May sixth, two thousand twenty-five to May seventh, two thousand twenty-five

I. Foundation

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

II. Insights

Our Viewpoints and ideas on market.

The key answer to when to buy back

On Sunday, we reviewed the positioning of the major assets we are watching or holding. If you haven't seen it, be sure to read it through first. (Bitco, EUR/USD, USD/JPY, gold, US10Y, SPX, USDX, oil) (India was not included; everyone should review for themselves alongside the two Notes on core-position entries previously published on Planet.)

The key upper and lower price levels are all in Sunday’s Wrap (see WeeklyWrap 250504). Today’s piece explains the logic behind the trades and answers questions (Q&A).

1. What do the three gold trading points in the Wrap mean?

“Gold: above 3438 is the topping zone; above 3300 is the bulls’ safe zone (neutral range); 3200 is the first pain point.”

Figure: Three key levels for gold

Gold returned to the neutral range. When we were forming expectations for the subsequent price action at the time, we mentioned two patterns of trend change:

“The next question is: if a correction begins, how will things unfold afterward?”

There are two types of trend change: one is a trend stall, meaning the slope flattens; the other is a trend reversal (which can also be called a formal corrective pullback).If it is the former, the gold market may be heading into a relatively long period of sideways trading, whose duration cannot be predicted. The best approach is to exit positions and wait for the range-bound period to end; no one has a crystal ball to predict the market, and neither do we. If it is the latter, that is actually preferable, because at least a corrective pullback has a logic in the market and offers macro traders greater certainty than a sideways period.”

3200 is actually the dividing line between a sideways period and a corrective pullback.

If the gold trade returns to the topping zone, we will also wait cautiously on the sidelines at first (but the consistency of the reasons for entry and exit means we would close the Bitco position we are holding), because there are assets in the market with more and better opportunities, Corrections after an explosive move are usually deeper and more prolonged than expected.A healthy, long-term bull trend needs to rest.

2. Are gold and the foreign-exchange market the same thing?

Those who pay close attention should be able to notice that, regarding We closed out the USD FX position and the gold position at the same time...

This naturally raises another question: if gold returns to the top range, does that mean we can re-enter the FX market? (We won't touch gold; if we take this trade path again, we'll use FX to do it.)

Within the same narrative, assets following the same trade path can also have different risk-reward profiles, Choosing which horse to put in the race is sometimes more important than correctly calling the direction.

Chart: If you invert gold, it is actually the same thing as FX.

Viable trade proxies include the Swiss franc, yen, and euro; keep monitoring them.

3. So, are gold, FX, and US equities also one and the same...

Figure: If we also overlay SPX

After 4 month 9 day this time, the rebound in US equities did not bring dollar demand, indicating that this rally was more like short covering than a renewed allocation by global pension funds to long dollar assets.In fact, overseas funds are still increasing their dollar-hedging positions (the recent TWD event was exactly about this. Friends on Planet should already understand it clearly, but today we are adding another Note to help everyone understand it more deeply).

For related reading: Notes 250506 The major shift in global FX through the lens of TWD pricing

Related reading: Notes 250430 revisits that massive rectangle from 25 years ago that lasted 4700 days: from TINA to US, Exceptionalism’s great election beauty pageant of the century

This is essential reading—the most central explanation of the logic behind all the key trades at present!

Once these Steady Hands start selling US equities again, the marginal impact will be clearly negative for the dollar. The dollar's response to equities is now asymmetric: US equities rise, the dollar stays flat; US equities fall, the dollar falls. The dollar is our key gauge for shorting US equities.

If US equities break downward, it will most likely be after the FOMC meeting. Keep an eye on the dollar.

2025.05.06

The moment to go deeper into shorting US equities

US equity bears have just gone through an extremely difficult month—When everyone is waiting for a decline, it is very hard to wait for that decline to arrive For bulls, as long as there is hope, they will keep holding positions; and as long as positions remain open, the decline is bound to be choppy. For professional short sellers, a choppy decline is virtually hell.

The market’s hopes rest on three fronts: one in the White House, one on Main Street, and one at the Federal Reserve.

As long as there is even a glimmer of “hope” on any one of these three fronts, shorting will not be a smooth ride. This is the core theoretical basis for what we called, in our earliest internal meetings, The three key moments for shorting US equities the core theoretical basis Many people do not understand why we are waiting until after this week’s FOMC meeting; it should be clear after reading today’s Notes.

First, it is the first wave of short sellers driving the market down since April second which we have named the “White House moment.”

The White House moment falls within the time window of the “first moment to short,” before Main Street arrives and before the Fed acts.

From liquidation through the raising of expectations, we understand White House policy inside out. There is no need to turn on the TV or check your phone; just look at market prices and you will know what the suited fighters at the podium are going to say:

Figure: Guided by this idea, we were able to anticipate the daily headlines (with precision)

We also discussed this in detail last week; see Notes 250501 — When will the valid data arrive?，For bulls, the absence of “clear bad news in the data” is “good news.” This is the core reason the market has been driven by White House statements over the past month, because valid data are delayed, creating for a time the market illusion that the data are disconnected from actual fundamentals..

Until the data arrive, prices will be driven by narratives and irrational capital. Narrative trading offers no certainty of entry for any professional macro trader. For shorts or longs entering at this time, it will be an extremely painful period; the market will sway back and forth like a foxtail, with rises and falls determined only by things some people say without even thinking them through.

That is also why we chose to close out our short positions in US equities and the dollar, and our long position in gold, after the “first moment to short.”

We are waiting for the second and third moments to short; those are the key moments to make our move.

