Friday Chart Book
April 5, 2025
As mentioned, I ran into technical difficulties in producing the 250+ charts, but I have fixed this now. You will find all of them updated below. If you haven’t read yesterday’s Friday comment, which I wrote ahead of the pretty decent payroll print, see it below.
Friday Comments (Chart Book to follow)
Ladies and Gentlemen, we are witnessing history. A fast economic downturn in front of our eyes, triggered by dubious economic policies and laughable implementation. Is there a way back? I would hope so. Are central banks ready and willing to support in the absence of capable politicians? I’m not so sure.
My thinking hasn’t changed, and it was astonishing to see the extent of equity drawdowns. Some of the charts below are just epic. Stocks were not the only assets that got smashed. Commodities caught a massive de-risking event. As mentioned, this is due to systematic funds unwinding positions and de-risking as volatility is going up. I never understood volatility targeting funds as their risk-taking is, by definition, negatively convex by having to cut positions when volatility goes up and vice versa. My risk-taking approach has always been the opposite to that. Now is the time to increase risk if you know what you are doing.
The US Dollar caught a bid amidst the massive risk-off move, while some crosses like EUR/NOK moved by epic proportions. You might miss the tremors felt everywhere in macro land if you are just an equity-focused person. There is intense suffering out there. On that note, it was interesting to see some crypto markets perform amidst all the gloom. I had the best week in a few months in my strategy last week. However, I was caught a bit too long on the rates side as they unwound during late Friday trading, when US 2-year yields were up on the day for a brief period. Maybe that was due to some profit-taking, as Powell didn’t offer any appeasing words to markets, shrugging off the recent market impact. Now, inflation won’t be much of a problem if you believe inflation swaps, which were collapsing on Friday, sending real rates higher. This is not a good development. Sure, you can say it's just one day, but the signal is clear.
Financial markets lead economic outcomes as reflexivity takes hold. My inbox is filled with street economists takes on recession probability. It’s funny to watch how they all topple themselves in putting the probability from 40 to 50%. Let’s call it as it is: the probability of a recession is 100%, but the sequencing will be very interesting. A friend of mine attended a conference where Druckenmiller spoke last week. I will summarise some of his thoughts in the ATW tomorrow. It is fair to say he agrees that we are in truly unchartered times.
Let’s now unleash the charts, which speak for themselves.
Have a great rest of your weekend.