Macro Dragon WK 48: Limitless Upside Part II...

Macro Dragon WK 48: Limitless Upside Part II 

Top of Mind…

• Happy & gratitude filled Monday from the Asia Pacific, welcome to WK #48
  
  
• Was a super snoozy wkd in the KVP household, given intensity of a stunning previous wk & one hell of a Fri late afternoon/evening – there is nothing like sharing time with great company & beautiful spirits
  
  
• Its really all about the Space Between…
  
  
• And interestingly enough, that’s the same for trading & finding exceptional opportunities…
  
  
• Last wk’s #47 Monday piece was Macro Dragon: Limitless Upside!, so the Limitless Upside II this wk tells you that a lot of the skews & view we were discussing last wk, not only played out very well (likes of Platinum, Oil, Energy, RUB, MXN, Equities, etc), yet are still very much on point – both for the tactical/trading portions of one’s capital, as well as for the strategic/investing side

Potential Tailwinds to Risk-Assets

• Cannot emphasize this enough, getting on the other side of the two known unknows:
  
  

  1. Who the new POTUS will be… All Hail Biden

  2. Vaccine announcements…

  Is a hugely constructive & positive big thing – don’t mistake these for run of the mill weekly events, as they are not – they are most likely turning points for a lot of things & those Nov 4 (post election date) & more importantly Nov 9 (Pfizer/BioNTech) announcement are key reference dates for using lows & highs to set up your respective trade views – be they bearish or bullish
  
  

• Charts, technicals & price action are very bullish… KVP came across so many bullish breakouts & potentially bullish breakouts, that it will be too many to go over all of them. Here are a few that look interesting, some we have flagged before & are at higher lvls with the upside still looking intact.
  
  
  • Number of CMDs breaking out higher including Aluminum, Cocoa & the soybean complex. Oil also looking pretty hot, above a number of key moving averages.
    
    
  • Also is that a cup & handle on nickel, some OTM/atm nickel calls? And iron ore looking like there is some demand – North Asia, jugging along China & they could not care about the lock-downs, continued outbreaks of C19 in Europe & US
    
    
  • On currencies, it’s a dollar walking dead story… DXY still suggests there is some support yet look at the BBDXY & you can see the break is much cleaners.
    
    
  • We got the Turkish central bank delivering on its +475bp last wk, taking its rate their to 15%, implying the one month annualized fwd carry to be well above that. And potentially sending an opportunity bell to a number of other EM markets that have lagged like Russia & Brazil (USDRUB shorts, BRLUSD longs great price action & close last wk)
    
    
  • BRLUSD still taking its time… yet the more the rest of the EM complex rallies, including cmds, the greater the upside gamma build up in BRL… we are gonna walk in one day on the Dragon & scream Braaaaaaaaaaaaaaaaaaaaaaaaaaazil as BRLUSD does +250%... ok ok ok… so its not Bitcoin… +3% to +5% days still coming on this cross & yes, we got ze futures & NDFs. A +15% move from these 0.1860 lvls, would only take us to clawing back half of the depreciation this year. Now wouldn’t that be funny if “The Rio Trade” is actually a Rio Trade! :)
    
    
  •  Speaking on Bitcoin, every wk is bringing news highs, as we barely kissed $19K… we are back to $18400 lvls & are almost certainly to break $19K this wk as we aim for the ‘real’ lvl of $20K.
    
    
  • Check out the piece on this from last wk… For last wk we did +14% at 15,589. Bitcoin is now for 7 straight wks, we’ve done c. +80% in 8wks. And yep… just wait for it… check out the google search for bitcoin compared to 2017, there is no hype & hysteria in this run-up, that is anywhere close to 2017.
    
    

  Macro Dragon: Bullish on Bitcoin? All About $20,000... Yet We Ain't Seen Nothing Yet...

  • And on G10, NZD & AUD still leading the pack… Euro crosses looking strong as does NOK (expect RUB to play serious catch-up) & day-in/day-out sterling just grinds higher… we are now above 1.33 on cable (granted likely more a USD story), yet EURGBP is now lower two wks in a row at 0.89245 -0.53% last wk, so likely to take out 89c & aim for 88c this wk.
    
    
  • Brexit updates could be this or next wk, if we are to have a ratified agreement by year end. KVP thinks there is a killing to be made here post event, if you are on point to catch the move.
    
    
• Also really liking precious metals – end of the day USD is collapsing (see the EM index) & yields have tightened back, yet gold & silver are still at the low end of their trading ranges, suggesting a +$30-50 pop on gold from these c. $1870 lvls (low we got to was c. $1850) & similar move higher in silver… been two decent wks of basing.
  
