From April twenty-eighth, twenty twenty-five to May first, twenty twenty-five

I. Foundation

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

Thoroughly answering the question: “Which assets are truly safe havens?”

Many trades are labeled as safe-haven assets, as if anything could be described as a safe-haven trade, but in fact they are not truly safe havens—Most assets that people consider safe havens are fundamentally still risk assets, or simply low-beta risk assets. Why did Notes create a section called foundation? To make good market forecasts, you first need an accurate understanding of the market and causal reasoning, not just “guesswork”!

If we extract the 10% worst days for U.S. stocks over the past 15 years (roughly a daily decline greater than 1.1%; this figure is also easy to remember) and add up the corresponding performance of the assets then described by global markets as “safe havens”, 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 in relative terms, causing EURAUD to rise, This currency pair is the most orthodox safe-haven trade proxy and reference。

Chart: The most orthodox proxy pair—EURAUD

2) Then, we have to talk about gold—Gold really is not a stable safe-haven asset. Still... when many people buy gold, they feel they have to justify the move, so they say they are buying it as a safe haven. In essence, they are putting the cart before the horse and have failed to understand the asset's true characteristics. If the trade works, they attribute it to their “judgment”; if it loses money, they just complain...

Gold has a very diverse set of characteristics, At times it behaves like a risk asset, at times it serves as a gauge of global central banks’ fiat liquidity, and at times it behaves like a safe-haven asset. From a portfolio-allocation perspective, it can be said to have some safe-haven 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 of a short-term “safe harbor.”

Chart: To survive in the market, don't make excuses or invent reasons for your positions—you'll get badly hurt!

You need to have a reason before you act

rather than acting first and then rationalizing your behavior

Chart: In fact, this round of gold trading had little to do with safe-haven demand

After reading this Notes article, everyone will be able to judge quite easily the actual level of those who talk at length about narratives

3) One particularly interesting and important change: go back to the first chart, and you can see EURUSD saw an exceptionally sharp rise at an inflection point during this round of declines in U.S. stocks—a development that in fact reflects a clear change in trading behavior in today's market.Previously There have only been two occasions when the euro rose against the U.S. dollar as stocks fell, once at the start of the pandemic, and the other time during some abnormal trading activity when German bond yields turned negative in 2015/2016.

Chart: EURUSD showed very strange behavior

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

...If everything is normal, an anomaly will never occur; and if an anomaly occurs, then things must already be abnormal..

Works every time..

Based on the current situation, the shift in the global safe-haven currency from the U.S. dollar to the euro is a real phenomenon. As confidence in the sustainability of the U.S. fiscal deficit and the credibility of its economic policy collapses, on days when U.S. stocks plunge, capital naturally moves out of U.S. assets and the dollar and into other large, stable capital markets—such as Europe.

In the future, as the scale of European debt issuance increases(given Germany's relatively low starting level of debt, this could instead be positive for the euro),and the possibility of Joint EU Defense Bonds, this will most likely further strengthen the euro's position as a destination for sovereign wealth management funds.

This is also quite interesting: Germany and the United States are both issuing debt, yet the interpretations and outcomes are different. Everyone is playing a relative beauty contest; even if none of it looks good, it is enough to be the better-looking one.

Note: Notes250428 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) Then there are U.S. Treasuries. Since the pandemic, because of high inflation and debt problems, bonds have lost much of their safe-haven qualities.

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

A simple sum will naturally include other distorting factors, but it can still explain a lot. Save this Notes article for your own reference.

2025.04.29

II. Insights

Our Viewpoints and ideas on market.

Another macro-level (counterintuitive) but more likely combination of paths

The U.S. session is stuck at the awkward level of 5500; in fact, the bears in the market are clearly more active than the bulls, but also more cautious, That is the paradox of an efficient market: when everyone is waiting for a signal to go short, the signal ends up taking a long time to arrive.Everyone understands that the anticipated decline is likely to occur, but no one is willing to make the first move, because short positions require far more smoothness than long positions; a decline that does not unfold smoothly is very, very bad.

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

We are medium-term bearish on the U.S. market, but in the short term, a highly counterintuitive macro path with a meaningful likelihood is taking shape—This path is actually more likely and more realistic than a recession, namely, A combination of slowing growth and rising inflation 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 earnings can still rise even if real demand weakens. If this path materializes, it will most likely be the main reason U.S. equities can sustain their performance in the short term—because inflation itself supports earnings and share prices.

Of course, this is not good news in itself, We have already seen how a similar situation ends in 2021-2022: amid persistently high inflation, even when earnings figures look good, overall market sentiment gets worse and worse, so even if earnings 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 would 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 U.S. economy is service-oriented; in fact, manufacturing now contributes very little to employment. So even if manufacturing is damaged (for example, by tariffs), the short-term impact on overall employment data will not be particularly severe.

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

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

What is more likely is that—because inflation may rebound—the Fed will be forced to keep waiting.

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

2025.04.28

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

A systematic overarching narrative is unfolding—Global Steady Hands (the long-term institutions that have remained committed to U.S. assets for many years) are indeed steadily reducing their holdings of the dollar, U.S. equities, and U.S. Treasuries, and this behavior is not driven by news, but is a genuinely systematic and sustained reduction—capital is indeed leaving the United States (though the pace has now slowed somewhat).

