Kev: thanks for the great interview with Marko. I was more cautious than usual this week with VOL exploding, but the thing that really puzzled me, and kept me extra-cautious, were the weird cross-asset correlations, especially WTI/S&P. I managed to lose money (early in the week) buying the S&P because it was "so strong."
Hey Victor. The spooz is definitely trading in a wild manner. On Monday, we had the gap down, and then EVERYONE bought it. We finished the day unch'd. But then, Tuesday, we gapped down ever harder!
I am trying to NOT READ into moves as I think they are often driven by whatever account needs to do something that day. I am trying to ask myself, "where will this be next week?" as opposed to trying to figure out tomorrow. Also - I am ignoring moves as markets often get stuff wrong in this type of uncertainty. To me, the key is trading small enough you don't get shaken off.
Kevin, it’s true that spot oil has ripped but the 12month contract is still languishing in the mid 60’s, it’s barely moved. Everyone is focussed on the front month but I would argue that the oil market still has a lot of TACO in the trade.
I liked Marko’s book but when it comes to actual calls I think he has a bit too much affinity for these strongman types, I remember his 2023 take that Ukraine would soon be forced to knuckle under to Putin. Now it seems that Trump isn’t actually chickening out on trade negotiations, except, what has come of them except a gradually deteriorating economy and an immanent legal crisis where the Federal government can improperly tax you and then plead inability to do refunds? Where’s the new foreign investment boom? It was BS all along, wasn’t it?
hey Mike - I don't follow Marko's specific calls, but I do know that he was a main proponent of the "the market always over reacts to geo events" thinking. I am fascinated by the fact that this thinking has now overwhelmed the market. So much so that I don't think that the market has adequately discounted the risks in the market.
As for your comment, "Where’s the new foreign investment boom? It was BS all along, wasn’t it?" I have been in this camp from day one. I have long said you can't bully people into investing in your country.
How was Israel/Netanyahu not brought up in a geopolitical analysis on a war started on behalf of Isreal? Game theory analysis is useless if not considering actions of actual game players.
Hey Matt - thanks for writing in. I only had 15 minutes (and ended up going over), so I wanted to stay on point. When I pitched it, it was definitely from an angle of "how the markets have changed in terms of dealing with geopolitics." The whole war situation is way too complicated to really discuss the in/outs of the geo game going on. I was more interested in how the market are dealing with the game. He has his whole geopolitical cousins podcast where he discusses the Israel/US dynamics at length. I didn't want to repeat that. I wanted to go at it from the markets side. Hope that helps explain my thinking. Take care, Kev
This market is completely missing the forest through the trees. The first attack on Iran took place on the Jewish holiday of Purim. It's not a coincidence that it started on a holiday where dishes such as Oznei Haman are served ( a pastry which symbolizes the ears of a Persian). This is a religious war between two fanatical religious states. This is not some trade negotiation where Trump can TACO out, because the primary aggressor is launching wars on multiple fronts and Trump cannot stop that. It's unbelievable that no investment professionals are talking about this. Perhaps this is a by the rumor sell the fact scenario, but I doubt it.
but this point aligns in part with Papic in the sense that he fades the first Trump Taco .... the market will think it's all over following the Taco playbook but to your point (and his ) the Iranians may reject compromise for religious reasons and possibly because their military strategy is working. Then things get much worse ....heavy sell-off might follow ?
I think one of the things people don't appreciate is how market structure (usually) means it pays to fade one-off geopol events, not just that people overreact. today the opposite may be true...
If we look at the vix index, for example, it tends to spike on headlines but almost always mean reverts eventually simply because of rate of change.
For it to stay elevated or even continue higher, the news flow has to get incrementally more bearish and scary every day, day after day. that's very hard to sustain unless the escalation chain eventually reaches something like nuclear war.
And as bad as Covid or the carry trade unwind or whatever felt, eventually tomorrow was less bad than today, and there was a definable endpoint that came into view. not only that, but policymakers "panicking" often meant it was time to not panick yourself - they can backstop markets, stimulate economies etc. the cavalry eventually arrives.
the current crisis is actually the direct inverse of this, and is more like a "ticking bomb" than a one-off event.
Every day the Strait is shut an unprecedented energy (and maybe economic) crisis draws nearer and nearer. the default is that things get worse, not better, if nothing is done. tomorrow is worse than today in rate of change terms, and oil and yields continue to climb (with financial conditions tightening), while central banks cannot print oil - and may be less accomodative anyway (certainly this is the case looking at Fed Funds Futures this week).
given this, things don't have to escalate...
there simply has to be no progress in the Strait - like a bomb that's not been defused yet. it makes it almost impossible to fade, since the default position is actually a worsening crisis with every day that goes by, rather than resolution, and Iran has every incentive to keep up the pressure (and the bar to doing so is quite low as Marko points out!)
thanks for this .very insightful and useful. interesting that we might get a taco bounce BEFORE the sell-off based on his idea that Taco is entirely on the cards to try and limit the widening economic, geo-political ,social impacts .But that compromise might easily then be rejected by Iran .....sounds very plausible to me as far as the fog of war and censorship allows any valid opinion.
thank you - really helpful the only only one extra thing i would’ve asked about would be usmca which o have to think at least the canada is part is expedited now
Kev: thanks for the great interview with Marko. I was more cautious than usual this week with VOL exploding, but the thing that really puzzled me, and kept me extra-cautious, were the weird cross-asset correlations, especially WTI/S&P. I managed to lose money (early in the week) buying the S&P because it was "so strong."
