The Longest Game

Even with a firm VIX and strong Yen today, stocks are a bit higher today as I write this on the back of both massive BLS job revisions lower plus dovish Fed Minutes, both of which would seem to give The Fed ample cover to cut rates in September. 

However, those traders who either traded through or studied initial rate cuts, like 2007, know that it is not all it is cracked up to be from a bullish perspective. Typically, the market interprets the cuts as a sign that The Fed is behind the curve as the economy begins to deteriorate. Oftentimes, the cuts had already been priced in on the bull side and we begin to see an aggressive "sell the news" reaction.

Now, in this particular cycle I believe inflation will come roaring back each time a cut occurs, not unlike the 1970s, as opposed to 2008. But that is thinking a few steps ahead, as I tend to do. 

Thus, I am patiently waiting for a reentry into a bond short as a way to bet on higher rates (most likely via a TBT or TMV long) but am going to hold off on forcing it, as this cycle especially has taken a uniquely long time to play out and may continue to do so. 

The next major event coming up is, of course, Jay Powell's speech at Jackson Hole on Friday (I do not see anticipate market moving at the DNC at this point), followed by NVDA earnings next week, albeit with some data tomorrow like jobless claims. My best guess would be Powell assures the market a September cut is coming, but hints at 25 bps unless more data truly falls off a cliff in the next month. 

That said, I still maintain the Yen carry trade unwind is far from over: To think that decades worth a highly levered and popular trade would abate after a few fairly intense days seems like a bridge too far, even for this market which often operates in fantasyland.