Figure: Starting in June, hard data from Main Street will pull us into a wider trading range

Second, the Fed moment.

Why do we say volatility will expand after this week’s FOMC meeting? Because once the meeting has taken place, uncertainty will disappear, Only one last bastion will remain for the bulls to rely on—during the market’s waiting period for the shorting opportunity, all professional short sellers are waiting for certainty, while the bulls can rely only on “expectations.”

The end of the Fed’s remarks means that only one of the three expectations will remain; the pillars will no longer be stable, and the market will formally enter the second moment to short, with expanding volatility. This is the key point at which short sellers can truly enter.

In other words, What FOMC says is not really important, and there is no need to spend time following it. For market participants, what matters is not abcde, but the 1 of certainty once it is settled and the 0 of expectations while it remains unsettled. abcde is very important for analysts, but those battling in the market care only whether it is 1 or 0—whether it has been settled or not.

However, Expanding volatility also means a last-ditch struggle and a transfer of risk, Funds that did not have time to exit will clear their own risk by driving the market higher and squeezing out some highly leveraged short positions At this point, the wavering market and the various analysts and media will also interpret the meeting’s content as noise, turning abcde into a justification that “fits their own positions.”

This is precisely why there will always be a rebound and a shakeout before the real decline. Market debate will only intensify, not converge.

Third, the final Main Street moment.

When successive batches of cargo ships from China arrive in the United States, and manufacturers across the country begin planning and investing for the next quarter, the true hard-data Main Street moment—the third moment to short—will arrive.

After short sellers entered during the second moment, market participants are already tottering; these data will knock out their third leg.

Narratives no longer work, and the White House’s calls have become feeble; the idea that “the wolf is coming” has taken hold.

Once the data arrive, analysts will begin mass-producing research reports. Survey results and research reports will travel from Main Street to Wall Street, then from Wall Street to trading desks at institutions around the world. At that point, the media will also start touting the arrival of the short-selling moment (though in fact it arrived long ago), and the final wave of short sellers will begin to enter one after another...

Finally, Institutions with strong performance begin to show off and sell new products, while failing institutions are eliminated... New capital re-enters, the White House changes hands, the Fed chair publishes a book, a group of business professionals lose their jobs and return to Wall Street for new work, while Main Street finds new paths for the people through its unique resilience—a shakeout comes to an end.

2025.05.07

III. Market Pulse

Our latest Comments on the economic and market environment

The major shift in global FX seen through TWD pricing

USDTWD (USD/TWD) is a key signal that global market demand for the dollar is weakening, We were the first anywhere to discuss the increase in dollar-hedging positions by global funds; this logic is the key to pricing in actual dollar bearishness.

Related reading: Notes 250430 revisits that massive rectangle from 25 years ago that lasted 4700 days: from TINA to US, Exceptionalism’s great election beauty pageant of the century

(Be sure to read)

As always, what the market considers “strange” is simply an outcome that readers who consistently follow Notes naturally anticipated. Together with USDTWD, you can gain a deeper understanding of the major shift in global FX underlying this global dollar-hedging reallocation cycle.

It is quite a coincidence: just after we finished explaining it, the market supplied us with a “study guide”...

Figure: The major shift in TWD pricing

Compared with other currencies priced by the market, TWD can be considered a managed currency, except that this manipulation is not independently carried out by a single institution setting the price; instead, pricing is driven by life insurers and liability-driven investment institutions in China’s TW.

China’s TW insurance industry was already enormous, and over the past fifteen years it expanded rapidly to assets equivalent to 140% of GDP, most of which are invested overseas.This makes insurers highly sensitive to TWD appreciation: if the dollar depreciates, their dollar assets will incur mark-to-market losses, while the corresponding liabilities remain denominated in local currency and fixed.

More importantly, regulators require these institutions to adjust dynamically and hedge their foreign-exchange exposures.Large-scale position unwinding by exporters triggered a chain reaction of position adjustments by insurers, which in turn led to a sharp appreciation of the New Taiwan dollar—an unusually rare chain of events in history.

Because of its distinctive economic and industrial model, it is not just China TW; many similar production hubs share the same expectation of “dollar inflows.” They earn dollars and reinvest them in other long-term US assets rather than immediately converting them back into their local currencies.

Figure: Notes 250430 — Revisiting that vast rectangle lasting 4700 days, 25 years ago: from TINA to US, the century’s great election beauty contest over Exceptionalism

The assumption behind this approach is that the local currency will not appreciate, at least against USD

And so, an FX weakness artificially created through “delayed repatriation” emerged.

This situation is very comfortable when the United States stands head and shoulders above the global economy, because it allows them to earn two streams of income at once. There is no need to hedge the risk exposure at all, or only a small hedge is needed—a “rule-breaking practice” that everyone is happy to see.

But, if American exceptionalism disappears, the first thing to react

And it will certainly be the FX market (not the stock market, not economic data).

Once the trend reversal begins and dollar hedges start to be unwound, it naturally means that a major shift in pricing, with a wider range of fluctuations, will emerge. As we have said countless times on Planet:

Nothing in this world ever “appears out of nowhere,”

If it appears, there is a reason; if it appears, it is a trend.

This upheaval is not limited to “a particular asset,” nor can it be changed by “a single remark” from Trump or the U.S. government. It is a structural shift in the pricing regime.

However, TWD also has a characteristic that other currencies do not...

That is, the main holders of the assets behind it are foreign investors (foreign ownership of TSMC exceeds 70%)...

A change in currency pricing will necessarily hit foreign shareholders first. If the currency rebalancing continues, the reaction will naturally extend beyond the purely economic sphere; it is hard to say what else may follow.