by ephyfish
Ok. First things first. I have a masters in finance and was an econ professor for five years. I do have some idea what I’m talking about. However:
- Timing is always impossible. I know there have been several prophets on here who proclaimed the end of times, only to make fools of themselves. I have suspicions about when the crash is coming, but won’t claim I know with any certainty.
- Macroeconomics and our current financial system are so, so, fucking complicated that NOBODY really understands them perfectly. You can listen to two legitimately genius dudes on macro podcasts who are saying precisely opposite things. So – you can have a hunch. I do. But at the end of the day, NOBODY knows anything.
Ok then. That being said. Here’s one thing I feel pretty strongly about in all markets: there are no easy fixes; the rubber always meets the road, eventually.
So what’s fueling this insane stock rally? Obviously it’s the Fed. It’s the Fed pumping money like crazy. And what will pop this bubble? When printing money itself starts hurting the situation, rather than helping it.
Exhibit one: The dollar index over the past six months.
The dollar index, ($DXY) measures the strength of the dollar against a few other currencies. Specifically:
- Euro (EUR), 57.6% weight
- Japanese yen (JPY) 13.6% weight
- Pound sterling (GBP), 11.9% weight
- Canadian dollar (CAD), 9.1% weight
- Swedish krona (SEK), 4.2% weight
- Swiss franc (CHF) 3.6% weight
The dollar has been gradually weakening since April, and yesterday it absolutely nose-dived. Why? Some say the past months dip has been because the dollar is where people run to in times of crisis, and now that the crisis is passing, they don’t need dollars as much anymore. Yesterday’s dip in particular was attributed to the EuroZone passing a stimulus, giving investors faith that the Euro zone will remain unified and strong (there were rumors of it potentially breaking apart).
Honestly, I don’t know why the dollar has been tanking for three months (I have guesses, that’s all), and anybody who tells you they do know is a lying sack of shit. And maybe the reason it’s been tanking is less important than what the narrative around it will be, if it drops much further. You probably guessed it. What’s everyone gonna be saying?
The Fed is printing too much money. They’re inflating the shit out of the dollar!
Again, whether that’s true or not doesn’t really matter, because if that’s the narrative, the further devaluation of the dollar becomes a self-fulfilling prophecy: other countries don’t want to hold dollars anymore because they’ll lose their value. More sellers of dollars = $DXY drops even further, etc, etc.
And now you’re JPow watching $DXY drop down past 93, and you’re starting to shit your pants. Because the rubber is meeting the road. The Fed wants modest inflation (2-3%) because it will make their debt worth less. But at the end of the day, absolutely nothing scarier than hyperinflation. That’s the nightmare scenario.
And you know hyperinflation sneaks up on you. You have to be fucking vigilant. Not only do you have to stop printing, you might have to RAISE interest rates to avoid inflation getting out of control.
But again, it ultimately doesn’t even matter if JPow changes his colors or not, what matters is the narrative that he’s going to have to stop printing.
The market might already be sensing this… while Gold has been shooting up nicely and consistently, Silver has been fucking killing it the past two days. Maybe this ^ is why.
Positions: As I said at the beginning, even if I was 100% sure things were gonna go down like this, I’m wary of trying to time it. I have IWM and SPY puts for November, and GLD and SLV calls, for times between September and January 2022.
Note: Even if this is totally wrong, I’m think there are other factors that will rain hellfire down on the market by November. Second wave in New York + Uncertainty around elections –> both of these could actually cause the above cycle to start. Dollar strength is about faith in the US government. Remember that if Biden wins, Trump is still president for another two months. Those two months, where we’re not sure if he’s even going to leave office willingly or not, could be enough to shake $DXY down and start this thing off.
Not financial advice.
TL;DR November SPY $280 and IWM $120 , SLV and GLD leaps
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.