Hugo Martínez retweeted
We just published a terrific guest piece from my friend Weijian Shan. I think it is a must read for anyone looking to understand China’s advances in manufacturing.
research.gavekal.com/article…
The piece has no firewall and is open to everyone.
Incidentally, Weijian Shan wrote one of my favourite books; a book I had all four of my kids read. The book, OUT OF THE GOBI, details his growing up at the time of the cultural revolution. Hard to understand China today without understanding what the current generation of leaders went through in the late 1960s/early 1970s…
Please forward widely!
$COST - I'm long
Undefeated in November for the last 10 years.
Diamond pattern forming and the stock has been underperforming YTD despite the execution showing resilience with revenue growth & strong FCF
Thoughts, @SterlingRegent ?
x.com/hugocesar87/status/196…
as previously stated
Si quieres ganar dinero, empieza un culto.
Si quieres perder dinero, únete a un culto.
x.com/i/grok/share/0duZ8jXkU…
Comienza la rotación del mercado, $700.HK $TCEHY llegan a zona de resistencia.
Baja HK, sube SPX...?
i don't have a lot of time to listen to podcasts, so i built a little tool in python to turn audio into a transcript and then getting an AI tool (in this case Google Gemini) to give me a summary.
The central theme is that the current market is operating illogically, driven by structural forces rather than fundamental economic data.
Major topics included:
The "Summer of George" Market Environment: Characterized by low volume, volatility compression, and market moves that defy traditional logic, creating a "pain trade" for logically-positioned investors.
Hedge Funds and Structured Products: A massive, multi-trillion dollar increase in assets in hedge funds and structured products over the last few years is a primary driver of market dynamics. These institutions are largely positioned in a logical way that makes them vulnerable to squeezes in the current irrational market.
Volatility Suppression: The growth of structured products has led to a huge supply of volatility selling from major banks.
This creates a reflexive loop where low volatility begets even lower realized volatility, effectively "pinning" the major indices.
Macroeconomic Headwinds: The discussion emphasizes that the long-term interest rate is the single most important factor for asset valuation7. The historical success of passive 60/40 investing was a product of a 40-year decline in interest rates, a trend that is now reversing and presents a major long-term risk for markets.
Political Influence: The conversation touches on the Trump administration's efforts to influence the Federal Reserve and control market narratives to align with the political election cycle.
Market Outlook: Two primary paths forward are discussed for the market: a "blow-off top" or, more likely in the short-term, a "boil the frog" slow decline10.
Key Takeaways
Positioning Over Fundamentals: In the short term, the market is a "voting machine" where buyers and sellers matter more than logic.
The immense and correlated positioning of hedge funds and the volatility-selling from structured products are the dominant forces, not inflation data or other news.
The Pain Trade is On: The current rally is described as a "hedge fund squeeze". Because institutional investors are logically positioned for certain outcomes (e.g., shorting expensive stocks), the low-volume, volatility-dampened market is squeezing them, forcing them to buy back shorts and push the market higher, contrary to fundamentals.
Interest Rates Are a Long-Term Threat: The long-term (multi-year) outlook is described as "no bueno"15. Historically high valuations, combined with a new era of rising interest rates and stagflationary pressures from populism and protectionism, create a dangerous environment for asset prices over the next 5-10 years.
Volatility is Reflexive: The massive selling of volatility from banks hedging their structured products actively suppresses market movement. Low implied volatility is leading to low realized volatility, making it profitable to continue selling options, reinforcing the cycle.
How This Matters for the Coming Weeks (Trading Perspective)
Cem outlines a highly probable path for the market over the next one to three months, emphasizing that the current dynamics are unsustainable.
A "Window of Weakness" is Opening: The supportive flows from volatility compression that have pinned the market are expected to dissipate following the July or August options expirations.
A Slow Decline is the Most Likely Path: The most probable outcome is not a sudden, volatile crash, but a slow, "boiling the pot with the frog in it" decline.
This is because there isn't a catalyst for a major volatility event, and a slow bleed is more painful for the retail "buy the dip" crowd.
Projected Timeline & Magnitude:
Phase 1 (Next Month): A very slow decline of 2.5% to 5% into August.
Phase 2 (Into September): The decline could accelerate into September as volatility can expand again, leading to a potential 10% to 12.5% total drop from the peak over two months.
The Alternative Path: If this decline does not begin by mid-August and the market continues higher, the probability of a "blow-off top" into the end of the year increases significantly.
The next month or two are a critical fork in the road.
Trading Tips & Indicators to Watch
While the speaker refrains from giving exact entry or exit prices, he provides strategic insights and key indicators.
Strategy: The winning strategy this summer has been to "do the opposite" of what is logica.
However, the analysis suggests this regime is nearing an inflection point where the illogical squeeze resolves. The most likely path forward is a slow, low-volatility decline, making aggressive long positions risky.
No Specific Entries: The analysis focuses on predicting the market's path and the distribution of likely outcomes, not specific price levels for entry.
Indicators to Watch:
The 20-Day Moving Average: At the time of the discussion, the S&P 500 had closed above its 20-day moving average for 60 consecutive trading days.
This is seen as an unhealthy sign of a squeeze. A definitive break and close below this average would be a primary signal that the decline has begun.
Momentum Value Factor Ratio: This indicator is reportedly showing a major divergence ("jaws"), signaling significant pain and rotation happening under the market's surface, which has historically preceded market declines.
The Calendar: The period following the August options expiration is a key window. If markets have not started to decline by mid-to-late August, the thesis of a slow decline becomes less likely
