January 2025 DDD

[ducati916]

Jobs Report:

Rumors of a job market downturn were, it appears, greatly exaggerated.

Why it matters: A robust December employment report suggests the labor market is heating up — or at least not meaningfully cooling — as 2025 begins.

Catch up quick: The jobless rate fell, employers added to their payrolls, a larger share of the adult population was working, and wages rose at a healthy pace last month.

• That makes the outlook for further Fed interest rate cuts more remote. Another cut later this month now looks to be off the table, and market odds of a rate cut in March fell sharply this morning.
• With a solid labor market, officials can move more gingerly as price pressures look stickier.

What they're saying: "I have more confidence that the job market is not deteriorating," Goolsbee tells Axios. "There is a statistical pattern that when unemployment goes up, it tends to keep going up. I have more comfort now that we did stabilize and this time is quite different than previous business cycles."

By the numbers: The U.S. economy added 256,000 jobs last month — the most since March 2024 and about 100,000 (!) more than economists had expected.

• That partly reflects a bounce back from hurricane-induced payrolls weakness in the fall, but the strength is echoed in other data.
• The unemployment rate ticked down to 4.1% from 4.2%. (Remember the recession jitters that followed the jobless rate jump last summer? That looks increasingly more like a head fake.)
• The share of employed prime-age workers (those aged between 25 and 54) ticked up, rising 0.1% to 80.5% and recovering some of the losses since September.
• Average hourly earnings, a measure of wage growth, rose 0.3% in December and have increased by 3.9% over the previous 12 months.

The big picture: The final data point for 2024 came in hot, nearly matching the job gains that kicked off the year. Still, relative to 2023, the labor market has slowed a bit.

• The economy added an average of 186,000 jobs per month last year, down from the 251,000 in 2023.

The intrigue: Bond markets sold off on the news, driving an upturn in yields amid diminished prospects for Fed rate cuts.

• The yield on the U.S. 10-year government bond rose to 4.78% this morning, the highest level since late 2023. That rate was 3.62% in mid-September when the Fed commenced its rate-cutting campaign.
• The Fed started its rate-cutting cycle with an eye on the labor market that, at the time, looked wobbly.
• Fears about the job market have since receded. Now there is a closer eye on inflation that has already ceased cooling, with risks that President-elect Trump's trade and immigration policies might reignite it.

"I think the most material thing is this question of, do you think the economy is overheating, or do you think we're in a stabilizing range with inflation getting back to target?" Goolsbee says.

• The Fed has cut rates by a full percentage point since September and Goolsbee says he still thinks "we have some to go."

The bottom line: Trump will inherit a labor market that has thrived under the weight of high inflation and high interest rates.

Oil News:

Oil prices have started the year rallying aggressively, with Brent breaking $80 per barrel for the first time since October 7 last year. The rally has been driven by the Biden Administration’s eleventh-hour sanctions on Russia, cold temperatures across the Atlantic Basin, widening backwardation in all crude futures, and continued concerns about inflation. For the first time in months, the oil market is feeling very bullish.

Yakuza Sells Nuclear Fuel to Iran. A top-tanking member of Japan’s Yakuza mafia pleaded guilty to trafficking uranium and plutonium from Myanmar to Iran after being arrested by an undercover DEA agent, just as recent reports indicate Tehran is now able to enrich uranium up to 60% purity.

China Loses Interest in Saudi Crude. Shortly after Saudi Aramco hiked formula prices for Asian term buyers by $0.50-0.60 per barrel for February, Chinese consumers have nominated 43.5 million barrels of Saudi barrels next month, down by 2.5 million barrels from the current month.

US Drillers Ignore Alaska Licensing Round. The US Interior Department received no bids in the latest government auction for drilling rights in Alaska’s Arctic National Wildlife Refuge, potentially hinting at the end of drilling there as all leases sold in the 2021 auction were eventually forfeited.

