April twenty-eighth, two thousand twenty-five to April thirtieth, two thousand twenty-five

I. Foundation

resistance to change and hence greater dependability for the results shown in the past.

Fully answer the question: “Which assets are truly safe havens?”

Many trades are branded as safe-haven assets; it seems that whatever one does can be described as seeking safety, but in fact they are not truly safe havens—Most assets that people regard as safe havens are fundamentally still risk assets, or merely low-beta risk assets. Why did Notes create a foundation section? To make good market forecasts, you first need an accurate understanding of the market and causal reasoning, not “guesswork”!

If we take the 10% worst days for US equities over the past 15 years (roughly days when the daily decline exceeded 1.1%; this figure is also easy to remember), and add up the corresponding performance of the assets called “safe havens” in global markets at the time, we get a very interesting (unfamiliar to most people) result:

Chart: “Which assets are truly safe havens?”

1) The Australian dollar is a typical high-beta risk currency, while the euro is relatively stable. So when markets seek safety, AUD is sold and EUR is bought relatively, causing EURAUD to rise, This currency pair is the most conventional proxy and observation for a safe-haven trade。

Chart: The most conventional proxy pair—EURAUD

2) Next, we have to talk about gold—Gold really is not a stable safe-haven asset, although... many people, when buying gold, have to find a reason for their actions and then say they are buying protection. Essentially, they are putting the cart before the horse and have not understood the asset’s true characteristics. If they buy correctly, they call it their “judgment”; if they lose money on a bad purchase, they just cry...

Gold has very diverse characteristics, At times it behaves like a risk asset; at others, it is used to measure the fiat-currency liquidity of global central banks; and at other times, it acts like a safe haven. From a portfolio-allocation perspective, it can be said to have some hedging value (such as low correlation). But if we look only at its trading performance during stock-market crashes, it really does not meet the standard for a short-term “safe harbor.”

Chart: To survive in the market, don’t make excuses or invent justifications for your positions—you’ll get crushed!

You need to have a reason first, then act

not act first and then rationalize your behavior

Chart: In fact, this gold trade has little to do with safe-haven demand either

After reading this Notes article, everyone can easily judge the true level of those who talk at length about narratives.

3) One particularly interesting key change: if you return to the first chart, you can see EURUSD has another extremely sharp upward inflection during this round of declines in US equities—actually reflecting a clear change in trading behavior in today’s market.Previously, EUR/USD had risen during stock-market declines only twice, once in the early days of the pandemic, and the other time amid unusual trading behavior when German bond yields turned negative in 2015/2016.

Chart: EURUSD showed very strange behavior

Friends who have read Notes closely, please say that line with us:

...If everything is normal, an anomaly simply will not occur; if an anomaly occurs, then things are already not normal...

It works every time...

From the current situation, the shift in the global safe-haven currency from the US dollar to the euro is a real phenomenon. As confidence collapses in the sustainability of the US fiscal deficit and the credibility of US economic policy, on days when US equities fall sharply, capital naturally moves out of US assets and the dollar toward other large, stable capital markets—such as Europe.

In the future, as the scale of European debt issuance rises(given Germany’s relatively low starting debt level, this could actually benefit the euro),and the possibility of Joint EU Defense Bonds, this will very likely further strengthen the euro’s position as a parking place for sovereign wealth management funds.

This is also quite interesting: Germany and the United States both issue debt, yet the interpretations and outcomes differ. It is a relative beauty contest; even if neither looks good, it is enough to look a little better than the other.

Note: Notes 250428 briefly discusses Wednesday’s Bank of Japan meeting (with observation ranges for the yen and euro) and gives an observation range for the euro; if a breakout is confirmed, we will enter.

4) Next, US Treasuries: since the pandemic, high inflation and debt problems have caused bonds to lose their strong safe-haven properties.

5) Silver, Bitco—don’t overthink it; they are typical high-risk assets.

A simple sum, with other disturbing factors naturally present, can still tell us a lot. Keep this Notes article for your own reference.

2025.04.29

II. Insights

Our Viewpoints and ideas on market.

Another macro path combination that is counterintuitive but more likely

US trading is stuck in the awkward position of 5500. In fact, bears are clearly more active than bulls, but they are also more cautious, That is the paradox of an efficient market: when everyone is waiting for a signal to go short, the signal is instead slow to arrive.Everyone understands that the anticipated decline is likely to happen, but no one is willing to make the first move, because shorting requires far more smoothness than going long; a decline that does not unfold smoothly is a very, very bad thing.

Chart: The market is right at this major technical resistance level, 5500

We are medium-term bearish on the US market, but in the short term, a macro path that is highly counterintuitive yet not unlikely in reality is taking shape—This path is actually more likely and more realistic than a recession scenario, namely a combination of slowing growth and rising inflation emerging over the next 1-2 months.

The logic is actually quite straightforward: when faced with rising costs, companies will always prioritize price pass-through (the path of least resistance is naturally to pass costs directly on to consumers),Clearly, this worked very well in 2022, so it is worth trying again this year..

