Simon Ree
@simon_ree
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25yr career at Goldman & Citi | Trader | Speaker | Bestselling author of The Tao of Trading | Jeet Kune Do Instructor | Tweets not financial advice
Singapore
Joined January 2010
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"Once inflation goes above 5%, it has never come back down without the Fed Funds Rate exceeding the CPI" - Druck
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People often wonder why the bond market is “smarter” than the stock market
It all boils down to this:
Bond traders read books filled with difficult math and go to AGMs and corporate briefings
Equity traders read magazines and go to ball games and strip clubs
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Yield curve inversion does tend to precede major black swan events
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@BillAckman
@SVB_Financial
Many of those companies would never have received funding in a normal market environment anyway. Their very existence was a function of free money. If private capital *can’t* fund such companies, why the hell should taxpayers?
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I prepared a deck to help some of my members understand the
#bigflip
framework as postulated by
@INArteCarloDoss
Sharing here for those interested
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Here's what's on my mind:
1. USD has appreciated 17% in 2022. This has cushioned the US from inflation somewhat. Where would inflation be if USD had remained flat ytd? Double digits for sure.
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Everyone has de-risked ahead of CPI. Gonna be fun watching the stock market rip on a hotter than expected CPI
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If the Fed steps down from 75bps hikes to 50bps, that's NOT a pivot
If J Powell says "Inflation is no longer our primary concern, the weakening economy is, and we will use our tools to boost economic growth" now THAT'S a pivot
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There are two “bibles” on options: Option Pricing and Volatility, by Sheldon Natenburg, and Options, Futures and Other Derivatives by John Hull. They are NOT “fun” books (and Hull is not easy). But they were required reading for anyone on a trading desk at Goldman
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Potentially tricky market here
I think stocks are setting up for a rally that will destroy shorts and get bulls nice and comfortable, before destroying bulls with a subsequent huge flush lower
Never seen stocks celebrate the prospect of recession quite like this before
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If the dollar is set to rally from here, what does that mean for inflation? A short 🧵
Conventional wisdom holds that if the dollar rallies, US inflation will fall. A good narrative, as the US is a net importer, and imports become cheaper when the dollar strengthens
BUT...
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I donate 10% of my trading profits to charity each quarter but have decided to step it up a little.
50% of any profits I make on $META or $SNAP going forward I’ll donate to charities involved with teenage mental health
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1) S&P 500 market cap weight vs equal weight YTD
Breadth is deteriorating
2) This also shows up in the % of stocks trading above their 50-day SMA, which sits at just 35%
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Man, I must have missed the part where Powell said they’re cutting rates to zero and restarting QE 🤣🤣
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Since 1928, the S&P 500 has only posted back-to-back negative years on 4 previous occasions
So that makes another down year in 2023 highly unlikely, right?
Well, maybe not (a short 🧵)
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Why technical analysis works:
Technical analysis is the study of price
Price is determined by liquidity and order flow
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Bulls: Believe in soft-landing pixie dust and are convinced the Fed is about to pause
Bears: Are anticipating a recession and an earnings slump
Contrarians: Believe inflation and the economy will re-accelerate this yr, putting upward pressure on rates and volatility
#bigflip
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When bank stocks are tanking, we're usually not in a bull market
S&P500 (blue) vs Banking Sector (orange)
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If you’re a long-term, long-only buy-and-holder, chances are you’re going to hate this market the next 18-24 months.
If you’re a trader, there will continue to be great opportunities but you’re going to have to fight your natural instincts to avoid getting chopped up
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Have you ever heard the saying, "Stocks take the stairs up and the elevator down"?
It is far more common for stock prices and stock markets to fall far more rapidly than they rise. This is because fear is a more immediate motivator than greed.
Well, what about FOMO, the fear of
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I’m double-jabbed AND I’ve had covid. And yet I can’t attend the Singapore Grand Prix unless I get a booster. I cannot believe we’re still playing this game 🙄
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@Jaredtnelson
What an unjustifiable nightmare. Most people I know - myself included - have had omicron by now. My 75yo father caught it 3 weeks after having a pacemaker fitted, now fully recovered. Totalitarianism gone mad
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3800 - 4300 looks like a good range for the next few months to chop all the bulls and bears into little pieces 🪓
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I realise nobody wants to hear this, but breadth is confirming market strength. THe advance-decline line is making new cycle highs
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If you think the stock market has bottomed while the Fed is still hiking into an inverted yield curve, you really are betting that this time is different (the four most dangerous words in finance)
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Ladies, if your man is
- acting nervous
- visibly uncomfortable
- checking his phone way more often than normal
- waking in the middle of the night in a cold sweat
- mind always seems to be elsewhere
He’s not cheating on you, he’s just balls deep in crypto
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Earnings right now don’t matter. Market doesn’t care what you did last quarter. What matters right now is the seismic repricing of money and credit globally, and the impact that’s going to have going forward
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"Never short a dull market"
Yeah, yeah, I know the saying. But what if this is a zombie market? One that looks dead but is about to spring back to life as a flesh-eating monster?
