Macro Report/Insights: Steady

Views being confirmed

One of the fascinating things about markets is that everyone has their own view of how things will play out and their own timeframe. On top of that, everyone is trying to convince you that their way of analyzing the world and their specific prediction of the future is the only one that can be correct.

This can be good and bad depending on the situation.

One of the things I have learned in markets is that you need the confidence to believe you are right but the humility to accept you could be wrong.

When I put on a trade that is extracting alpha, I am explicitly saying that the person selling to me is wrong. Sometimes people just have different time horizons but we can usually differentiate these to a certain extent.

The question is, how do I have a proper informational feedback mechanism to TRULY KNOW if my confidence is well founded or rooted in delusional arrogance? Well, a lot of this comes back to P&L and how often your view is right. However, the one thing I always think about is HOW my macro view is lining up with my trading time horizon.

If you can match your timing with your macro view then the informational feedback mechanism to confirm or falsify the validity of your ideas will be much clearer. Any time I run a large leveraged macro trade, I know exactly when I am right and when I am wrong. There is ZERO grey area.

I think it is really important to spend time thinking about these ideas because they are the intangibles that are the determining factors between mildly successful and wildly successful. Myself and Jaymes recently had a conversation touching on these intangibles and I would encourage everyone to check it out: Link

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Alright! Let’s shift to some macro ideas!

The YC:

There is this idea out there that as soon as the yield curve begins to steepen, equities ALWAYS sell-off. Not really the case!

A lot of it depends on the TYPE of steepening! The steepening we have seen recently has been driven by interest rates on the long end moving up as opposed to interest rates on the short end being cut by the Fed.

This is a key distinction because the yield curve CAN set the preconditions for a recession but it is not fundamentally a predictor of recession. The yield curve isn’t a timing tool either. It is obviously a key signal but you need to make the right implications from the signal as opposed to extrapolating it to everything.

I laid out my views on how I see price action playing out this week here:

So far, price action is occurring in confluence with my views. However, as I said, a lot of this week is preparation for CPI. Don’t be fooled. We are already seeing the preparation for the CPI print with implied vol spiking across the term structure (btw t1alpha recently did an exceptional interview that you should check out: link):

Big picture, we continue to see inflation as the dominant impulse driving price action in markets.

As I mentioned in this video, keep an eye on the VIX, VVIX, and a bear steepening in the YC:

Here is a chart of VVIX and the YC:

Remember, markets are about being an intellectual athlete. Don’t lose sight of the big picture. Performance is a result of who you are and who you’re refining yourself to be:

Thanks for reading!