Macro and Flows July 2024 -e30:

Summary

This video discusses the macroeconomic and options market dynamics, focusing on the 'window of weakness' in July Opex and the impact of geopolitical events on market flows. It highlights the potential for increased volatility due to the Supreme Court decision and Trump's unconstrained policy ambitions, emphasizing protectionism, tighter immigration, and an activist Fed. The video also warns of the risks in tech stocks like Nvidia due to geopolitical tensions over Taiwan and advises on trading strategies, such as calendar exposure and hedging, in anticipation of market shifts.

Takeaways

• 📈 The summer of George has been characterized by dispersion and volatility compression, with a focus on the market dynamics around the August 14th expiration date.
• 📉 A 'window of weakness' in July is highlighted, starting around the Wednesday of the Opex and lasting from one and a half to two and a half weeks, depending on the next option cycle.
• 🌐 Geopolitical events, such as the assassination attempt on Trump and the Supreme Court decision, are influencing the broader global structure and market environment, potentially impacting volatility and policy shifts.
• 🔄 The potential for Trump to be more unconstrained in the next 4-year period, if re-elected, is seen as a significant source of volatility, with implications for policy and market reactions.
• 💹 Trump's policies, including protectionism, tighter immigration, and an activist Fed, are expected to drive inflation and economic shifts, affecting market strategies and expectations.
• 📊 The current market is well supplied, and changes in supply dynamics are crucial for understanding market movements and potential risks, especially in the context of the dispersion trade.
• 🔍 The importance of watching key market indicators, such as Nvidia's response to geopolitical headlines and the overall market's reaction to changes in supply and demand, is emphasized.
• 📌 The potential for a steepener trade is highlighted, given the structural inflationary pressures expected from Trump's policies, which could lead to a stagflationary environment.
• 🚀 The role of the wealth effect in driving economic performance is noted, with a warning that a reversal could lead to a slowdown in the economy and a potential acceleration in the Federal Reserve's activism.
• 🛡️ The current market conditions are described as a short window of risk, where careful positioning and hedging strategies are advised, especially in light of the potential for accelerated volatility and market declines.

Q & A

What is the significance of the date August 14th mentioned in the video script?

August 14th is highlighted as a date of concern in the script, likely referring to an important financial event or deadline, such as an options expiration date, which could influence market dynamics.

What does the term 'window of weakness' refer to in the context of the script?

The 'window of weakness' refers to a period, typically following an options expiration (Opex), during which the market may exhibit increased volatility or instability, lasting from one and a half to two and a half weeks depending on the length of the next option cycle.

Why is the assassination attempt on Trump and the Supreme Court decision significant according to the script?

These events are significant because they are seen as having powerful and meaningful effects on the global structure and could influence the political and economic environment for the coming months, particularly in relation to Trump's potential policies and their impact on the market.

How does the script describe the impact of the Supreme Court decision on Trump's potential future presidency?

The Supreme Court decision is described as allowing Trump to be more unconstrained in the next 4-year period if he is elected, implying a greater impact on policy and potentially a stronger mandate.

What are the three key policy areas that the script associates with Trump's presidency?

The three key policy areas are protectionism (e.g., tariffs on China), tighter immigration policy, and an activist Federal Reserve, all of which are suggested to have inflationary effects and contribute to market volatility.

What is the potential implication of Trump's comments on Taiwan for the market and Nvidia specifically?

Trump's comments suggest a higher probability of China moving on Taiwan, which could increase geopolitical tensions and risk. For Nvidia, which has significant exposure to these dynamics, this could represent a substantial risk to its stock price.

How does the script connect the slowing momentum of Nvidia with broader market trends?

The script suggests that as Nvidia's momentum slows, it can lead to a forced selling pressure due to the structure of dealer positions, which can then influence the broader market, particularly in the context of the Russell index and call buying activity.

What does the script suggest could be the impact of a significant market decline on the economy?

A significant market decline could lead to a reduction in collateral and assets, impacting the wealth effect and potentially leading to a slowdown in the economy, decreased investment, and reduced buyback pressure.

How does the script discuss the potential response of the Federal Reserve to market declines?

The script suggests that the Federal Reserve may accelerate its activism and stimulus efforts in response to a market decline, particularly if it threatens to impact the money supply and wealth effects in the economy.

What is the script's advice regarding market positioning in the context of the discussed risks?

The script advises being cautious during the identified window of weakness, considering the placement of hedges, and being mindful of the potential for accelerated declines. It also suggests that owning puts and stocks, particularly for longer-dated periods, could be a strategic move.

