🗞 Time to Call Bullsh*t

WHILE YOU POUR THE JOE… ☕️

I still remember those who burned us for going short housing back in October of last year… 🐻 

Then $XHB, $PHM, $LEN and others ended up more than doubling our investment in a multi-quarter play for reasons we’ve posted in previous newsletters.

Well, the data has gotten worse as finally all the fraudulent real estate activity seems to be coming to light.

And that’s not all.

It seems pretty much all data is deteriorating in real time, but I’m not sure if the markets will react accordingly, maybe this time is actually different.

Speaking of different, let’s get on with today’s email 📧…

CONTRARIAN BETTORS
Crowded Markets

We’ve pointed to this indicator in the past, but the commitment of traders report is now swinging in a completely new direction.

To recap, there are two main components to these CTA (futures) participants, those are:

1. Non-Commercials: Think of hedge funds, individual large speculators, and some other entities.

2. Commercials: These are your banks and prime brokers, essentially those who control most of the flow.

This is what stood out to me, looking at the trend over the past couple of months.

Commercials are now the longest they have been in 2025, and have not unwound much of their positions lately. 📈 

On the other hand,

Non-commercials are now the shortest they’ve been all year, and if you look at March 2025 (right before the Liberation Day selloff) history often shows that these speculators are often wrong.

Sticky Inflation is Good?

So CPI and PCE have come out for this month, but let’s focus on PCE for now since that’s what the Fed prefers…

As you can see, data is pretty mixed up right now, since we can’t seem to get a grip on that 0.2% monthly inflation rate to bring the annualized down to where the Fed may feel comfortable with taking action. ✅ 

But,

I believe there is a good reason for inflation to be sticky, one that may be driving all of this Commercial buying into S&P 500 futures right now.

• Wage inflation is going up, as workers now demand higher pay since migration has pretty much stopped, increasing labor-intensive costs.

• This is a good thing because if businesses pay more, they will have to find ways to increase efficiency.

Enter America’s AI Action Plan, a bill which I think is intended to make this an easier transition for businesses moving forward, while also rewarding the common man.

I know this all sounds a bit speculative, but why else would these CTAs be buying so much of the S&P 500 if the data looks as atrocious as it does? 🤖 

Borderline Speculation?

If you read our last newsletter, then you know I am actively thinking of where else to invest my money, with Chinese stocks taking the cake as far as being undervalued.

But we’re not here as investors, rather as traders.

So let me leave you with this:

• The Gold / Copper Z-score you see above is now trading at a massive deviation, and this one is 95% mean reverting.

• In other words, we may enter into a huge copper rally and gold pullback.

Whether that rotation is driven by China or the US I am not entirely sure, but it does sound like a bullish implication in either case.

We also have one of the best gauges for the US economy and its outlook. 👀 

The spread between $IVE (value stocks) and $IVW (growth stocks) is now at the lowest it’s been in decades, completely ignoring its mean-reverting nature.

Usually, this would mean an aggressive oil rally, indicating we should see oil go up to the $80s if not more.

Yet, that’s not happening.

Have correlation regimes suddenly changed or are we entering into an entirely different environment? ⬇️ 

I think this time around, oil is not rallying despite an implication for an economic boom because of what’s happening in the dollar right now.

If you’re one of our OG subscribers, then you remember our short dollar trade from back in November 2024. 💶 

That trade has paid off, and now we expect a massive rotation to take place in the coming quarters, which I think is another implication of a bull cycle in the economy which indirectly is also keeping oil lower despite the $IVE / $IVW breakdown.

That being said,

One of the main areas of the economy to benefit from a rising dollar is of course consumer cyclical names, but you already know that from this newsletter breakdown of a long/short equity strategy.

The other, more important area?

That’s for next week’s post when we have some PMI data rolled out.

For now, I want you focused on THIS:

For the first time since 2016, investors have now started to invest back into Long/Short Equity hedge funds.

Up to $10 billion so far into 2025.

What this means for you is that while there are a lot of reasons to keep the party going, the cops are right around the block, and savvy investors know this.

If you’ve only been in the market during 2019-2025, the next decade is going to look a whole lot different.

It’s going to be a hedger’s market.

Sadly most have no idea how to hedge their book or even how to short a stock…

That ends here ◀️ 

To your success,

G 🫰 

GO AND MAKE IT HAPPEN
Baby Steps

Does the thought of not knowing how to hedge scare you?

It should.

But don’t worry, we’ve started a new YouTube series to cover just that, exactly the step by step on how to create a long/short equity idea.

Don’t take my word for it, I stole this methodology from my time at Goldman Sachs.

Enjoy ⬇️ 

To your success,

G. 🥃