Anyway, IMO the risk/reward of going short here justifies a position. I'll explain...
a 🧵
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By now you've figured out that stocks and bonds can fall simultaneously
Now stop saying "the money has to go somewhere" when there's a shitload of debt to be repaid
Especially when forced liquidation becomes a thing again
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I love how the laptop class proclaim "this isn't a recession" or "this is the best recession ever".
Meanwhile, personal savings are at a 14y low, consumer credit is at an all-time high and 58% of Americans are living paycheck to paycheck...
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This from an ex-Fed president. Do not think for a second they care about you
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Even when "everyone" is expecting a recession, most are still caught off-guard when it actually happens.
The reason?
Our poor appreciation for and understanding of nonlinearity.
"How did you go bankrupt?"
"Two ways, gradually, then suddenly."
This classic Ernest
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4 decades of falling yields made investing look easy. More leverage, higher returns. More risk, higher returns. It made everyone look smart.
If you were born after 1960, anything you recall from your financial lifetime is a derivative of this chart
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My feed is full of people certain a bailout is coming. I’m just not convinced the >$250k deposits of Paulo Alto tech bros are a political imperative
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3. And let's not forget the potential inflationary impulses from the SPR draw coming to an end and China reopening.
I have to think we're in for some serious economic volatility over the next couple of years (at least!)
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Post-CPI moves in stocks, bonds and FX were all multiple (3-5) standard deviation events. It was the worst day for the USD in over a decade. It was the best reaction to CPI for stocks since 2008.
One cooler CPI print and hopes of a soft landing have sprung to life
1/
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When you stop to consider the $billions in wealth that can be created or destroyed in a mere instant, just because a CPI print exceeds or misses expectations by 0.1% or because Fed comments are interpreted a certain way...you have to appreciate the sheer insanity of this game
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I’m 100% cash coming into FOMC
I don’t have the same certainty about what the FOMC will say/do and how the markets will react as everyone else on Fintwit 🤷🏻♂️
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Every day that SBF walks free calls into further question the interconnectedness of Washington, MSM and the fraud that has allegedly taken place.
They know this. They know we know this. And they don't care
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You’re never just one trade away from making it big, but you can easily find yourself one trade away from going broke if you’re not careful
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Soft landing is absolutely the consensus view
Quick search for "soft landing" stories on Bloomberg Terminal this am, here's the first page.
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Most people will endure a lifetime of dull discomfort in order to avoid moments of deep suck
“If you are willing to do only what's easy, life will be hard. But if you are willing to do what's hard, life will be easy” - T Harv Eker
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Successful trading is not about making predictions. It is not even about being right.
It's about consistently repeating a process that gives you a probabilistic edge over and over again, and allowing probability to work its magic over time
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How to spot the worst traders and investors?
They blame the Fed. They blame rates. They blame "market manipulation". They blame "retail". Unfollow them, mute them, move along
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It doesn’t matter what industry. It doesn’t even matter what country. Every businessperson I speak too is having immense trouble hiring staff. Where did everyone go?
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I made a quick 6-min video explaining why I think the odds favour $SPY breaking above the trend line and 200 MA this time. I hope you enjoy!
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Liquidity conditions are not supporting the $SPX rally. That said, 2019 demonstrated that such divergences can last a long while.
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A bearish key reversal is a relatively uncommon technical analysis pattern that occurs when a bar opens above the previous bar's high and closes below the previous bar's low. It shows there was decent buying pressure at the open, but the bears eventually won the day and took
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When trading your own account, you shouldn’t give a crap about relative performance. Only absolute performance puts money in your account.
Having my portfolio fall “only -5%” when the S&P is down -7% is NOT my definition of winning
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Many of the books that have helped my trading the most aren't even really markets or trading books. These are my top 3 recommendations for Xmas!
1. Thinking In Bets by Annie Duke is priceless in helping the reader develop a probabilistic mindset
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"Being a bear gets you nowhere"
That comment is absolute blasphemy on fintwit, I realise
However, going back to 1945 the S&P is positive 78% of all years with an average annual return of +12%. Optimism pays in this game
(There is definitely some survivorship bias when it
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I don’t think $ROKU is systematically important and I don’t think they deserve to be rewarded for crap risk management. I mean seriously, who keeps $500m in a bank account, and at one bank?
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There's blood in the water. The market is going to hunt out the weaker banks; the pain isn't over
$SIVB
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If $AAPL $AMZN $GOOGL has posted misses like that 6 months ago, they would have dropped 10%+ post earnings
Small drops after mkt are an indication that sentiment has shifted more bullish (ie market steps over bad news rather than frets over it)
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Check out this little guy
@judahrhodie
how do you bring yourself to eat these cute little dudes??!
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If you think the Fed hiking FFR to (say) 6% and keeping it there for 12 months is dovish because they stopped hiking, I wish you the best of luck.
Did you actually think the Fed was going to hike until infinity, and so anything short of that is a “pivot”?
