Inflation Saturation

The new inclusion trade. How to Trade the Anchorage Accords. My existential crisis.

We’re reaching peak “chatter” with the inflation narrative. It’s overstretched itself. Headlines are dominated with PPI and CPI and the Fed. The perpetual “will they or won’t they” as we head into rate cut season.

The above chart is Russell 2000 futures that include the CPI print and PPI, respectively. This is the most sensitive market, because small companies need cheaper money.

CPI inflation comes in light, with a big rally and follow through day. PPI inflation comes in hot, and he market fills the Monday gap and bounces.

It’s still very strong tape. We are starting to see the latest round of momentum stocks get killed (CRCL, CRWV).

But on the other hand, NEWEGG (NEGG) IS NOW A $120 STOCK

So it feels clear as mud, much choppier than what we saw through the summer. That doesn’t mean it’s a bearish setup… but it’s about the narrative.

While there’s been some movement in equities, bonds aren’t seeing any action. Yes, I know if you zoom in intraday it’s wild action, but if you’re not cracked out mainlining Bloomberg before breakfast, you can see that 20 day vol and reversion have been contracting.

I predict that something else is going to come out of left field and capture the attention of investors. It could be a peace deal during the Anchorage Accords.

It could be a shocking report on the AI data center overbuild and how the hyperscalars may not generate enough future cash flow to justify their current capex.

Maybe a China trade deal, or escalation. This weekend, I’ll be hunting down the top narratives that take hold, and maybe a few trades that could get some tailwinds. It’s like how the DoD has battle plans against every country, even though we don’t plan to go to war with Canada for at least another 18 months.

The Stunning Link Between Jack Dorsey and Ethereum

ETHUSDT tapped 4,800 before finding some sellers today. And I’ve realized something about this most recent bull run in crypto that is very different than what we’re used to.

Jack Dorsey is the CEO of Block, which runs payment systems like Square and Cashapp. While it’s easy to relate those to crypto, we’re talking about the stock, not the company.

Those are two different things. Sometimes the liquidity changes in a stock not because of the company but because of market structure.

Block (XYZ) saw this when it was added to the S&P 500:

That’s precisely what we’re seeing with the rallies in Bitcoin and Ethereum. It’s not that the utility of the protocols increased, or the number of nodes in the network, or how gas fees dropped.

This is an inclusion trade. It’s TradFi capital being bridged onto crypto rails.

We may end up disappointed with the followthrough in these rallies. Right now treasuries like BMNR are scooping up tokens, but if their liquidity dries up, then it’s easy to see how momentum could run both ways.

The Second Road

Back in the day, I was a cell phone hacker. I helped build tools that could help track phone locations, run “man in the middle” attacks, and other fun tricks.

This was way back in the day. I’m talking pre-iPhone. 3G had just come out. It turns out electrical engineering transfers well into financial speculation, so that’s where I landed and I’m very happy about it.

And for the first time since then, I’ve had some serious FOMO. The startup landscape is all into industry and hardtech. The commercial space race is accelerating, and the defense industry is undergoing a renaissance.

In 18-24 months, many of these companies will be listing on the public markets. If you want a taste of what’s to come, check out the “American Dynamism 50” from a16z.

A Better Market To Trade Than Stocks

While equities are trying to decide whether to properly rollover or have a parabolic push, there may be a better setup in gold.

Isn’t this an easier bet to make? If we get a new narrative like I’m predicting, then gold could bust out of its trading range.

Good thing you can use options to express that idea. The trade setup is what Convex Spaces Clients receive past the paywall. You should join, you’d like it.