Iraq Crude Output Hampered by Power Outages. Disruptions in natural gas imports from Iran have led to power outages across Iraq that limited the latter’s oil production rates, with intermittent electricity supply lowering output at the supergiant Rumaila field that normally pumps some 1.2 million b/d.

Shandong Ports to Ban Sanctioned Tankers. The Shandong Port Group operating most of the ports that feed the province’s ‘teapot’ refiners announced it would ban all US-sanctioned tankers from calling into its terminals, despite accounting for 78% of all Iranian imports into China last year.

Norway Sold Record Levels of Gas in 2024. Norway’s Offshore Directorate reported that the country supplied record levels of natural gas last year, totaling 124 billion cubic meters compared to 116 bcm in 2023, whilst this year should see slightly lower production volumes at 120.4 bcm.

Chile Rejects Multi-Billion Iron Ore Project. Chilean officials have rejected a $3 billion mining and port project that was already approved back in 2021, but the Supreme Court annulled the decision two years later, saying incremental iron and copper mining would be overshadowed by environmental risks.

Venezuela Rekindles Fire Over Disputed Region. Tensions are running high across South America again after Venezuelan President Maduro is planning to elect a governor for the disputed oil-rich Essequibo province, historically part of Guyana but reclaimed by Caracas since ExxonMobil’s Guyanese discoveries.

Namibian Discoveries Might Not Be as Rosy. UK-based energy major Shell (LON:SHEL) has dampened expectations about Namibia’s oil bounty after writing off almost $400 million on wells drilled in its PEL-39 in the South African country, citing their sub-commercial nature due to a high gas-to-oil ratio.

Canada Threatens Orange Juice Tariffs on US. According to Canadian media, in case Donald Trump does impose a 25% tariff on goods imported from north of its border Canada could implement a retaliatory tariff on US orange juice, paper, steel products, glassware, and an array of plastic products.

Mega US Coal Merger Finally Approved. Shareholders of top US coal producers Consol Energy (NYSE:CEIX) and Arch Resources (NYSE:ARCH) voted to approve the companies’ plan to merge in a $5 billion deal, becoming Core Natural Resources and boosting 37 million st/year production capacity.

LA Fires Trigger Fuel Pipeline Closures. As deadly wildfires debilitate the Los Angeles area, US pipeline operator Kinder Morgan (NYSE:KMI) said it was forced to shut the 128,000 b/d CALNEV and 173,000 b/d SFPP West pipelines transporting oil products from LA refineries to San Diego and Phoenix.

Russian Refinery Offered to Kazakh Major. Kazakhstan’s state oil company KazMunayGas is bidding to purchase the 190,000 b/d capacity Burgas refinery in Bulgaria, the last downstream asset fully owned and operated by a Russian company in the European Union, sending a binding offer to Russia’s Lukoil.

Gold

The gold price dip in November, following the US election, may have provided some central banks with added impetus to accumulate. At a country level, much of the buying was limited to those who have been active in recent months:

• The National Bank of Poland (NBP) was once again a major buyer. It increased its gold reserves by 21t in November, to 448t. Gold now accounts for almost 18% of its total reserves, just below the previously stated target of 20%.1 This purchase also cemented the NBP’s position as the leading gold buyer on a y-t-d basis (90t)
• Data published by the Central Bank of Uzbekistan shows its gold reserves rose by 9t during the month – the first monthly addition since July. As a result, the bank’s y-t-d net purchases now total 11t and total gold holdings amount to 382t
• The Reserve Bank of India continued its 2024 buying streak, adding a further 8t to its gold reserves in November. This lifts y-t-d buying to 73t and total gold holdings to 876t, maintaining its position as the second largest buyer in 2024 after Poland2
• The National Bank of Kazakhstan increased its gold reserves by 5t, the second successive month of buying. As a result, the bank has flipped to being a net purchaser (1t) y-t-d, with total gold holdings now standing at 295t
• One of the most notable developments during the month was the announcement that the People's Bank of China (PBoC) had resumed gold purchases. After a six-month hiatus, the PBoC added 5t of gold to its reserves, increasing its y-t-d net purchases to 34t and its total reported gold holdings to 2,264t (5% of total reserves)
• Data published by the Central Bank of Jordan shows its gold reserves rose by over 4t in November - the first monthly increase since July. Y-t-d net purchases now total nearly 2t, lifting gold holdings to 73t
• The Central Bank of Turkey increased its gold reserves by 3t during the month. The central bank also entered into reverse swap agreements (gold for lira) with domestic commercial banks to manage liquidity
• Gold reserves held by the Czech National Bank rose by almost 2t in November – the 21st consecutive month of buying. Y-t-d net purchases now total almost 20t, lifting gold holdings to just above 50t
• The Bank of Ghana continued its gold accumulation as part of its domestic gold purchase programme, adding a further 1t in November. Y-t-d net purchases now total almost 10t, lifting total gold holdings to 29t. The bank also launched a Ghana Gold Coin to the public during the month as part of its “efforts to stabilise the economy and promote investment in Ghana’s gold reserves”3
• The Monetary Authority of Singapore was the month’s largest seller, reducing its gold reserves by 5t, bringing y-t-d net sales to 7t and overall gold holdings to 223t.

---

It was also announced in December that gold reserves at the Bank of Finland had been lowered by 10% to 44t – the sale most likely taking place during that month. The bank noted that: "Exchange rate risk is the most significant of the Bank of Finland’s financial asset risks. Increasing the size of its foreign exchange reserves elevates the Bank’s exchange rate risk considerably, and so the Bank is strengthening its foreign exchange rate provision by selling about 10% of its gold reserves".4This brings the bank’s gold reserves to their lowest level since December 1984.




Yields:


USD



Market:





China:

China’s post-pandemic malaise feels eerily similar to being trapped in a time loop. There is no forward motion. Barely four months ago, Beijing had investors believing it would do whatever it takes to revive its ailing economy. That led to an epic surge in share prices that has been abating for months as disappointment set in. Admittedly, a raft of policies was unleashed from the fiscal and monetary sides. Putting a floor under the real estate sector slump — at the heart of the economic troubles — was non-negotiable.

The humongous local government debts of over 60 trillion yuan ($8 trillion), according to International Monetary Fund estimates, continue to act like a lead weight. The excitement that the September pivot ushered in is effectively over, with little to show for officials’ resolve to get the economy back on track. Judging by the yields on Chinese bonds, investors are giving up on efforts to stop the world’s second-largest economy from sinking further. Yields on both two-year and 10-year bonds seem to be in a perpetual slide. Both have touched historic lows and continue to plummet — far from what should happen when a government has decided to go for broke with a big stimulus:


That plunge helps to explain the growing belief that an even more significant bailout from Beijing is coming. The leadership has no other choice. Investors’ impatience seems justified. The latest inflation print indicated that the economy is knee-deep in deflationary territory after consumer prices decelerated for the fourth straight month, while producer inflation is stuck in deflationary mode. Bloomberg Opinion colleague Mohamed El-Erian notes that this is all consistent with a deepening risk of “Japanification,” the prolonged period of stagnation that crippled Japan at the turn of the millennium. The longer this continues, El-Erian argues, the greater the risk of self-feeding vicious dynamics undermining growth, as well as household and corporate confidence.