Outlines

00:00

📈 Market Volatility and Trump's Policy Impact

The video discusses the current state of market volatility, highlighting the 'window of weakness' in July, typically starting on the Wednesday of options expiration (Opex) and lasting up to two and a half weeks. It emphasizes the importance of macro factors and geopolitical events, such as the Supreme Court decision and an assassination attempt on Trump, which could significantly influence the market environment. The video suggests that these events have increased the probability of Trump being elected and having an unconstrained impact on policy, which could lead to significant market changes.

05:02

🛑 Trump's Policy Stance and Market Consequences

This paragraph delves into Trump's policy stance, which is characterized by protectionism, tighter immigration policies, and an activist Federal Reserve. The speaker argues that these policies are structurally inflationary and could lead to a stagflationary environment. The potential for a steepening yield curve and the importance of understanding Trump's influence on the Fed are highlighted. The video also suggests that the current market supply is well-equipped to handle these changes, but warns of the potential for increased volatility and market shifts.

10:03

📉 Nvidia's Vulnerability and Market Dynamics

The discussion shifts to the specific case of Nvidia, which has been significantly affected by market dynamics and the potential for a China-Taiwan conflict. The video outlines how Nvidia's stock has been influenced by call buying and the broader market's movements, particularly in the Russell index. It suggests that slowing momentum in Nvidia, combined with an acceleration in other stocks, has created selling pressure. Additionally, Trump's comments on Taiwan have increased the perceived risk, which could have a substantial impact on Nvidia and the market as a whole.

15:04

📊 Market Structure and the Importance of Technical Levels

The script addresses the importance of understanding market structure, particularly the significance of the 20-day moving average as a balance of power indicator. It discusses the potential for a decline in the market to trigger selling pressure and the importance of watching for technical levels to gauge market momentum. The video also mentions the potential for increased Federal Reserve activism in response to market declines and the broader implications for economic performance.

20:04

🚨 Risks and Opportunities in the Current Market

This paragraph outlines the risks and opportunities present in the market, focusing on the potential for a short-term decline that could accelerate if certain technical levels are breached. It discusses the importance of hedging strategies, especially with short-dated options, and the potential for a significant increase in volatility as options expiration approaches. The video also touches on the impact of the upcoming election and the potential for changes in market dynamics due to shifts in administration.

25:06

⚠️ Cautionary Advice and Investment Considerations

The final paragraph provides a cautionary note, advising viewers to be mindful of the risks and to consider their investment strategies carefully. It emphasizes that the video's content is not financial advice and that viewers should consult with their advisors before making any investment decisions. The video concludes by reiterating the importance of staying informed and vigilant in the face of market volatility.

Keywords

💡Macro and flows

Macro and flows refer to the large-scale economic factors and the movement of money within financial markets. In the video, it is the central theme, as the speaker discusses how macroeconomic trends and the flow of capital can influence market behavior, particularly in relation to options expiration and market volatility.

💡Opex

Opex, short for 'options expiration,' is a term used in finance to denote the date when options contracts become void if they are not exercised. The script discusses the impact of Opex on market behavior, suggesting that certain dates, like August 14th, are of particular concern due to potential market shifts.

💡Dispersion trade

A dispersion trade in finance involves exploiting the difference in implied volatility between index options and the options of individual stocks within that index. The video script mentions that dispersion has been a key strategy, indicating a focus on the variance in volatility as a trading opportunity.

💡Window of weakness

The 'window of weakness' is a term used to describe a period in the market that is characterized by lower trading volume or a lack of clear direction. In the script, it is mentioned as a time frame starting on Wednesday morning of Opex and lasting for a variable period, during which market trends might be less predictable.

💡Liquidation

Liquidation in a financial context refers to the process of converting assets into cash, often due to margin calls or the need to meet financial obligations. The video discusses a 'real liquidation' as a result of certain macro factors and market flows, indicating a forced selling of assets.

💡Geopolitics

Geopolitics involves the influence of political factors on global affairs and markets. The script mentions 'geopolitical macro matters' as a significant driver of market movements, especially in the context of the U.S. presidential election and its potential impact on policy and market volatility.

💡Trump's policies

The term 'Trump's policies' refers to the political strategies and economic plans associated with former U.S. President Donald Trump. The video script discusses three key aspects of Trump's policy platform: protectionism, tighter immigration policies, and an activist Federal Reserve, which are all suggested to have significant implications for market volatility and inflation.