Hey Victor. The spooz is definitely trading in a wild manner. On Monday, we had the gap down, and then EVERYONE bought it. We finished the day unch'd. But then, Tuesday, we gapped down ever harder!
I am trying to NOT READ into moves as I think they are often driven by whatever account needs to do something that day. I am trying to ask myself, "where will this be next week?" as opposed to trying to figure out tomorrow. Also - I am ignoring moves as markets often get stuff wrong in this type of uncertainty. To me, the key is trading small enough you don't get shaken off.
Thanks for writing in!
Take care,
Kev
I'm trading so small that a friend asked me if trading was now just a hobby for me. That stung! Cheers, Victor
Bahahaha!
Kevin, it’s true that spot oil has ripped but the 12month contract is still languishing in the mid 60’s, it’s barely moved. Everyone is focussed on the front month but I would argue that the oil market still has a lot of TACO in the trade.
HUC is one way to play this view via ETF. Based on the Dec Crude contract https://www.globalx.ca/product/huc
Thanks Zach!
Ryan - I am 100% with you! That's my stance completely!
I liked Marko’s book but when it comes to actual calls I think he has a bit too much affinity for these strongman types, I remember his 2023 take that Ukraine would soon be forced to knuckle under to Putin. Now it seems that Trump isn’t actually chickening out on trade negotiations, except, what has come of them except a gradually deteriorating economy and an immanent legal crisis where the Federal government can improperly tax you and then plead inability to do refunds? Where’s the new foreign investment boom? It was BS all along, wasn’t it?
hey Mike - I don't follow Marko's specific calls, but I do know that he was a main proponent of the "the market always over reacts to geo events" thinking. I am fascinated by the fact that this thinking has now overwhelmed the market. So much so that I don't think that the market has adequately discounted the risks in the market.
As for your comment, "Where’s the new foreign investment boom? It was BS all along, wasn’t it?" I have been in this camp from day one. I have long said you can't bully people into investing in your country.
Thanks for writing in,
Kev
How was Israel/Netanyahu not brought up in a geopolitical analysis on a war started on behalf of Isreal? Game theory analysis is useless if not considering actions of actual game players.
Hey Matt - thanks for writing in. I only had 15 minutes (and ended up going over), so I wanted to stay on point. When I pitched it, it was definitely from an angle of "how the markets have changed in terms of dealing with geopolitics." The whole war situation is way too complicated to really discuss the in/outs of the geo game going on. I was more interested in how the market are dealing with the game. He has his whole geopolitical cousins podcast where he discusses the Israel/US dynamics at length. I didn't want to repeat that. I wanted to go at it from the markets side. Hope that helps explain my thinking. Take care, Kev
This market is completely missing the forest through the trees. The first attack on Iran took place on the Jewish holiday of Purim. It's not a coincidence that it started on a holiday where dishes such as Oznei Haman are served ( a pastry which symbolizes the ears of a Persian). This is a religious war between two fanatical religious states. This is not some trade negotiation where Trump can TACO out, because the primary aggressor is launching wars on multiple fronts and Trump cannot stop that. It's unbelievable that no investment professionals are talking about this. Perhaps this is a by the rumor sell the fact scenario, but I doubt it.
but this point aligns in part with Papic in the sense that he fades the first Trump Taco .... the market will think it's all over following the Taco playbook but to your point (and his ) the Iranians may reject compromise for religious reasons and possibly because their military strategy is working. Then things get much worse ....heavy sell-off might follow ?
Agreed.
No one wants to get cancelled.
<insert cartoon monkey looking back and forth gif>....
:)
Have a great weekend! Kev
Finally the show is back 😁
Borrowing “Geopolitics is not an ornament.” for sure. 👌🏻
I think one of the things people don't appreciate is how market structure (usually) means it pays to fade one-off geopol events, not just that people overreact. today the opposite may be true...
If we look at the vix index, for example, it tends to spike on headlines but almost always mean reverts eventually simply because of rate of change.
For it to stay elevated or even continue higher, the news flow has to get incrementally more bearish and scary every day, day after day. that's very hard to sustain unless the escalation chain eventually reaches something like nuclear war.
And as bad as Covid or the carry trade unwind or whatever felt, eventually tomorrow was less bad than today, and there was a definable endpoint that came into view. not only that, but policymakers "panicking" often meant it was time to not panick yourself - they can backstop markets, stimulate economies etc. the cavalry eventually arrives.
the current crisis is actually the direct inverse of this, and is more like a "ticking bomb" than a one-off event.
Every day the Strait is shut an unprecedented energy (and maybe economic) crisis draws nearer and nearer. the default is that things get worse, not better, if nothing is done. tomorrow is worse than today in rate of change terms, and oil and yields continue to climb (with financial conditions tightening), while central banks cannot print oil - and may be less accomodative anyway (certainly this is the case looking at Fed Funds Futures this week).
given this, things don't have to escalate...
there simply has to be no progress in the Strait - like a bomb that's not been defused yet. it makes it almost impossible to fade, since the default position is actually a worsening crisis with every day that goes by, rather than resolution, and Iran has every incentive to keep up the pressure (and the bar to doing so is quite low as Marko points out!)
thanks for this .very insightful and useful. interesting that we might get a taco bounce BEFORE the sell-off based on his idea that Taco is entirely on the cards to try and limit the widening economic, geo-political ,social impacts .But that compromise might easily then be rejected by Iran .....sounds very plausible to me as far as the fog of war and censorship allows any valid opinion.
thank you - really helpful the only only one extra thing i would’ve asked about would be usmca which o have to think at least the canada is part is expedited now