Even with a further bailout firmly on the table, China’s 30-year yields have dropped below 2% and, amazingly, below equivalent Japanese bonds. Not long ago, this would have been inconceivable:


While the investor pessimism is concerning, the confidence sparked in Chinese equities by September’s pivot hasn’t been completely undone. Both mainland and offshore equity markets have held on to some of the gains. In the absence of the expected stimulus, and with US exceptionalism attracting ever more funds since the presidential election, it’s no surprise that Chinese stocks have fallen back. Given the economy’s importance, it’s also not surprising that this has driven a broader correction, with FTSE’s emerging markets index closing on Thursday 10% below its October peak, when the stimulus hype was greatest. That satisfies the most popular definition of a correction:


Still, this isn’t good enough. Beijing knows this. Stimulus to bolster consumer demand is a matter of when rather than if. Anatole Kaletsky of Gavekal Research notes that recent official announcements referencing phrases like “more pro-active fiscal policy” and “moderately loose monetary policy” suggest an imminent pivot. That should boost both consumption and investment and could also compensate for a loss of exports in the event of a full-scale trade war with the US:

On top of the newfound policy commitment to demand expansion, the economy will also benefit from structurally accelerating trade growth among emerging markets. And perhaps most importantly, China is achieving dominance in many of the fastest-growing global industries, including electric vehicles, solar, wind and nuclear energy, batteries, generic pharmaceuticals, and mass-market semiconductors — such dominance should be reinforced by the Trump administration’s antagonism to several of these sectors.

Kaletsky points out that if this acceleration becomes apparent, Chinese stocks will look undervalued, and commodity prices will gain support. That helps to explain why investors in Chinese equities aren’t fully abandoning their positions. Freya Beamish of TS Lombard points out that Beijing’s knack for due process could be delaying the stimulus, as it prefers to bring all parties to the table before making a move:

The worry is that the Chinese Community Party’s idea of re-orienting towards domestic demand is simply to hand out vouchers for goods, the vast majority of which would simply be Chinese. But the rumour mill also includes more lasting elements such as child benefits expansion. At the same time, some greater efforts at domestically oriented investment seem likely to be part of the mix. While this won’t help China — where overinvestment has been rife for the last two decades — it would help to soak up a little more of the excess savings domestically.

Ahead of China’s Lunar New Year, the Year of the Wood Snake, which falls on Jan. 29, officials hope to invoke animal spirits. Snakes symbolize wisdom and agility in Chinese culture, while wood stands for growth, flexibility and tolerance. With Donald Trump taking office the week before, the wood snake couldn’t have chosen a better time to make an appearance.


jog on
duc

 

[ducati916]

So a week or two I posted on the RRG.



So I added a MRK long position today.

jog on
duc

 

[ducati916]

Bill:



jog on
duc

 

[qldfrog]

The LA fires will probably tweak the economy significantly once the smoke settles.
More work/jobs so lower unemployment figures, more demand on limited supply: inflation, more imports: cars, domestic appliances...
That was a not so surprising black swan events.

 

[ducati916]

JC remains bullish:

We're in the 3rd year of a bull market and sector rotation continues to be a dominant theme that's driving stock prices higher, and probably more importantly, not allowing them to go lower. Stocks making new lows is a big deal, and it's a prerequisite in order to have a bear market or a downtrend of any kind. As we discussed this week, the current market lacks this key characteristic - that is new lows. You can't have a market correction without them. It's just math. Also during corrections, you regularly see rotation into the more defensive stocks, like Consumer Staples. You don't have that either. In fact, Consumer Staples just closed at new all-time lows relative to the S&P500. As you saw yesterday, we're seeing the relative weakness continue in Staples, both on a market-cap weighted AND on an equally-weighted basis. There are things you see in bull markets and things you see in bear markets. When you study all them, you'll quickly notice some of these key differences. Here's another one. This week you saw over 60 basis points of alpha out of High Beta stocks relative to Low Volatility. You see this sort of thing quite often during bull markets.

​

Keep in mind that High Beta is largely driven by Technology stocks, along with a solid dose of Consumer Discretionary. And remember that the Consumer Discretionary sector has been the best performing group since the August volatility spike. Discretionary has been the biggest winner on both a market-cap weighted and equally-weighted basis. Financials are the 2nd best performer, also a group of stocks you tend to see outperforming in bull markets. Now here's the thing. I've gone back and looked. As it turns out, during bull markets, it pays much better to be a buyer of stocks than it does to be a seller. Go back and count for yourself, if you don't believe me and you'll see.

