It was a mini Black Thursday for debt/equities last night but it was macro nirvana for me as four trade ideas I have rhapsodized ad nauseum in the past three months have now proved, “the mettle of their pasture”, to borrow from King Hal’s speech to his English archers on the eve of Agincourt. With Taiwan Semi and AMD down 25% from recent peaks and even the AI cosmic icon Nvidia, down $106 from its post earnings high of $516 a mere three weeks ago, it was inevitable that the Arm Holdings IPO would fall below its 51 IPO price and this happened last night when it plunged to an intraday low on Nasdaq at 49.85. So the 64-65 short on Arm last Friday is a golden goose that keeps laying some really nice golden eggs.
I am most proud about the strategy recommendation to sell the British pound at 1.30 as the United Kingdom is the spiritual home of all Pakistanis, given that the Lion of Punjab and our king across the water Bonnie Prince Nawaz holds court in his Mayfair palazzo. Sterling is at 1.22 now and I am afraid Governor Bailey has lost his credibility on inflation with the City FX gnomes (and their cousin tribesman on the Dubai Creek) now that the sceptred isle faces certain recession, a spike in HM Treasury debt servicing cost as long duration gilt yield surge and born again populist Rishi Sunak’s Tories face a landslide defeat in the general election. My target for cable is at least 1.16 in the next 3 months. Since the Gulf’s financial elite is long London SW1 real estate up the wazoo, I am afraid they have lost 3 years of rental income if they neglected to hedge sterling above 1.30 in June.
The Euro is also at 1.0642, as King Dollar resumes its post FOMC rampage and the macro tea leaves still suggests that my 1.02 target is not beyond the realms of possibility before Christmas. The mother of all macro trades in 2023 was the bear steepener in the US Treasury bond market that has now taken the yield on the 10 year Uncle Sam note from 3.50% to well over 4.50% in Singapore trading this morning. The bloodbath in the bond market, which has been my consistent macro cri de coeur all year even though our private banks assured us that duration was a stellar value buy when UST 10 hit 4%, has a lot further to go as leveraged hedge funds like Bill Ackman’s Pershing Square are now the bond vigilantes of this interest rate cycle. This is more than just an adjustment to Powell’s FOMC dotplots and higher for longer hawkish recalibration of the future monetary tightening path this autumn.
I believe the bond market is now pricing in the very real rise in consensus R*, the inflation risk premium, the fiscal nightmare of Bidenomics with a 6.8% Federal budget deficit and Congress as polarized as it was on the eve of South Carolina’s decision to secede from the Union in the fateful winter of 1860. To butcher Wordsworth, bliss it was not that dawn to be alive and to be young was absolute hell as a doomed generation’s fate was the meat grinder.
Also published on Medium.
