There are a number of markets at extremes right now in terms of retail retail customer positions, fund positions, and hedger positions. Extremes can persist, but when there are this many it creates a very dangerous and almost certainly volatile environment ahead. Lets review; Funds are long Bonds at 3 year extremes. Funds are long the stock market in the 95th percentile. Perhaps incongruous unless we have lower rates directly ahead, which seems unlikely. Further a strong earning cycle is unlikely to coincide with rate cuts. So something is likely to give. Funds are very long in the ag markets. Many of these markets are at multi year highs, which is inflationary so also contrary to a rate cut scenario. Copper producers are hedged up to the teeth in the 99th percentile, while funds are very long. Yikes!  And both retail and funds are loaded and long the Australian dollar at 3 year highs.

This all comes out maybe okay if there is a soft economic landing, rate cuts, further stock market melt up, and no risk-off events to gum it all up. The latter goldilocks scenario almost never unfolds, so pain is coming somewhere. I wish I had a better handle on how to position, but so far I am still in the “patience pays” camp. I don’t have a strong view all the time —- that is impossible to have and unprofitable to believe it is possible. So I wait. 

Thanks,

Joe

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