While the S&P 500 is currently down about 4.5% from its all-time high in early December, the small-cap Russell 2,000 has now crossed the "10% correction" threshold and is in an 11.1% drawdown at the moment. Since Election Day on November 5th, small-caps are down about 4%, while the S&P is now flat. Recent stock market declines have gone hand in hand with a rise in interest rates; the result of a string of stronger than expected economic data that has traders betting the Fed will remain "higher for longer." As we mentioned in our last Wealth Management Report sent to clients at year end, however, similar to Mark Twain's comment about the weather in New England, if you don't like where the market thinks the Fed Funds Rate is headed today, just wait a few days and it will likely change. Today's sell-off due to a stronger than expected jobs report in President Biden's last month in office is not going to be something investors will be thinking about a few months from now. In ten days when the new administration takes over the White House, investors will have dozens of new issues to focus on. This is to say, if you're contemplating major changes to your portfolio today because of Biden's final jobs number, it may be better to take the rest of the day off and start your weekend early! We're currently working on our weekly Bespoke Report newsletter that goes out to subscribers every Friday evening. This report is a great weekend read over morning coffee that recaps the week that was and gets you ready for the week ahead. To receive it in your inbox later today, simply start a 30-day trial to Bespoke All Access (Institutional) for $1. We'll leave you today with a helpful chart of the S&P 500 over the last four years. In the chart, we show how much the S&P would need to fall to reach 10% correction territory, 20% bear market territory, and to get back down to its October 2023 low or its 2022 bear market low. Just to get down to a 10% correction, the index would need to drop all the way down to 5,257, which is where the index peaked last March before experiencing a modest pullback. (Click the image to enlarge for a closer look.)

​

JC on Consumer discretionary stocks:

Sector rotation continues to be a major driving factor in this market. We talked about it earlier this week in our LIVE Strategy Session. While some sectors and industry groups have been taking a breather, after these historic runs, other stocks have been catching a bid - things like Medical Equipment, Airlines and now Energy stocks. The one constant, however, is the rotation OUT of Consumer Staples. This defensive sector consistently outperforms when stocks are under pressure, and when it's a less than ideal environment to be putting risk on in equities. This is the opposite of that. Look at the new all-time lows for Consumer Staples relative to the S&P500:

​

And while Consumer Staples tend to underperform in healthy environments, it's the Consumer Discretionary stocks that outperform the broader markets during the good times. And that's what we have here as Consumer Discretionary, on an equally-weighted basis, just closed the week at the highest levels relative to Staples in American history. I don't take that lightly. Do you?

​

We’ve seen it before: the market gets distracted by some sectors getting rotated out of, while the real action is happening somewhere else. Right now, that “somewhere else” is in Consumer Discretionary. Retailers, restaurants, and consumer-facing companies have been on a wild ride, and the numbers don’t lie. The Consumer Discretionary sector soared 27% last year, riding high on a massive rebound. But the real opportunities are just starting to unfold.

We appear to be in the midst of a raging bitcoin bubble. The stock market, or at least its lunatic fringe of meme stocks and crypto-related firms, is not far behind. How can we understand the origins of speculative mania? Here are seven phrases of timeless relevance:

1. THERE ARE IDIOTS. Look around.
2. Everybody ought to be rich.
3. Nobody knows anything.
4. A fanatic is someone who can’t change his mind and won’t change the subject.
5. The more confusion, the better.
6. Number go up.
7. This time is different.

1. “THERE ARE IDIOTS. Look around.”​

Bubbles typically involve irrational optimists. While it’s theoretically possible to have a bubble without irrationality, in practice bubbles are powered by a wave of credulous newcomers who are ignorant, innumerate, and looking to get rich quick.

“THERE ARE IDIOTS. Look around.” These are the first two sentences of a legendary but unpublished paper by Larry Summers. Arguably the most memorable opening since “Call me Ishmael,” the first sentence gives the hypothesis (undeniable) and the second sentence gives the evidence (irrefutable), all in five words.

