The set up in Gold is minimal to do with some massive flight to safety and more to do with the changes in flows of capital around the balance of payments and FX: 🧵

First, Gold prices have been moving in lockstep with EURUSD and broad dollar weakness which is very normal If US real rates are not accounting for movement in gold then its typically FX, the quantity of money in the system expanding (which will be reflected in FX if the other country isn't expanding the quantity of money), or positioning accounts for the moves.

Positioning in equities and Bitcoin has made a noticeable shift since last week.

Positioning and macro drivers will be THE differentiating factor as the tariff risk is already at extremes. 🧵

The chart below aggregates all of the positioning metrics for ES and maps whether they are skewing the price to the upside or downside. This has flipped bullish after the gap risk indicating capitulation to the downside has shifted On a net basis, the macro drivers and positioning drivers in ES are skewing things to the upside now. While this can always change, we know that the probabilities are becoming clearer. The top panel of the chart shows the strength in the drivers and the bottom panel shows the probabilistic skew.

What do my macro models say about Bitcoin? 🧵

Main Idea: Bitcoin is having a greater convergence with traditional risk asset flows but remains at the far end of the risk curve. This means capital has to move out the risk curve from less risky to more risk assets in order to buy BTC. There is a reason why Bitcoin has been moving lockstep with all of the lowest quality banks in the Russell. Why? Because both are driven by macro liquidity moving from less risky assets to greater risk.

There are two major ideas in macro that are taking place under the surface of short-term headlines. If you understand these ideas, the developments in BOTH equities and bonds as well as their correlation will become increasingly clear.

Major Ideas to understand:
1) How tariff risk and its geopolitical significance impact balance of payments as well as international relationships.
2) How the aggressiveness of central banks is impacting growth and credit markets. The focus on tariffs in the news is well-known and its impact on currencies like the Canadian Dollar and Mexican Peso:

These tariffs are taking place within the larger geopolitical context of the US experiencing the negative effects of being the world’s reserve currency while also operating on the 4-year political cycle that creates challenges for achieving lasting change.

This is a really good question

Broadly speaking, I'd say the times I've lost the most money were less about the view and more about having too much size in a trade or correlated positions.

Several things I've learned from bad trades:

https://twitter.com/AahanPrometheus/status/1893676943058305089

First, I have realized how valuable it is to connect the way you make decisions about risk to the way you're actually interpreting the world. For example, specific types of strategies are rewarded during specific period of time. High hit ratio vs low hit ratio (typically inversely correlated with RR) happen for a specific reason.

LONG MSTR:

Breakdown🧵 After months of Bitcoin and MSTR traders getting absolutely destroyed, we are approaching a short-term inflection point in positioning. You will notice that implied volatility premiums blew out when MSTR hit its high at the end of last year. Since this time, we have been trading in a range as implied vol premiums turn negative.

Updated views since the CPI print:

Core CPI coming in below expectations was key because we are able to stop moving up in inflation swaps.

10 year inflation swaps are down on the day now. We are about to crush the Fed's narrative that inflation will be higher in 2025.

Core goods had less disinflation but services decelerated enough to cause the core number to come in at 3.23%

Notes to self: (been a minute)

Some of the foundational beliefs I have:

1) the most important thing in my life is a genuine relationship with God informed by the truth of the Bible. Every other decision or desire in my life flows from this. (I wasn’t always this way).

https://twitter.com/globalflows/status/1813701386498142410

2) my time and energy are not things to be spent but stewarded for God. I’m responsible for HOW I use my time and energy which means I need to target the highest good with both.

Why can't "smart" academics get markets right?

It's about their orientation toward the uncertainty of markets.

The answer 👉Path dependency thinking over linear 🧵 Path dependency is THE KEY to understanding how to align yourself with the mechanics of financial markets. The reason WHY economists are always wrong is because they have the wrong orientation toward the future. They make linear extrapolations instead of moving from one state to another on a path-dependent base. In other words, you don’t want to make predictions of an “inevitable” destination, you simply want to align your actions with how the current state is setting up for the next state.

Let me break down HOW to think about the recent move in interest rates:

- Why is this impacting equities?
- How will this influence positioning?
- Will the VIX blow out again? First, we remain in a regime where Fed Funds is ABOVE core CPI as unemployment is ticking up.

