Friday Chart Book

April 12, 2025

What a crazy week we have just witnessed. I hope you all made it through okay. What started last week with a “normal” risk-off playbook of equities falling and rates rallying reversed into a de-correlation event, which saw many portfolio strategies suffer. Risk parity funds saw the largest drawdown event since 2022 and are only holding up due to their commodity allocation. Can it get worse? Looking at the chart below, it certainly can.

Much thought has been given to the nasty bond sell-off, which caught many people off guard. I explained my view in yesterday’s comment, which I recommend you all read again. See below.

Yesterday’s price action in the US 2-year raises additional questions. Are we potentially facing a re-run of a supply shock, which the Fed will have to look through? Their hands might be tied to the fact that aggressively cutting would put further pressure on long-dated Treasuries. They are in a tough spot. Real yields are rising sharply, tightening monetary conditions in the process. Previously, they used the same argument to cut rates and bring real yields down. This time around, conditions are different.

With monetary policy possibly constrained and the fiscal situation not improving, stagflationary conditions could further force capital out of the US. The following chart speaks volumes.

The US is experiencing an emerging market-type crisis. The USD is the natural release valve for the adjustment to bring capital and domestic market valuations into balance. This might be a long process, and judging by the chart below, there is still plenty of room.

All of the above observations shouldn’t surprise subscribers, as I laid out my macro blueprint at the end of March.

Here it is:

The investment conclusions to me are the following:

• The US Dollar continues to weaken

• US Stocks on an index level will likely rerate lower

• I don’t call the end of US exceptionalism. For it to end, you need an alternative. I don’t see exceptionalism elsewhere. US companies are still the best in the world.

• Rotation might continue, but the bulk of non-US equity outperformance is behind us

• Lower trade deficits and still elevated budget deficits mean steeper US yield curves

• Inflationary pressures might persist in the short-to-medium term. US Treasuries might not offer you the same diversification in a stagflationary environment unless we enter a recession

• Real assets, like precious metals, should continue to do relatively well

• Stay nimble; markets are going to be volatile

I think that’s a green checkmark on all bullet points, and I hope these insights helped my readers. But the story isn’t over; we might be just starting, so I will continue to assess probabilities as we move into a new regime. I am keeping an open mind to all possibilities, acknowledging that markets have already moved quite a bit on all points raised above, and with it, risk-reward has drifted.

Let’s now move on to the charts, which are all as of Friday’s close. We are covering Global equity indices, sector ETFs, US and International equities, FX, Rates & Curves, Commodities and Crypto. All in all, there are about 250 charts, which highlight my momentum and reversal signals.

There hasn’t been a better time for macro, and the second-best time to join Paper Alfa’s pack is today. For the coming month, you can get a 20% discount on all subscription options for life.

You are welcome.