I myself have never seen a copy of this paper (I think you need to be a Seventh Level Thetan to gaze upon the wondrous scroll) but it’s described in Thaler (2015).

Now, it’s uncontroversial that “there are idiots” in financial markets. The controversy is whether these idiots have any impact on market prices. There are three views:

• The efficient market view. Yes, there are idiots, but they don’t matter because they cancel each other out, or because their impact is immediately offset by the actions of non-idiots.
• The Grossman-Stiglitz view. The idiots are a necessary ingredient for a partly efficient market where rational traders gather information and make money by trading with idiots, who systematically lose money. I’ve previously explained this view: idiots (or more politely, “uninformed traders,” “gamblers,” or “noise-traders”) are the lubrication that allows information to get into prices.
• The behavioral finance view. Idiots push prices around, sometimes creating market-wide bubbles or obvious relative mispricings, which can last for years.

For me, the behavioral finance view seems more relevant every day.

2. “Everyone ought to be rich.”​

That’s the title of John J. Raskob’s spectacularly ill-timed article, urging Americans to buy equities, in the August 1929 Ladies Home Journal.

Now, there’s nothing wrong with buying equities in general, but there was something wrong with buying equities in 1929, especially buying overpriced leveraged closed-end funds. Maybe everyone ought to be rich, but in the 1930s everyone got poor, especially those owning equities.

Bubbles often involve glorious visions of a utopian future of unlimited prosperity. Raskob is part of a long tradition of “democratizing finance,” which in practice sometimes means selling overpriced assets to suckers.

3. “Nobody knows anything.”​

Here’s Goldman (2012) discussing Hollywood: “Nobody knows anything ... Not one person in the entire motion picture field knows for a certainty what's going to work. Every time out it's a guess and, if you're lucky, an educated one.” This goes double for Wall Street; nobody knows which asset prices will go up. Indeed, we have theories which say asset prices are completely unpredictable.

The corollary to “nobody knows anything” is that anyone claiming certain knowledge of future events is a charlatan. Charlatans come in many shapes and sizes: hyperbolic sell-side analysts, social media chatterers, and megalomaniac CEOs. A recent development is the rise of crypto charlatans, an invasive species currently slithering into equity markets.

Here’s Galbraith (1994):

When will come the next great speculative episode? And in what venue will it occur…? To these there are no answers. No one knows; anyone who presumes to answer does not know he doesn’t know.

Galbraith is describing charlatans of the Dunning-Kruger variety: too ignorant to realize that financial market outcomes are inherently unpredictable, see Dunning (2011).

Why does anyone listen to charlatans? Consider these different answers to the question “Will bitcoin go up next year?”

• Answer from me: “I don’t know.”
• Answer from charlatan: “Bitcoin will rise 50% as more companies maximize their inverse revenue with encrypted hypercompute. Bitcoin is safer than cash.”

Who sounds confident? Who gives actionable insights? Not me. Although nobody really knows anything, it’s not hard to find charlatans who claim to know everything.

4. “A fanatic is someone who can’t change his mind and won’t change the subject.”​

This definition, often attributed to Churchill or Truman, describes the bitcoin maximalists at the core of the current bitcoin bubble. These zealots will happily spend hours explaining why bitcoin is the answer to the world’s problems.

In Pedersen (2022), fanatical optimists play an important role in generating mispricing. They continually transmit their bullish message, operating as “influencers” or “thought leaders” whose ideas spread through the information ecosystem.

Bitcoin, along with all of crypto, seemed near death in 2022. But not for bitcoin maximalists. Since they can’t change their minds, and won’t change the subject, they continued to spread their pro-bitcoin message, like Typhoid Mary spreading infection through the populace.

5. “The more confusion, the better.”​

Why is crypto good? What’s the use case for bitcoin? These are simple questions, but they do not have simple answers, and the answers provided seem to change every year.