This contextualizes HOW MUCH shocks move asset prices. In other words, when there is a higher degree of fragility in positioning, small things have a bigger effect.

How assets responded to FOMC yesterday and why it matters:

When we think about interest rates, there are multiple curves to analyze and each has a different connection to the actions of the Fed and conditions in the economy. The spread between the 2 year interest rate and 3 month T-Bill is primarily showing the pricing of expected Fed Funds over the next 2 years. The spread between the 3 month T-Bill is pricing HOW FAST the Fed is going to cut or hike. You will notice that since SVB in 2023, this curve has been inverted with the 2 year interest rate BELOW the 3 month T-Bill. This indicates that the market is expecting cuts as the next consecutive action by the Fed. Now you will notice that in November, the 2-year rate went above the 3-month T-Bill just marginally pricing a hawkish extreme. This is one of the reasons why my strategy opened a bond long during this time in November. The implication was if the 2 year keeps going ABOVE the 3 month T-Bill then hikes are going to come back on the table which is unlikely. Pricing hikes are dramatically different than pricing pauses.

Let's breakdown some important positioning signals for equities here:

More retail piling into $UVXY, as shared outstanding increase and total call open interest, moves up All while net COT positioning in ES has turned negative again

Let me explain how to think about FOMC this Wednesday: We already know a 25bps cut is the base case and almost certainly going to happen. The key question is actually about March.

Fed officials have already indicated the marginal probability of a pause so the January meeting is priced as a pause and there is no meeting in February.

Let me explain how to think about price action today as we move into CPI:

The 2-10 inflation swap spread has turned marginally positive similar to the inflationary uptrend in 2021 and 2022. Why does this matter? Because the market is pricing a marginal degree of inflation risk. This matters because IF we don't see a considerable acceleration in inflation then the market will have to REPRICE inflation risk LOWER thereby pushing nominal rates marginally lower.

Ken Griffin is one of the most successful traders and hedge fund managers in history with a net worth of over $47B

I conducted a comprehensive study of his life and career. Here are the top things he attributes his success to: 🧵 1) "Always burn the candle at both ends. If you're sleeping more than 6 hours a week, you will fall behind the algos"

The way you should be thinking about the macro environment is straightforward:

All of this will be broken down in the macro report published tomorrow but let's go over the main ideas.

Free trial for all the research👉capitalflowsresearch.com/5cf14480 1) Growth is positive and an imminent recession is unlikely

The Atlanta Fed nowcast remains positive

Let me explain the implications of these comments by Powell: First, the context continues to show a shift in the Fed's rhetoric. In other words, they are not consistently saying things to push rates higher.

Macro Regime: Growth remains positive with a low risk of a recession in the next 3-4 months. However, inflation risk and positioning are critical to understand here.

10 year inflations waps have rolled over marginally but remains elevated We had a vol crush in the VIX and Move Index post election but FX volatility remains elevated. Once this gets crushed, it will set the stage for the next trade.

Macro Set Up: No recession, inflation risk tensions, and positioning offsides

It is very clear that growth remains squarely positive. This continues to be one of the dominant impulses in markets.
Initial claims today continue to confirm this And the economic surprise index has continue to prove consensus has been offsides about growth over the past 2 months.

I’ve been buying dips in equities and Bitcoin all year long while people were making recession calls. All of this has been documented.

We just had one of the largest unwinds in election hedges that has sparked capital moving out the risk curve. This is WHY Bitcoin is rallying. You can’t just know that something is rallying. You MUST KNOW WHY!

All of this is setting the stage for the grand finale

I am still holding my long exposure with tightened rolling stops. I assure you, once we flip bearish, that’s when the real party begins.

The macro regime continues to show a growing US economy which sets the context for interest rates and equities.

The ADP print this morning and NFP print Friday will continue to confirm this. We are at such an elevated level that even if we did transition into a negative growth impulse, it would take a reasonable degree of time to even begin to have it reflected in negative prints. We are beginning to push up against the higher end of the valuation band in SPX. Why is this taking place as interest rates have rallied over the past month? This continues to go back to how interest rates have deviated from the quantity of money in the system.