🗞 Let's Go for Coffee (Wake Up Call)

WHILE YOU POUR THE JOE… ☕️

If you’ve been with us for a while, then you’re probably happy about Alibaba crossing $150 per share. 📈 

Especially since we gave it out when it traded in the $80s.

And it isn’t done yet.

I do think, however, that there’s a broader reason why China and other emerging markets have been outperforming the S&P 500 index recently.

It’s because most fundamentals in G7 economies are breaking down in real time, and that is both one of the biggest risks and opportunities you will face this cycle.

I am here to guide you to the best of my ability through this risky time.

In fact, I have done quite well if you look back.

Time and time again, we’ve beaten the S&P 500 on a monthly and quarterly basis through ETF picks and other long/short setups.

But the truth is, I can’t cover it all at once, which is where your own work ethic will be tested.

However, there’s one issue.

No amount of effort will make you a better trader/investor if you have no tools at your disposal. 🤷‍♂️ 

So here I am giving you our flagship program The Sovereign Trader boiled down into a free 5-day email crash course.

Sign up for your first lesson here ✅ 

Speaking of G7 Countries breaking down, let’s get on with today’s email 📧…

STRATEGY TIME
Emergency Meeting

911,000 jobs vanished during the last revision by the BLS. 📉 

That’s the most dramatic revision in history, and it means the labor situation in the economy is worse than everyone thought.

So today, being a Saturday, I won’t give you any trade setups, but rather give you something to think about as we move forward in this touchy market.

Starting with what I call the “Big Rotation” ⬇️ 

We all know that the semiconductor and AI wave has driven the S&P 500 to new all-time highs.

But

The $RSP equal-weight S&P 500 is now the furthest it has been from the traditional S&P since 2022, which is arguably when the recession started.

With a gap of over 13%, this places the ratio between the two at flashing red, meaning a rotation is imminent at this point.

Which means:

• Deflation out of the top names like $NVDA

Or

• Inflation from the other 493 names in the US economy

I think we’re more likely to see scenario #1 here for a few reasons. And even if I’m wrong, the recommendation is still to be long-biased on Mid-Caps with a long/short strategy.

That consistently outperforms during big rotations like these.

Now we all know that the Fed is set to cut rates this September, with a 92.5% chance of 25bps.

I think that’s a colossal mistake, since the economy does NOT need a rate cut right now, especially with inflation running the way it currently is.

What we have is a productivity and labor issue, and cutting rates is not going to help this situation (contrary to history).

The reason is that the most jobs lost are in areas that have nothing to do with interest rates, but actual labor supply ⬇️ 

Construction, Manufacturing, and Government.

You may already be thinking of a few reasons why these jobs are vanishing in real time, but let me tell you mine in case we’re a bit off:

• Immigration crackdown

• Tariff backlash

• Big Beautiful Bill

Yep, with immigrant labor exiting the chat, construction is going to have a hard time taking on new projects.

For manufacturing, some of the immigrant labor has a net effect, but I think the bigger factor here is the tariff backlash from foreign buyers.

Even with a weaker dollar, we are not seeing the uptick in export orders that the US was expecting, which you can see inside the PMI indexes.

By the way, this is when you should be filling in the blanks on your macro checklist to come up with your initial bias. 👀 

A bias that you then take into your industry selection process to help you hone in on the best stocks to buy and short, respectively.

It’s not easy, but it’s simple when you have a process and someone to guide you through it.

90% of the work involves identifying biases and creating watchlists, while the rest is simply executing the trade.

And that’s what you can do for yourself in six months’ time by taking our flagship program The Sovereign Trader ✅ 

So what happens if the Fed ends up cutting?

The most reasonable scenario would be a “melt-up” in asset prices as inflation could be set to come back fiercer than ever.

Which would be fine, except…

Corporate risk premiums (in white) are now at the widest they’ve been since October 2024, and deviated from the S&P 500 index the most since COVID.

In other words,

Markets are telling you stocks are the most risky they’ve been since the economy literally shut down. 🐻 

That is why you see stocks and gold move together, as you can note their one-year correlations shoot up to levels not seen since that October 2024.

To me that means risk upon risk, both of complacent stock valuations and rampant inflation to come.

And that theme is only going to accelerate on Fed cuts, think about it:

• Stocks go up along with gold and real estate

• Affluent consumers keep spending more aggressively

• Inflation doesn’t go away

And no, jobs will not be created, since rate cuts have NOTHING to do with immigration crackdowns and tariffs.

It is a question of policy at this point. 🎯 

So, the best thing you can do right now is to:

• Un-correlate yourself from the S&P 500 because it will get crazy

And

• Make sure you keep the volatility of your portfolio in check, because the VIX is surely going to reach drinking age

Quick Tip

Let me give you an example of what I just said from J’s portfolio (if you’re reading this, you’re a G):

By holding a combination of some Chinese tech, European consumer and American consumer stocks, it turns out his portfolio was pretty uncorrelated by default.

Though even he admitted this was pure luck and he had no idea.

The benefit here is that an uncorrelated portfolio can cover your butt in case the market decides to go crazy, and also uncovers some of our macro biases.

Such as knowing that EU and China are doing business now more than ever (hence the high EL and BIDU correlations).

Anyay, here’s how this ACTUALLY benefits you:

With a handful of stocks, J had nearly halved the inherent volatility in each combined asset. 👏

From 25.5% down to 14.95% on a portfolio basis, while retaining the same return profile.

If I lost you there, don’t worry, here’s the real on what I just said: ⬇️

Long/Short strategies eliminate risk while still providing the full payout.

It’s the one thing that I will never forget from working at Goldman Sachs.

You could be running portfolios like these and forget about what the market may do next.

Get started here, apply for the Sovereign Trader Program ✅

Hopefully, this wake-up call sits well with your morning coffee.

If not, then you have all weekend to prepare before things get out of control, and that is exactly what you should be doing in this market.

To your success,

G 🫰 

GO AND MAKE IT HAPPEN
Together With Augur

We love visuals, who doesn’t?

Putting together financial data in a way that’s digestible and impactful can take an unnecessary amount of time if you do it the old way.

Which is Excel.

Why not cut out the middleman and use the thousands of charts and visualizations made by our friends at Augur Infinity?

Free, quick, useful. ⬇️ 

To your success,

G. 🥃