DK

@dkcrypto13

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30 Followers

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Positioning is just the main driver of assets near-term (3-6 months). So it is always the immediate effect and matters more than any data or valuation. Yeah. So that is my view of the current situation. Opinion only, not advice. Probably wrong, too.

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2yr+ from here, investors will get more and more worried about the world’s unsustainable debt and $BTC and Gold will strongly benefit from this. 2yr+ from here, good crypto projects that bring in or enable others ( $ETH wink wink) to generate revenues will do well.

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Of course, one data point is never decisive and all of this is very short term. 2yr+ from here, the best firms in the world will continue to rise in value, because they do well. And those in tech are a great investment just like those outside of it.

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After the positioning shift is done, poor (but not horrific) labor data will not change much. The Fed will cut and net/net markets likely rise over time as they always do and crypto/tech would to well. If a slowdown is accompanied by inflation then this Bull market is done.

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As it would be an economic one and not a crisis driven one, the Fed will not act fast and increase liquidity fast enough for risk assets to stay elevated. That is why I keep watching inflation more than labor data.

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Tomorrow we get inflation data in the US. This one has re-newed importance because risks are skewed. If this data is meaningfully worse than expected, the Fed will be slower to act and we will almost certainly head for a stronger downturn.

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The likelihood of that is hard to gauge. Short term, China is exporting deflation. Medium term both Harris (bad) & Trump (really horrific) policies are likely to be inflation-inducing,labor shortages will grow in traditional industries. AI counteracts a lot of that. Will be tight

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The biggest risk to my current likeliest scenario (“Positioning Changes conclude this quarter,Q4 & Q1 are good,sometimes great periods”) is a return of inflation. That would cause people to talk about “Stagflation” & cause a re-newed positioning change. Crypto & Tech would suffer

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Crypto is squarely in the “tech” bucket at the moment. Falling interest rates should benefit the sector strongly, but only after people have built down their excess positioning from ETF hype and when it is clear rates will actually fall sustainably without a huge economic slump.

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People have adjusted their books to “mild recession in the US with no large inflation issues” in this move. If data points that way, typical market forces (markets always want to go up, there is more liquidity over time etc) will resume. Possibly with a tilt to tech & small caps.

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Again, changes in positioning take 6-8 weeks in my experience so this probably lasts till +/- end of the month. A large part of it has already taken place. In order to understand what happens then,the question is if new data is bad/good enough to cause a new shift in positioning

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Now this positioning was faced with economic data that went from “growth without inflation” (= goldilocks) to “wait we may have a slowdown and inflation is still lingering a bit”. That caused portfolio managers to adjust their books a bit & they can only sell what they own (tech)

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The best example is, of course, $NVDA. They reported better than expected earnings across the board and better than expected outlook that saw everything rise c 100% annualized. But the stock is down. Why? Everyone already owns it 🤷🏻‍♂️. This is true to a lesser degree for most tech.

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Second imbalance is opposite to November 22, when everyone was thinking tech stocks will die and “value” would rule the decade. Got into a few X fights then when I said $GOOGL & $AMZN below $100 were steals. Now all c 50-75% higher and magnificent 7 are every fund’s top holdings.

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Most positioning moves take 6-8 weeks in my experience and this one was very entrenched. So it may take longer. If it continues orderly it is not a problem but it causes insecurity and it acts an accelerant to any independent move in markets as unwinders need to sell collateral.

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When it became clear the Fed would lower rates and Japan would raise them for the first time in 15+ years, the trade began to unwind. This caused the mini crash at the beginning of August. That was the most levered participants panic selling. Now the unwind continues.

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The first imbalance is a hugely profitable and long lasting JPY carry trade. Funds take debt in JPY and invest in USD to pocket the interest rate differential and even the USD appreciation. Bonds are good collateral so leverage can be high.

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Short version of what I think is happening in markets: In tradfi there are two positioning imbalances. They are driving markets incl crypto. Positioning is almost always the driver outside of truly catastrophic news or truly outrageously good news. Either kind of news is absent.

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The fact large groups of voters actually believe would-be autocrats are being chased by a somehow subtly autocratic dictatorship of liberals embedded in Democratic society shows how easily Hitler got elected. Today’s version will even make you think they stand for liberty 🤦🏻.

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Sometimes fear of the unknown is worse than the actual event. $NVDA

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