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4 "buy the dip" indicators that have stood the test of time:
1. Yield curve not inverted ❌
2. Earnings still growing ✅
3. Economy still expanding ❌
4. Credit spreads not widening ❌
If all 4 of these are✅stocks have always reverted to their uptrend after a selloff
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The everything rally
Biggest combined move in stocks + bonds ( $SPY + $TLT) in a year
The dash for trash
Massive moves in small caps (IWM +5.5%) and unprofitable tech (ARKK +5.1%). Can you say "pain trade"?
Biggest down move for the dollar in over a year
EURUSD +1.7%,
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It doesn't matter how great the technicals or market internals look, if Jerome Powell pours cold water on the equity rally next Wednesday, stocks will pull back.
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Imagine having a 3-day deadline to clear up 1.5 trillion worth of exposure to a truly historic collapse in the value of UK bonds. Not gonna happen
The performance of this "risk-free" asset is staggering
Long-term UK Gilt bonds have posted a total return of -52.3% since Dec 2021. An entire decade of gains wiped out.
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If you’re not making $20,000 per week in passive income from AI, you’re doing something wrong
Here’s 10 FREE tools that will get you on that path
My feed is polluted with this clickbait every day. Anyone else having this issue?
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Before you get giddy on the idea of a Santa Claus rally, remember that during the last midterm December in 2018, the S&P 500 fell -10% in December, with a max drawdown of -14.8%
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Rick Santelli dropping truthbombs 👇🏻
Santelli nails it here.
The one guy on CNBC who really isn’t afraid to call out what is actually happening.
🔈
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2. Everyone's anxiously waiting for the "Fed pivot" as the end to our woes. It's quite conceivable the USD will roll over if/when the Fed backs off. It's also conceivable inflation will re-accelerate once the dollar rolls over. What does the Fed do then?
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If stocks are to make new highs after a selloff, historically these 4 factors have needed to be present:
1. Yield curve not inverted ❌
2. Earnings are growing ❌
3. Economy still expanding ✅
4. Credit spreads not widening ✅
Historically unless all 4 are✅, new highs are a ❌
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Debit Suisse issuing debt at nearly 10%. I'm surprised this isn't bigger news?
@jeuasommenulle
@INArteCarloDoss
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Markets are easiest to trade when they are bored or happy.
How do you know when the stock market is bored or happy?
The S&P is above its 200 SMA and the VIX is below 20
When neither of these conditions are present you gotta be on your toes
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Closed out all my open positions yesterday and went 100% cash. Was net long and I’m having a profitable month, but want to approach this market with maximum clarity and without any positional “baggage”
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The S&P500 is just 4.5% from its all-time high
At the $SPY ATH, the effective Fed Funds rate was 0%, now it's 5.33%
US 10y yields were 1.78%, now they're 4.33%
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Germany's trade surplus with the rest of the world was literally fueled by cheap natural gas from Russia, which was used to manufacture goods cheaply, to export to the resort of the world for a profit. That gig has ended.
German recession is assured. No bueno for Europe and ROW.
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Thursday's candle was only the 3rd time in $SPY history that a candle engulfed the previous 3 days of price action
But remember, these violent and surprising reversals and countertrend moves tend to occur in bear markets, not bull markets
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Major risks as I see them:
- SVB is a one-off, but it prevents the Fed from getting the job done on inflation
- it’s not a one off and is the tipping point for a larger recession where cutting rates won’t be sufficient
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Soft landings - where central banks tighten meaningfully without sparking a recession - are exceedingly rare.
The vast majority of sell-side research does not appear to take this into account in their 2023 outlooks.
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We’re hosting CNY dinner this year
I suggested to my wife that we do BBQ instead of hotpot this year
Current status
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I’m seeing a lot of comments on here to the effect of “why on earth would anyone ever sell their big tech stocks?”
It doesn’t mean we’re at THE top, but this is sentiment you ONLY see near a top.
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It could take you years to figure this all out by yourself and you get to learn all this in 5 minutes, for free 👇🏻👇🏻
This thread will cover 11 macroeconomic indicators that are helpful for measuring 👇👇👇
Inflation, Fear and Uncertainty
This 🧵 will discuss when to look, where to look, what to watch for, what it means, what steps to take and risk level.
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🔮 time
I'm net short but closing out some shorts here with the view that SPX will find a s/t low today or tomorrow
I'm thinking the market can rally (not in a straight line) into CPI/PPI on Sept 13/14 and will look to establish longs on confirmation
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The stock market is detached from reality a lot of the time. This is why, every day, I remind myself of the need to trade the chart in front of me and not thoughts and opinions (mine and others') about what should happen.
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$NVDA IPO'd on 22 January 1999, so it's been public for ~24 years
What is astounding is that a quarter of its entire market value has come in the last 17 hours
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Newer traders think the way to make money is by predicting markets and then observing the success (or otherwise) of their predictions
Successful traders have figured out the way to many money is by observing markets and then responding in a way that offers probabilistic edge
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I'm afraid the Santa rally is over folks
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The stock market believes in inflation moderation and a softish landing, while bonds price in a recession.
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