Attack the Week (ATW)

February 16, 2025

Sunday Thoughts

It’s funny; as I am gearing up to write this weekly piece, I am asking myself why people are so obsessed with the short-term, which often offers noise rather than signal. A billion sentences and references are wasted every week explaining what happened the day before. It’s the disease that is presented to us as a soothing mechanism to make us believe we are in control of what’s about to occur. Well, we are not. In fact, we have zero control over outcomes but 100% control over what we read, how we go about compounding returns and when we engage in markets.

I scan and study markets every day. Often, no discernable signal is present, but a portal occasionally opens, granting us a glance into what could likely occur. The challenge lies in seeing beyond the noise of the present. Inflation prints, GDP surprises, or central bank comments may drive short-term reactions, but the bigger game is deciphering what these signals imply for the next leg of the cycle. The best macro investors are those who can detach from the present and place themselves in the shoes of future market participants — those who will be trading in the reality of six months from now. My friend Macro D is excellent at shaping a macro vision and trying to see where we are likely headed. He nailed the JPY move last year and laid out his vision for currencies and the general macro landscape for our readers with great clarity and tenacity. We are blessed to have him contributing in this space.

Source: Dall-E

It is essential to understand the current situation, but I think many make the mistake of overreacting to spot data. Current data shows what markets anticipated the future to look like three months ago. If you listen to talking heads on Bloomberg or CNBC, you live in the past. It’s easy to find reasons why the markets moved yesterday. How often have you heard those “gurus” discuss where they see the future, and that’s not tomorrow or next week but the world in 3 months from now? Possibly never.

Do you know when forward-looking opinions are strongest? At heightened inflexion points, when things are so clear, there is possibly no valid reason why a trend or move can not continue. The EUR/USD printed below 1.02, and parity was inevitable. We touched 1.05 last Friday. US 10-year yields possibly cracking 5% when they were at 4.80%. We are below 4.50% now. This happens over and over again. That’s why markets are here to humble as all. What are some of the current views? Fed will be on hold for the year. Equities are grossly overvalued and can only go down. The US recession will never happen again. Trump is great for world peace. It depends on what is priced, but I would generally fade those views.

I believe last week showed a few interesting market behaviours where the current paradigm could be shifting. The US Dollar stopped rallying and reversed despite stronger domestic inflation prints. Bonds reversed the entire sell-off and closed lower in yields over the week. Despite the bond rally, Gold presented a key-day reversal on Friday. These might be small shifts and insignificant at the moment, but for me, it is opening up a little glimpse of what is about to unfold.

Let’s prepare accordingly. As usual, our tactical trend and reversal models are guiding us through the noise. This is a reminder that paying subscribers only can access the models in TradingView for an additional fee. Contact me if you are interested in obtaining access. For those curious, the 7-day trial is still open to explore the full range of Paper Alfa’s offerings.

Let’s now read Macro D’s latest thinking before we briefly scan the week’s upcoming calendar. We then revisit some charts, which give us some interesting set-ups. As always, we close with a look at the output of our asset allocation model. Last week, it held allocations to both bonds and equities. Let’s see what it decides to do for the upcoming week.

Let’s go!