The mathematical mystique of bitcoin is a feature, not a bug. If no one understands bitcoin’s purpose, how can anyone prove that it has no purpose? Ponzi schemes often involve deliberate obfuscation and complexity. According to Chancellor (2000), the mastermind of the South Sea Bubble in 1720 allegedly said:

The more confusion the better; People must not know what they do, which will make them the more eager to come into our measures.

Consider the following from Jack Dreyfus in 1960:[1]

Take a nice little company that's been making shoe laces for 40 years and sells at a respectable six times earnings ratio. Change the name from Shoelaces, Inc. to Electronics & Silicon Furth-burners. In today's market, the words 'electronics' and 'silicon' are worth 15 times earnings. However, the real play in this stock comes from the word 'furth-burners,' which no one under stands. A word that no one understands entitles you to double your entire score."

Bitcoin is today’s furth-burner. No one understands it, and that’s why they love it.

6. “Number go up.”​

You don’t need me to tell you that “number go up” captures a central dynamic in financial markets. You can call it extrapolation, FOMO, or as I’ve previously suggested, The Iron Law of Return-Chasing Flows: Money chases trailing returns.

Number Go Up is the title of Zeke Faux’s excellent book on the rise and fall of crypto through 2023. Unfortunately, he must now write a sequel, Number Go Up Again.

7. “This time is different.”​

Here’s the full quotation from Sir John Templeton:

The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.

Of course, it’s true that the market today actually is different; every market is at least partly different from prior history. Wisdom comes from perceiving the underlying general pattern as distinct from the unimportant differences.

Charles Mackay wrote the lurid bestseller Extraordinary Popular Delusions and the Madness of Crowds, which discussed many historical bubbles. Despite publishing his book in 1841 decrying bubbles, in 1845 Mackay himself was caught up in the British railway bubble and advocated buying shares.

Here’s Mackay, at the peak, denying that the bubble was a bubble, as described in Harford (2023):

We think that those who sound the alarm of an approaching railway crisis have somewhat exaggerated the danger … It may appear wise to the careless or to the ignorant to trace resemblances … Those, however, who look more deeply into the matter and think for themselves cannot discover sufficient resemblance of cause to anticipate a similarity of effect.

Translation: This time is different.



Full:https://www.nytimes.com/2025/01/08/business/bitcoin-crypto-company-treasury.html

David Einhorn and Active Investing:

Full:https://www.ft.com/content/260079a7-9b08-4dbd-909f-08c2407d1912

Blackrock and Millenium

Full:https://www.ft.com/content/f71333cb-c8f0-4db5-90aa-60cfb1b10a9e

On market breadth:

The S&P 500 fell -1.9% this week, closing at its lowest since the election. It's fallen in four of the past five weeks, pulling back a total of -4.3% on a closing basis. While the index remains comfortably above its 200-day moving average, more than half of its components are below their 200-DMAs for the first time since November 2023. Taking a more detailed look at the damage beneath the surface of the index, Grant points out: 11.4% are trending higher, above their 50-DMA and 200-DMA 37.2% are above their 200-DMA, but below their 50-DMA 46.8% are trending lower, below their 50-DMA and 200-DMA The Takeaway: Breadth continues to deteriorate beneath the surface of the S&P 500.

The January Effect:

Today's number is... 0.64%
The First Five Days indicator for 2025 showed a positive return of 0.64%.
Here’s the table:


Here’s a bonus table highlighting all the positive years:


The Takeaway: Since 1950, this indicator has been positive 48 times. When it is positive, it has an average yearly gain of 15.6%, which is above the average yearly return of the S&P 500. Of the 48 years with a positive First Five Days, 83% have concluded the year on a positive note.

Not bad if you ask me.

