July eighteenth, two thousand twenty-five
《A Brief Return of Goldilocks》
《Goodbye, Goldilocks》
Before the weekend, a few points and some interesting bits that cannot wait until Sunday; we’ll discuss the details on Sunday.
One, Crypto markets
Although ETH has seen a short squeeze, But Bitco reacted mildly to the passage of stablecoin legislation, As expectations and news around this part of the story wind down, there may be a timely “buy the rumor, sell the fact” flow of funds. If that happens, the price may return to around 110500; the worst-case outcome for this trade is breaking even.
Chart: A muted reaction to the passage of stablecoin legislation
Two, University of Michigan July data and goodbye to Goldilocks
“Goodbye” is a double entendre, one being the Goldilocks scenario returning to the current macro backdrop (a trade that has been repeated many times over the past year), and the other being that this trade may last only until before October (10)/November (11).
The Michigan data came out: consumer confidence edged up, while inflation expectations edged down, Both moves were small, so there is not much to trade on.
Waller plans to dissent at the July (7) FOMC, He is already a dovish outlier, clearly one versus all At least for now, the core voting members still appear to be maintaining a wait-and-see stance, Rate cuts will not come before September (9).
Meanwhile, the ever-forward-looking stock market continues to rise, repeatedly setting new all-time highs. The market now has many of the conditions needed for a melt-up, and bulls are becoming somewhat fearless:1) Tail risks are being removed one by one; 2) financial conditions continue to ease; 3) the AI investment boom and expansionary fiscal policy are increasingly becoming the main themes, with nominal growth expectations being revised rapidly upward; 4) bond yields remain effectively contained
—Basically, this is the ideal environment for the stock market.
Chart: A clear picture of the fiscal trajectory
There are mainly two judgments here:
1) Consumer confidence and retail data together show that the fundamentals of U.S. consumers remain fairly robust, in line with expectations, The U.S. stock market’s moves will actually lead the consumption-related data (see the Notes on the K-shaped economy)；
2) Within the melt-up mentioned above The nominal and financial-conditions easing brought about by fiscal policy is unlikely to reverse; the remaining possibilities are tail risks and bond-market rates。No one can anticipate tail risks; they can only be managed. From a rational perspective, the bond market is the remaining major area of risk that can be monitored.Many people on Planet are not professional analysts; the goal is to trade well and protect positions, so they do not need to follow every data release, For what is within your control, simply keep a close eye on the U.S. ten-year Treasury.
We are still within the safe zone we identified earlier, which means there will be no significant inflation tail risk at least in the short term:
Chart: US10Y
Three, Short-term interest rates and cyclical stocks
Delta Air Lines is an important barometer of consumer demand, Its newly issued earnings guidance for the year 25, citing stabilizing booking volumes, anticipates a strong peak summer travel season, in stark contrast with the expectations given in April (4), when Delta led the way in withdrawing its full-year performance guidance, citing an uncertain economic outlook.
The move was both an early signal for the second-quarter earnings season and a reflection of a clear improvement in U.S. consumer sentiment.
The chart below overlays Delta Air Lines’ share price and 1-year-forward 1-year U.S. interest rate swaps (1y1y US swap):
Chart: Although there is no direct causal relationship between the two, the high correlation suggests that short-term rates in the market may be significantly mispriced relative to cyclical stocks
Four, A structural shift: on pension funds
We have talked a lot about the surge in long-term bonds; there is also a structural shift, Since the pandemic, more and more people have chosen to retire early, voluntarily leave the labor force, begin drawing down savings, and liquidate assets...If this trend continues, pension savings will decline significantly, while sovereign pension funds in various countries were once the most important buyers of 30-year Treasury bonds.
Chart: Structural changes in pensions
Five, 000016
Chart: Starting to go long on Chinese assets; domestic coverage will increase starting next week
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Wishing you all the best.
2025.07.18
Note: All content in this text is for reference only and does not constitute investment advice or serve as a basis for any laws, regulations or regulatory policies. Investors should not make decisions based on or rely on this information.