  
• Yet platinum feels like the one… we flagged it last Mon at c. $907 & for the wk, it closed up +6.8% at 957… all about +$1000 for first clip (worth noting Ole has talked about the lack of supply be a structural issue in the platinum space, which similar to silver has industrial uses). Also good sign of strength to have such a strong wk, when gold -1.0% 1870 & silver -2.0% 24.18 were lagging
  
  
• Energy? Again – been on this for wks, even before the elections… super bullish tactically & strategically. Remember 2021 consensus views will be long EM, long CMD & very long energy, plus short USD. The “easy” move is to year’s end & early next year. Next big catalysts are likely the rolling out of the vaccine (talks of already some folks in the US getting it mid-December) & of course next stimulative|relief actions from the Fed & Congress.
  
  
• The amazing thing is oil is still down -32% to 30% for the year & the likes of XLE is still down -40% YTD. Energy is the levered play on vaccines, the world opening back up, EM, value over growth & under positioned (contrarian) vs. over positioned (consensus).

Potential Headwinds to Risk-Assets

• Looks like Powell & Mnuchin are drifting apart, as the US Treasury asks for some unused money to be sent back to congress, as well as instructs the Fed to let a number of facilities expire into year-end – that were being predominantly untapped. The facilities that have been utilized have been extended for another 90days. Whilst we are talking about $450bn going back, it seems largely political (Trump “burn it all down on the way out, to making it as complicated & hard as possible for the next administration”?! ) – end of the day, it once again places more pressure on the Fed. And yes, it once again raises the probability of both speed & magnitude towards YCC & negative rates - which as you know is very much the Dragon's skew.
  
  

  The Fed has answered the Treasury letter, stating that they feel its immature & things are still fragile. There is something here to be said about Henk Paulson’s (“Bazooka in the pocket”), i.e. does the Fed’s jawboning stand as much, as it did, if the market knows they have $450bn less, as well as less facilities to express price stability through? Bears watching, yet for now… its merely a smashed bug in the Dragon’s Bullish Windshield, lets rev this Lambo up!

  This obviously makes the Fed Dec 16 meeting, that much more interesting & in potential play. Also worth noting that’s two days after the Dec 14^th, when we should have all states having certified on their election results by their electors.
  
  

• EU vs. Poland + Hungary over rule of law – there is a key blockage here that is linked to the EU +$2 trillion Budget with Dec 11-12 being crucial voting date. Long & Short of IT, Poland & Hungary don’t want to sign, because they don’t want to be held accountable for moving away from democracy, as they have done over the last few years. KVP does not understand the nuts & bolts, yet its hard to see how the EU can allow them to continue to flaunt the democratic principles of the Union whilst still being huge beneficiaries of the EU budget. What also seems astonishing is none of this seem priced into HUF & PLN assets – KVP smells a potential big trade here & some work worth doing… any thoughts & trade views welcomed… as he will not have time to dig into this, this wk
  
  
• Continued Covid-19 spikes & likely more lock-down restrictions in Europe & the US to be seen this wk, these could be new or extensions of restrictions in place. Its worth noting the deaths are way lower than they were during the very first wave. For now though, unless we have an exponential uptick in deaths & infected… this has become less of an issue for the markets… particularly with vaccines on the radar from Pfzier/Biontech, Moderna & waiting to hear from the likes of AstraZeneca. Also would love someone to explain why these firms are not breaking out to all-time new highs?! Think on one of our daily market calls, it was being flagged that in the case of Biontech, something like +3x of there FCF was going up over this in the next 1-2yrs.
  
  

Rest of the Week

• Rest of the wk will have a flash PMIs flavor across the board, with likely key things to watch economic wise being on latest US GDP reading, Durable goods, CORE PCE, as well as Fed minutes (0300 Thu SGT).
  
  
• Its worth noting it’s a Thanksgiving Wkd in the US, with Thu a holiday & folks normally already clearing out on Weds to bridge the wkd. So liquidity & US mkts price direction could fall to the side until early next wk. And yes, one can imagine interest in Bitcoin will spike post-Thanksgiving wkd.
  
  
• From central bank perspective, on BoK to watch out for, from major markets. There is the usual chirps from Fed speakers, Lagarde on point at least twice, as well as BoC’s Gravelle & RBNZ’s Orr also due to speak.
  
  
• Keep Brexit developments on your radar & the sterling crosses close to your chest… its coming.

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