Attack the Week (ATW)
May 5, 2025
Monday Thoughts
We are enjoying a bank holiday in the UK this Monday, and I’m travelling. As in all my travels, I usually bring a music box as some of the hotel’s sound systems are inadequate. I play old songs and try to blend in new findings. Much to my wife’s disgust, I like to play some songs of the harder genre. Rammstein is one of those bands I like. I know what you think. Many moons ago, I watched them perform in London’s O2 arena. It was mesmerising. The pyrotechnics were phenomenal, and I felt the full-on flames in a box at the other end of the stadium as they started performing. Needless to say, they were not allowed to play in that arena ever again. A real shame.
Rammstein was formed in 1994, a time when Berlin was still reeling from the fall of the Berlin Wall and the reunification of East and West Germany. The city's industrial roots, marked by a combination of heavy machinery and a sense of rebellion, proved to be the perfect breeding ground for a band that would merge the cold, mechanical beats of industrial music with the ferocity of metal. Their band name derives from the town of Ramstein in Germany, where a devastating air show disaster occurred in 1988. This tragic event resonated with the band's members, and they adopted the name as a symbol of power, destruction, and a dark fascination with the violent forces of nature.
Despite their hard tunes, they never use swear words. Their lyrics are often poetic and dramatic, using metaphors and dark humour instead of profanity. I love listening to their songs when I’m either lifting weights or exploring charts as I prepare for the new week ahead. It’s setting me up to attack rather than play defence. Admittedly, I have been playing it light in the past few weeks as markets stabilised. I had a great run in April, posting my best month this year, so why push it? I am now evolving to scale into some trades more aggressively, as we have seen some shakeout in consensus trades over the past few weeks.
Last week’s massive move in the USDTWD exchange rate got my attention. The country’s huge current account surplus led it to accumulate large amounts of US Treasuries over the years. Taiwan's foreign reserves and investments total 1.7 trillion USD, over 200% of its GDP, making it one of the largest foreign holders of US debt. This accumulation began in the early 2000s when Taiwan ran large current account surpluses. The country faced a dilemma of what to do with all the accumulated Dollars, leading to an increased role of Taiwan’s life insurance industry in investing in USD assets. This approach comes with risks, especially a significant currency mismatch. Taiwanese insurers hold a massive amount of foreign bonds, but their liabilities are mostly in Taiwan dollars, exposing them to potential losses if the Dollar depreciates. I guess last week’s moves were either related to them hedging their currency risk as the USD started falling, or it is indeed a warning sign that further pressure might lie ahead.
Much of the Taiwanese insurance industry's solvency hinges on the assumption that Taiwan's central bank can prevent the Taiwan dollar from appreciating significantly. If this assumption fails, it could lead to financial instability in Taiwan and have repercussions globally. If last week’s moves were due to repatriation of hedging flows, dynamics could push US treasury yields higher and continue depreciating the USD. Something important to keep on all your radars.
Let’s now read Macro D’s latest thinking before briefly scanning the week’s upcoming calendar. We then revisit some charts, which give us some interesting setups. As always, we conclude with a review of the output from our asset allocation model.
Let’s rock!