Chart: The Yale model that began with Swensen is also fading

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

Chart: From a broader perspective, after this outflow, U.S. equities actually traded in a huge rectangle that lasted nearly 4700 days

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

Chart: If we overlay the dollar index

In “The Illusion and Reality of the Market,” we wrote:

“One detail is worth noting: after the extreme volatility at the start of 4, market volatility overall has contracted sharply. Not only equities, but Treasury yields have also largely stabilized. But the dollar is still 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: U.S. equities began to recover after April seventh, but the dollar continued to fall

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

Chart: The dollar and U.S. equities confirm each other

After the last wave of outflows, the dollar also hovered at low levels, the gains in U.S. equities within the rectangle never received confirmation from a dollar breakout, after that, it was the dollar’s breakout that decisively confirmed the renewed breakout in U.S. equities。

In other words, compared with U.S. equities, the dollar is a more accurate signal for judging the United States’ overall positioning, because its market pricing is driven more by major institutions.

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

there is no alternative... a phrase steeped in history, TINA..

Today, 24 years later...?

The sons of those who once walked Wall Street have taken 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: Notes250429 gives a definitive answer to the question of what truly is a safe-haven asset

This is a once-in-a-century beauty contest, and what the market always trades is the “spread.” Because everyone has a different answer to what “value” means, while the “spread” is plain to see—this is Graham’s final piece of advice to the world in Security Analysis.

Sell dollars, buy gold, buy non-U.S. currencies—there are things Trump cannot control by repeatedly changing course, because he himself set this change in motion, and it may (and most likely will) be irreversible.

Looking back, the U.S. business model over the past 35 years has in fact involved continuously accumulating a negative NIIP (Net International Investment Position), as many non-U.S. countries around the world sell goods to the United States, receive dollars, and then invest 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 a capital position, not physical debt.

And which countries are the true holders of a 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. Second place goes not to China, but to 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’s overall NIIP is very high; the European region as a whole is actually one of the strongest sources of capital exports to the rest of the world.

Like the United States, Germany’s business model over the past 30 years has been quite clear: use cheap energy and relatively inexpensive labor to manufacture high-quality goods for large-scale export. As a result, Germany accumulated large surpluses, which ultimately flowed into investments in overseas assets. That is why Germany ranks very high in NIIP (Net International Investment Position).

The Netherlands (with its major pension institutions) is similar; Norway, China, Canada, Switzerland, and South Korea are also on this list of high-ranking holders.

In fact, because countries have different economic structures, they naturally follow different paths in allocating assets to the dollar:For example, Germany is led by insurance institutions, with giants such as Allianz; Norway has its sovereign wealth fund; and Canada is led by pension funds. These differently structured pools of capital have one thing in common: they all hold large amounts of U.S. Treasuries and U.S. equities.

Another implication of holding U.S. equities and Treasuries is that every purchase ultimately involves one of two things—U.S. equities (+ 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 core reason the dollar is a stronger signal of positioning than U.S. equities: equities are the result, while the dollar not only comes first but also carries far less noise.

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

This arrangement works very well when the dollar and U.S. equities 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 to follow suit—

That is why we say the key to this major transformation is not in equities or bonds—it is in foreign exchange.

Chart: WeeklyWrap250427

This is also the main basis for 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 applies to the dollar: a wave of structural selling by sovereign institutions (including right now) is arriving. This is the true holy grail of macro trading. Sovereign institutions hold nearly 32 trillion dollars in U.S. assets, and Japan alone has a massive pool of 3 trillion dollars, Not billions but trillions—that is an enormous amount, meaning that even adjusting just a portion of it would take a very, very long time; hedging even 1% of the asset structure would generate extremely large capital flows.

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

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 1% and 2% volatility while risking a short squeeze in the near term.

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

As we keep saying:

2025.04.30

When will valid data arrive

The labor market is almost certainly weakening, but the truly important indicators are the hard data for 5 and 6 (which will be released in 6 and 7, respectively).In other words, Data released before 6 do not truly incorporate the impact of Trump’s Liberation Day; on the contrary, front-loading brought forward by uncertainty will distort the overall data, The data are not truly “valid.”

Although hiring freezes and stalled investment will indeed slow economic growth, the first shock may instead be “front-running”—that is, a rush to buy goods before tariffs take effect—so, In the short term, we may instead see a string of “false boom” consumer data, creating a market illusion disconnected from underlying fundamentals.

For this reason, in the current environment, economic data such as retail sales and personal consumption expenditures (PCE) have little reference value and may even be completely distorted. When consumers face clear expectations of imminent price increases, they often choose to concentrate their purchases in advance, while businesses stockpile and replenish inventories as much as they can.

And when goods subject to the higher tariffs finally reach the market, the purchasing data will show a gap—because 1) consumers have already bought everything they needed; 2) the goods are no longer attractively priced.Although price elasticity and substitution effects may provide some buffer at the margin, the shock’s overall transmission cannot be fully absorbed.

Before June, another expected (and indeed occurring) development is a divergence between hard data and soft data (that is, sentiment), after investors, consumers, and businesses have all been brought to a standstill by policy uncertainty, this divergence between soft and hard data is the main source of market fatigue—and starting next month, we will truly see the 90-day pause expire, along with the release of a series of real (hard) economic indicators.

This means the next three months will be crucial. Volatility will truly begin to expand, and the annual trends for the dollar, U.S. equities, U.S. Treasuries, global foreign exchange, and global commodities are about to take shape—regardless of direction, the real trading window is opening, and this will also definitively set the course for this round of tariffs.

2025.05.01

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’s observation range)

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

Chart: The key observation range is 140-144

This meeting is fairly important, although so far the market has barely priced it in explicitly, 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 between 140 and 135，It is also possible that the Bank of Japan will choose to make a small rate hike during this window to align with U.S. policy.

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

In addition, Even if the meeting ultimately makes no adjustment, shorting USDJPY near the 144 level is still a reasonable setup.

However, we will not deliberately trade ranges that are too narrow; this is just a brief indication of our basic view.

A weakening pattern does not necessarily mean the trend has ended, but consolidation may dominate until new information with a material impact emerges.

Chart: Finally, the euro trading range as a bonus