Corporate earnings are nominal, which means that as long as inflation is high enough, reported profits can still rise even if real demand weakens. If this path plays out, it will probably be the main reason US equities can maintain their performance in the short term—earnings and share prices supported by inflation itself.

Of course, that in itself is not good news, we have already seen the endgame of a similar situation in 2021-2022: amid high inflation, overall market sentiment worsened even as earnings data looked good, so even if earnings data temporarily support share prices, that may only delay the eruption of the real problem.

Chart: Looking back at 21-22; if it happens again, it will head toward 4500

If this path plays out, a more natural outcome would be that the probability of no rate cut in June is far greater than the probability of a cut.

Another structural issue is that The US economy is service-based; in fact, manufacturing contributes very little to employment now. So even if manufacturing is harmed (for example, by tariffs), the short-term impact on overall employment data will not be especially severe.

In other words, if headline growth does not collapse immediately, inflation may instead rise first, forcing the Fed to stay on hold. The greater risk to watch is bond vigilantes risk: if long-term US Treasury yields surge again and the Fed cuts rates rashly at that point, it could trigger even greater turmoil at the long end.The bond market’s fundamental mechanism is to force policy discipline through selling; once the market sees discipline being abandoned, selling pressure on long-term yields will intensify further.

So even from the perspective of financial stability, especially the bond vigilantes angle, the Fed is more likely to wait and see at this stage rather than ease.In short, unless growth suddenly falls off a cliff (unlikely, because the data lag), or the market experiences systemic panic, the bar for the Fed to cut rates in June is very high.

More likely, inflation will rebound and force the Fed to keep waiting.

Bears wait, market sentiment builds... downside breakout.

2025.04.28

Revisiting that huge rectangle from 20 years ago, lasting 4700 days: from TINA to US Exceptionalism, a once-in-a-century beauty contest (why FX/the dollar mattered), and another discussion of value and spreads (why not to chase positions)

A systematic narrative is unfolding—The global Steady Hands (long-term institutions that have remained committed to US assets for many years) are indeed steadily reducing their holdings of the dollar, US equities, and US Treasuries, and this behavior is not driven by news but by genuinely systematic, sustained selling—capital really is leaving the United States (although the pace has slowed for now).

Chart: The Yale model pioneered by Swensen is also fading

The last systematic outflow occurred in 01-02, at the moment the dot-com bubble burst:

Chart: From a broader perspective, after this outflow, US equities actually traded within a huge rectangle lasting nearly 4700 days

At that time, the dollar was also much stronger (far stronger than now):

Chart: If we overlay the dollar index

In “Market Illusions and Reality,” we wrote:

“One detail is worth noting: after the episode of extreme volatility at the beginning of 4, overall market volatility has narrowed sharply. This is true not only of equities; Treasury yields have also largely stabilized. But the dollar remains near its recent lows, far below its level before the tariff plan was announced.If we are looking for evidence of a genuine structural change in the market since the tariff event, the dollar’s performance may be the signal most worth tracking.”

https://mp.weixin.qq.com/s/vliMzuQo7E_I6Ssy1Un3Xw

Chart: After April seventh, US equities began to recover, but the dollar continued to fall

After the tariff event, the dollar is the only indicator still at its shock level..

Chart: The dollar and US equities confirm each other

After the last wave of outflows, the dollar also lingered near its lows, the gains in US equities within the rectangle never received breakout confirmation from the dollar, after that, it was actually the dollar’s breakout that materially confirmed the renewed upside breakout in US equities。

In other words, the dollar is actually a more accurate signal than US equities for judging the overall positioning of the United States, because its market pricing is driven more by major institutions.

Go back to 24 years ago, when global market capital was also rushing into the United States, How did everyone interpret it at the time?

“There is no alternative”... a phrase with a strong historical resonance, TINA..

Today, 24 years later...?

The sons of those who once walked Wall Street took over and offered a counterpart to their fathers’ phrase: US Exceptionalism

From TINA to US Exceptionalism, it is essentially the same thing.

Correspondingly,

the collapse of TINA and the end of US Exceptionalism—American exceptionalism—are naturally one and the same.

Chart: Notes 250429 fully answers the question of which assets are truly safe havens

This is a once-in-a-century beauty contest, and what the market always trades is “spreads.” “Value” has a different answer in everyone’s mind, while “spreads” are obvious—this was Graham’s final piece of advice to the world in Security Analysis.

Sell dollars, buy gold, buy non-US currencies—there are things Trump cannot control through repeated reversals, because he himself set this change in motion, and that change may—and most likely will—be irreversible.

Looking back at the United States’ business model over the past 35 years, it was really a process of continually accumulating a negative NIIP (Net International Investment Position), that is, many non-U.S. countries around the world sold products to the United States, received dollars, and then invested those dollars back into U.S. assets.This has essentially made the United States a “financial debtor nation” to the rest of the world: what it owes is capital positions, not physical goods.

