Attack the Week (ATW)

November 17, 2024

Sunday Thoughts

It’s never wrong to be a little contrarian. I am neither, but I try to nurture a general attitude of when it’s good to be with and against the crowd and prevailing consensus. There are perma-contrarians I know, and it's a tough mental exercise to go against what crowds and markets are discounting. If right, however, they reap big rewards. I couldn’t do it, but I think it’s wise to think about what could change the current narrative. There is always something.

There were a few who foresaw that bonds would be close to 100 bps higher in yield after the Fed’s first shot at cutting rates in this cycle. Our monetary leaders assured us that they would only start the easing process if they were comfortable with inflation on a trajectory towards their elusive 2% target so that they could adjust policy back to neutral. Now, they seem less certain whether they can make further adjustments lower. Never trust a central banker. They don’t know anything more than markets do about the future and will generally fall in line with what markets are pricing. I was amazed nobody picked Powell up on his forced 50 bps cut in the last press conference. By now, this looks like a policy error. But we will never know, as policy is generally meant to be forward-looking. Whether they will cut in December or not is something STIR pros are salivating about, but for me, it doesn’t really matter. I think there is a high chance this cutting cycle has already come to an end. Having said that, I envisage another growth scare to materialise in the coming months as the recent tightening through higher rates and term premia will likely leave a negative mark. The current crypto mania in some corners reminds me of 2021 when it was abundantly clear that just simply too much money was in circulation for people to yolo their savings on. We all know how this ended.

Charlie Munger blessed us with his "always invert" mantra, which encourages inverting problems to solve them more effectively. Munger advocates for thinking backwards: rather than simply focusing on how to succeed, one should also consider how to avoid failure. By inverting, investors can uncover blind spots and identify risks that others overlook. In the context of contrarianism, inversion can help us examine a popular trend or investment and then consider the opposite view. Instead of asking, "What makes this investment likely to succeed?" a contrarian might ask, "What could cause this investment to fail, and is everyone ignoring these risks?" When combined with a contrarian approach, this process of inversion leads to a more thorough analysis and greater awareness of hidden opportunities.

I believe we are entering an opportunistic contrarian period, where taking other sides offers exceptional risk-reward.

Let’s now read Macro D’s latest thoughts before we analyse the upcoming weekly calendar. We then check out the 10 most important charts for the coming trading sessions and finish with the asset allocation model and its latest output.

Let’s go!