you have a very clear chart stop there it's below the low that you have managed to hold so far and it's a big resistance down there at 3900 just buy some you know make sure you don't pay all these speed asks in options all the time and but but macro people myself i always fall in the same thing we look at options every time oh you look at this i can structure this structure that yes you can probably just pay very hefty bid asks to do something you could have done in delta one much cheaper with a stop thank you very much lesson to myself as well just a reminder yeah
Speaker 2yeah the usually um starting with the simplest idea is is often the best and i do feel like a lot of times also if you really take the time to map out okay what does the p l look like you can it's obviously even easier now with claude and all that you say okay i'm long at four thousand with a stop here or i sell put spreads and buy call spreads and you price everything up and and all that and okay and then gold goes to 40 to 50. what's my p l it's usually pretty close to being the same like the synthetic outcome or the the delta one outcome very often is very similar so like you have to have a strong reason of like a divergent path versus what the market's priced to to actually do something in options delta one often is the best even though it feels feels kind of basic actually sometimes simple is good
Speaker 1we're not here to sell newsletter guys so sometimes we we prefer the easy stuff for the sake of our own p l and just sharing frameworks and mistakes we have done along the way i uh enjoy this very much brent let's try to keep up the rhythm now that i'm back unless do you go away or do we have this next week i will be here other than the week of thanksgiving amazing so talk to you guys next week and thanks for listening all right polly polly you
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