But next on the list from Stock Trader's Almanac is the January Barometer (January Percentage Change), which is considered the most important of the January Trifecta (Santa Claus Rally, First Five Days & January Barometer) and I can confirm that if the January Barometer is positive, it returns on average a massive 18.1% yearly gain. Of those positive Januarys, 90% have finished the rest of the year positive.

That's impressive!

As the saying goes…

"As January goes, so goes the rest of the Year."

Do you follow these seasonal indicators?



Just in case.



Banks:

The New Bank Trade​

STEVE STRAZZA
JANUARY 10, 2025
We were super bullish on banks in the back half of last year.

They were the ultimate Trump trade ahead of the election.

The SPDR Bank Index $KBE rallied 45% from its summer lows to its Q4 highs.

We wrote about the strong correlation between banks and Trump’s odds to win the election last year. That was the signal for almost all of 2024. If you called the election right, you nailed the bank trade.

And we did just that.

But today’s action in the banks looks a lot different than it did just a few months ago.

We no longer have election odds to trade on, and the market seems to have priced in all the potential deregulation gains… and then some.

SPDR Bank Index is down almost 17% from its December highs.

This has been a nasty corrective wave, and it is showing no signs of stopping. KBE is down over 3% today and is resolving lower from a bear flag.

But it is where this is happening that should draw concern from the bulls. Take a look at this KBE chart zoomed all the way out.

It’s a beautiful base, but it is failing. And it is failing at a major resistance zone marked by the financial crisis highs.
Let's zoom in on KBE now:

This short-term pattern resolution at a critical polarity zone puts us on lookout for a fast move to the downside.

And it’s no longer about Trump's election odds for the banks. That relationship has come and gone, and banks are back to trading in lock-step with the bond market.

I believe higher rates will continue to put a damper on bank performance. At least, that’s what the market is suggesting.

The index is breaking down from a multi-week coil today ahead of big bank earnings next week. Meanwhile, rates are ripping to new highs as treasuries break down.

The bottom line is if the 10yr yield sticks this breakout, it is hard to be bullish banks. When we look at the price charts, it tells the same story.

If we zoom all the way out, we are failing and falling back in the box.

If we zoom all the way in, we are resolving a bear flag lower.

And when we consider the intermarket picture, interest rates are confirming this price action.

It’s a new regime for the banks. The Trump pump has come and gone. Deregulation tailwinds are giving way to renewed balance sheet concerns.

Remember the bank runs and blow-ups from a few years back?

I am not saying we are going back there, but I do think we need to keep an open mind. We will learn a lot when this group starts reporting next week. I’ll be paying close attention and will report back soon.

Have a great weekend.

New one on me:



Off the boil for a while.

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Most rational market players probably agree that the markets are frothy, even in bubble territory. The problem with bubbles is that they go higher and for far longer than anyone who recognises the bubble, can stay sane. The bubble drives them insane and they bail out or worse, they go short.

The various bubbles are unsustainable. They will burst. It's just that it may be another 100% higher.

Who gets killed: Buy and hold who are late to the party. If you went long March 2009 or April 1982, you're probably going to be just fine.

The BTD players will get burned and burned quite badly.

Long only traders will struggle.

Those that can trade both long and short will do just fine assuming they have a robust method (edge).

The value in sampling all of these various and different opinions is that the 2000 top was actually seen by many. The 2008 top was called by hundreds. The point is: most (many) of these traders are in the markets every day. They may trade fundamentals, Quant, technicals, whatever, but when the top is in, many will see it pretty early.

In 2008 there was a definite catalyst that everyone was aware of: teaser rates reset.

This market has hidden drivers: passive flows, which are harder to track. Two catalysts (i) unemployment and therefore 401K contributions fall and (ii) passive flows as a % of market cap. cannot lift the market higher. Passive flows are the support for the BTD strategy.

It has also been suggested that passive flows can go from 'buy' to 'sell'. If that is the case, the ensuing bear market will collapse way below any rational number (defined as a P/E level).

The catalyst will again (as always with bubbles) reside within the macro.

jog on
duc