The Week Ahead
Good morning all,
I hope everyone had a lovely weekend. After an action-packed week last week, markets are relatively quiet this morning. Last week was an excellent week for core positions. I trimmed 20yr and dumped SOXL for a profit. Core equity longs (META and AAPL) continue to perform well, and even DIS was green for the week. The oil risk reversal opened up at the recent lows and continues to perform; this has not been trimmed at all yet.
I finally crossed 11,000 subscribers over the weekend, so cheers to that.
There is much to touch base on, so we shall begin with my thoughts on the negativity surrounding AAPL… There are many comments on shorter lead times, which many are trying to claim is due to weaker demand. Before the iPhone 16 launch, if you recall, Nikkei headlines claimed that AAPL had ordered more parts and components for the recent launch. Still, regardless of this, we don’t even have an accurate picture of Apple's inventory, so any “lower demand” claims are purely speculation. Perhaps the iPhone 16 pro launch was not the super-cycle news we expected; we did not even see a price increase. However, Apple Intelligence being on all new iPhone 16 models still provides an opportunity for AAPL to create an AI consumer boom, being at the forefront of getting AI (quite literally) into people’s hands and creating a multi-year upgrade cycle.
For this year, my price target for AAPL remains $250 and a 52w PT of $280.
Commodities
Oil positioning remains extremely pessimistic, so I continue to hold the oil risk reversal. I expect further upside with continued geopolitical risks and a cover bid right around the corner. The main downside risk for oil is a Trump victory due to 1) his focus on US oil production, 2) tariffs, and 3) speculation that a Trump victory could lead to a ceasefire in Ukraine.
I am not a fan of gold, but it is difficult to ignore it continuously, making fresh highs regularly. I expect rate cuts to elongate gold's upward trend and see it heading higher into year-end.
I think the cleanest way to trade upside is via call spreads…
Trade Idea
GC 26Dec24 2700/2800 Call Spread costs 29.5
This section is a small excerpt from
- Mind The Tape. A new Substack writer, an ex-professional poker player who decided traditional gambling had become too predictable.Powell Presser
"Intuitively, most — many, many people anyway — would say we are probably not going back to that era where there were trillions of dollars of sovereign bonds trading at negative rates, long-term bonds trading at negative rates. My own sense is that we are not going back to that.”
This quote stood out in the Powell Presser. It’s one of many quotes in which Powell tried to counter the idea that we are returning to the era of free money. That led plenty of commentators to describe the Fed’s move as a “hawkish 50bps,” which, as put so succinctly today, doesn’t exist.
Powell’s protestations remind me of a situation that comes up when you’re dating a girl. When you’re on a date, and the girl tells you, “I don’t sleep with guys on the first date,” a young man will think, “damn, I guess I’m not getting any tonight,” whereas an experienced guy will realize that his chances just went up. The fact that she’s talking about it at all increased the odds and the more you can get her to talk about it, the better.
My read on Powell is the same. The more he gets out there and tells us how we aren’t going to maintain this pace of cutting, the more he talks about how we aren’t going back to the era of free money, the more likely it is we head there in a hurry.
Partly, this is just a matter of conditional probability. He is only talking about it because it is looming ever closer.
There is also some market psychology involved. The more he says it, the less inflation expectations are entrenched, and the more likely he is to be able to do it eventually.
We need interest rates to get low before people freak out about the fiscal situation. That “people freak out about the fiscal situation” is an ever-looming concern over the head of the Fed and the Treasury.
The tougher Powell talks, the looser he can be.
Pun intended.
FX
I have decided to clear up my FX positions bar USD/CAD (shared in TWA a few weeks ago). Although I think DXY should see a bid down here, further depreciation of the greenback may occur if the labour market continues to deteriorate. Until I have more clarity, I will sit from the sidelines and watch. The fact the Fed cut 50bps, and the BoE held shows that maybe the BoE is quite happy following their own script; this should support sterling and further upside is probable.
I remain long USD/CAD as I anticipate the BoC will maintain a more dovish stance than other G10 central banks. Canada's economic
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