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#209: Time for a Short Recap

#209: Time for a Short Recap

micksonmatch
January 13, 2025

It is great to be back writing again. 2025 promises to be a major year in global markets.

As I wasn’t writing for the past 2 weeks, I have used the time to write software in a more relaxed frame of mind. I think many will find what I have built useful; I had hoped to finish this project last week and write about it in a blog. I completed the project at 9 pm last night, at least so I thought. While reviewing my work, I realised an important piece was missing. Many performance-related software programmes lack this functionality, and so was I; to me, that makes it WRONG. I will share as soon as I have incorporated the missing feature.

S2N Spotlight

Over the next few letters, I will be building my big-picture macro views per asset class for the year(s) ahead. Before we look at the future, we need to look at the immediate past. Long-time readers will know I look at everything with the lens of risk versus return. Looking at the headline number alone is gambling or simply foolish, as it doesn’t provide you with a complete picture. It is kind of like looking at someone’s Instagram feed, all the highlights, none of the normal and shitty stuff.

I have sorted the asset classes by the headline return for 2024 and show the max drawdown for the year with a red dot. I have used the Total Return (TR) for bonds, the commodity index, and the S&P 500, as it provides a more accurate view. There is no denying it; the standout for 2024 of all the major asset classes was Bitcoin, both from a return and from a risk-adjusted return point of view. Did I just call Bitcoin a major asset class? Wow, things have moved fast. Gold & US stocks performed strongly, as did the US dollar.

The US stocks were all pretty familiar with enjoyed spectacular returns with Tesla and MicroStrategy, the only 2 stocks that had drawdowns bigger than 40%. I have spoken at length that I think MicroStrategy is hopelessly overvalued, and being short MSTR and long BTCUSD was and still is a high-probability winning trade. Tesla is hopelessly overvalued. Not sure why Zuckerberg absolutely dumped on Apple during his 3-hour podcast with Joe Rogan. All these “tough” guys new to MMA seem to have brought a lot more alpha to the boardroom. I love it; it makes things spicy even though it felt tacky. I prefer letting actions speak instead of words. Reminds me of a great quote by Benjamin Franklin: “Well done is better than well said.”

S2N Observations

I think the biggest story in financial markets at the moment is the bond market. The price action of the long end of the curve, 10 years plus, is foretelling a lot about inflation expectations. The shape of the US yield curve has changed quite dramatically over the last month. It is normalising in an abnormal world; the current steepness of the curve has a long way to go before it is back to normal levels. This can happen by short-term yields dropping further or long-term yields going up, or a combination of both. Who am I to comment on normal? My family thinks I am a fruitloop.

The Chinese 10-year is very interesting. Yields have been dropping dramatically. implying impending deflation. We will be talking a lot about China throughout the year.

It seems the Chinese yield curve wants to do what the US did for a record period, i.e., invert.

If you look at the US vs. China 10-year bond yields, we are witnessing a new form of trade war. The carry trade is starting to look really interesting. The FBI Director, Christopher Wray, said on 60 Minutes that China’s state-run cyber program has stolen more personal and corporate data from the US than all other nations combined.

Trump vs. Xi is going to be more brutal than the Power Slap League.