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One Eyed Deer - 5th October 2023

Updated: Oct 9, 2023

Todays Overview:


US 10yr Bonds have punched through our 4.30 watch level and have done so convincingly. Unrealised losses on bonds held to maturity (that we know of) are approaching $1T.


As silence remains the loudest message from pension funds and banks we remain extremely concerned that something/someone big is in the process of blowing up.


Whilst considering the magnitude of carnage likely in the fixed income market I have made a significant pivot over the last few days regarding gold and gold miners. I still believe they will win out in the end, but with rates possibly getting explosive and credit likely to freeze, I think cash is a strong short term candidate.


The downdraft in an enormous risk-off environment will take metals with it. We will revisit them on the other side.


The Fed is starting to look like the outlying hawk, with the RBA capitulating today and leaving rates on hold. The RBA messaging is similar to UK/EU in that they are happy to sit behind the curve, but the Fed may not.


Is their ultimate goal to reinstate USD global dominance?


If so, they will have to break their asset markets, but guess how many votes they lose by doing that..spoiler, not many.


US mortgage holders are some of the most protected on earth with their 30Y fixed market. They might not be able to move house at the moment, but they are not suffering big mortgage payment leaps like others.



It's Always a Bank Crisis


In our last note we suggested short KRE at around 44. It is now below 41 and I believe will take out previous lows.


Bank of America is down 10% in the same period. $BAC was barely saved last time (2008 it beat out Lehman when picking the short straw), and at over 45x leverage will probably be the big one to go this time around.


Aussie banks continue to trade along their three year long plateau at levels where they now pay more on their bonds than on dividends. No one is talking about shorting our banks, and I’m probably not about to either, but I’m not sure how they survive the global credit event when it lands.


The market may play the game of swapping banks for big tech in the very short term, but when it’s a real crisis, it’s always a banking crisis, and when it’s a banking crisis it’s everybody’s problem.Tech is NOT a safe haven.


AI


Hasn’t this gone quiet in just three weeks. Put it in the pile with government sponsored UFO “leaks” as a distraction. Still eyeing NVDA to close the gap to $320.


Our 3 Free

1. Trade Position

2. Recent Calls

3. Chart Lab

 

Our Current Trade Position Summary


One-eyed deer: Gold/Silver ratio (sell). @85 and one of our biggest positions.

Runner up: Short equity indices, have cash for ammo.

Honourable mentions: Short banks.


Recent Calls

We suggested fading equity indices to play the right shoulder of the top (see chart lab) when NDX was around 15400. Currently 14950.

Sell VIX puts; All our short 13.5, 14 and 14.5 strikes expired worthless.



Charts Lab


Nice Set of Shoulders

Yes, it’s a rudimentary pattern, but I have always liked the head and shoulders. In the last note we were looking for the right shoulder to form, which it has. Next target is for the neckline to break, at which point we are in clear air and moving significantly lower. Target 12800.



NDX vs Credit


Now put that equity market against credit (orange line). Some gaps just get too wide.



It's A Wrap

  • We are short equities, long cash, short GSR.

  • I really think we are living through the end game right now, with an enormous section of the market frozen in front of a semi trailer of bond carnage.

  • They will be forced to move soon. Credit event will be generational in scale and liquidations will be jaw-dropping.

  • That is probably the most hyperbolic I would care to be in writing, and rarely go that far.


But Eye believe it.






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