And which countries are the true holders of positive NIIP? In other words, who actually owns large amounts of U.S. financial assets?

Japan ranks first, with a net position of 3.3 trillion dollars. And second is not China, but Germany.

If we exclude places whose data are distorted by offshore centers and return to the level of real economies, cleaning the data reveals that Europe as a whole has a very high NIIP; the European region is in fact one of the strongest blocs in terms of exporting capital to the world.

Like the United States, Germany’s business model over the past 30 years was also very clear: use cheap energy and relatively inexpensive labor to manufacture high-quality products for large-scale export. As a result, Germany accumulated large surpluses, and that money ultimately flowed into overseas asset investments. Germany’s NIIP (Net International Investment Position) is therefore among the highest.

The Netherlands is similar (mainly its major pension institutions), followed by Norway, China, Canada, Switzerland, and South Korea, all of which are also near the top of this ranking.

In fact, because countries have different economic structures, they naturally follow different paths in allocating dollar assets:For example, Germany is led by insurance institutions, with giants such as Allianz; Norway relies on its sovereign wealth fund; and Canada relies mainly on pensions. These capital pools, despite their different structures, share one characteristic: they all hold large amounts of U.S. Treasuries and U.S. stocks.

Another implication of holding U.S. stocks and Treasuries is that behind every purchase there are always two things: U.S. stocks (+ dollars), or U.S. Treasuries (+ dollars).，Any portfolio of U.S. assets inevitably includes dollar exposure., and dollar exposure is often managed as a separate asset class—This is also the key reason why the dollar provides a stronger positioning signal than U.S. stocks: stocks are the result, while the dollar not only moves ahead of them but also carries much less noise.

Generally, the dollar is negatively correlated with risk assets: if stocks fall sharply or credit blows up, the dollar usually rises and helps protect the portfolio. If stocks rise and the dollar rises too, that naturally forms a positive-drift hedge, This means institutions usually do not need to fully hedge their dollar exposure; in practice, that is exactly what they do—

This is a very comfortable setup when the dollar and U.S. stocks confirm each other (that is, when the United States is in TINA or US Exceptionalism). But if TINA/US Exceptionalism is confirmed to have ended, they will have to start rebuilding the dollar hedges they should have held, and may even need to hold more..

It is precisely the start of this contrarian trade that creates a negative trading logic for the dollar as a whole, Institutions that have not adequately hedged their dollar risk will have to start selling dollars steadily. This is a genuine rotation: if others are selling, you have no choice but to sell along with them—

That is why we say the key to this major transformation is not in the stock market or the bond market—it is in the foreign-exchange market.

Chart: WeeklyWrap250427

This is also the core source of our bearish view on the dollar in Weekly Wrap250427.

Long gold, short the dollar: this is destined to become the core conviction of global macro investors. I hope everyone can truly understand it today.

Chart: Notes250425 The (only) reason to sell gold (and every trade)

Do you remember why we made a big bet on gold?

“Structural buying by sovereign institutions”

The same is true of the dollar: a wave of structural selling by sovereign institutions, including right now, is on the way. This is the true holy grail of macro trading. Sovereign institutions hold nearly 32 trillion dollars in U.S. assets, and Japan alone has an enormous pool of 3 trillion dollars, Not billions, but trillions. This is an extremely large number, meaning that adjusting even a portion of it would take a very long time; even hedging and adjusting the asset structure of just 1% of it would trigger enormous capital flows.

So, to answer another question from a Planet reader: why did we choose to take profits instead of rushing to chase either a short or a long?

Once the conviction to sell the US takes hold, it becomes a long-term structural theme, not something that can be reversed by short-term policy.While policy remains active, there is no need to chase volatility in 1% and 2% at the risk of being squeezed in the short term.

This will be an allocation trade cycle measured in years; if we want, we can enter at any time.

As I keep saying:

2025.04.30

III. Market Pulse

Our latest Comments on the economic and market environment

A brief discussion of Wednesday’s Bank of Japan meeting (with the yen observation range)

Over the weekend, we mentioned that last week we gradually closed several trend positions in the FX market, especially in the yen; we are flat and waiting.

Chart: The key observation range is 140-144

This meeting is quite important, although so far the market has made almost no clear pricing adjustments for it, but Given that the Nikkei is currently in the middle of its range, inflation remains above target, USDJPY is stable, and there is substantial gamma cushioning in the range from 140 to 135，It is also possible that the Bank of Japan will choose to raise rates slightly during this window to align with U.S. policy.

Chart: The Nikkei 225 is also in the middle of its range

Also, Even if the meeting ultimately makes no changes, shorting USDJPY near the 144 level is still a reasonable setup.

However, we will not specifically trade ranges that are too narrow; this is just a brief note on our basic assessment.

A weakening pattern does not necessarily mean the trend is over, but until new information with a substantial impact emerges, consolidation may become the dominant rhythm.

Chart: Finally, the euro trading range as a bonus