💡Inflationary effects

Inflationary effects refer to the economic consequences of an increase in the price level. The script uses this term to describe the potential outcomes of certain policies, like protectionism and reduced immigration, which could lead to higher labor costs and, consequently, inflation.

💡Stagflationary environment

A stagflationary environment is characterized by stagnant economic growth alongside high inflation. The video suggests that the current economic policies and market conditions may lead to such an environment, indicating a challenging period for investors and the economy.

💡Volatility

Volatility in finance refers to the degree of variation of a trading price series over time. The script frequently mentions 'volatility' in the context of market predictions, suggesting that certain events and policies could lead to increased market fluctuations.

💡Nvidia

Nvidia is a major player in the technology sector, known for its graphics processing units and artificial intelligence technologies. The script discusses Nvidia as a significant stock in the market, highlighting its vulnerability to certain geopolitical events, such as potential conflicts over Taiwan, and its role in the dispersion trade.

💡Momentum

Momentum in finance is the rate at which the price of a security is increasing or decreasing. The video script refers to 'momentum' in the context of stock performance, particularly discussing how slowing momentum in certain stocks, like Nvidia, can impact market dynamics and trigger selling pressures.

💡Wealth effect

The wealth effect describes the change in consumer spending that results from changes in the market value of assets, such as equities or housing. The script mentions the 'wealth effect' to illustrate how market performance can influence economic activity, with potential implications for policy responses from entities like the Federal Reserve.

Highlights

July Opex update discusses the summer's market trends and the importance of the August 14th date.

The 'window of weakness' in July begins on Wednesday morning of Opex and lasts for a variable period.

Positive market flows have been pushing the market up until recent negative rhetoric impacted the market.

Geopolitical events, such as the assassination attempt on Trump and the Supreme Court decision, have significant market implications.

The Supreme Court decision potentially allows Trump to be more unconstrained in the next 4-year period if re-elected.

Trump's policies, including protectionism, tighter immigration, and an activist Fed, are expected to be inflationary.

The potential for Trump to influence the Federal Reserve could lead to an activist Fed, impacting market liquidity and growth.

Markets may see a stagflationary environment due to structural inflation and declining growth models.

A steepener trade is suggested as a response to expected structural inflationary pressures.

The current market supply is very well supplied, and a transition to a less supplied market won't happen overnight.

The assassination attempt on Trump and Supreme Court decision could increase the probability of him winning both the presidency and Congress.

Trump's potential policies are expected to have a significant impact on the market, possibly leading to volatility.

Nvidia's stock is highlighted as particularly vulnerable to geopolitical tensions, specifically regarding Taiwan.

The market's response to technical areas like the 20-day moving average is a sign of momentum and strength.

The potential for a significant decline in the market if certain support levels are breached, impacting both market and economic momentum.

The importance of watching for changes in market structure and macro dynamics that could lead to increased volatility.

The potential for the Federal Reserve to increase stimulus measures if market declines accelerate.

The wealth effect's significant impact on the economy and how market declines can affect investment and economic performance.

The video's conclusion emphasizes the importance of being cautious in the current market window and the potential for rapid changes.

Transcripts

hello and welcome to another macro and

flows of update video here we are at

July Opex um coming now you know may

through May made it through June now

July Opex uh so the summer of George has

been uh spoton uh dispersion has been

the trade V compression the name of the

game um as we've looked forward we've

circled August 14th right as the date

that that we're concerned about this

ending one thing we didn't talk about

which probably should have mentioned was

July there's a window of weakness those

windows of weakness you know we're very

familiar with hopefully at this point

really start that uh Wednesday morning

of Opex uh sometimes a little bit

earlier but generally Wednesday morning

of Opex and really lasts anywhere from a

week and a half from that point to two

and a half depending on whether the next

option cycle is four weeks or five weeks

right if they five weeks it's a longer

uh window of weakness this one here in

July right we got uh those positive

flows that have been pushing us up uh

you know end on that Wednesday

essentially uh and right kind of to the

day we got some uh some bad rhetoric

right things that kind of uh which we'll

talk about about a bit more here as the

as the video goes on but that really hit

to the heart of the risk in the

marketplace um and

with combined with the flows and the and

the and the circumstances created a real

liquidation now that's important you

know big picture geopolitics macro

matter but they matter when they when

they hit the flows right and that can

create a path and that path could have

uh significant followon effects so it

can seem random to people from the

outside but the probabilities were set

based on Market structure and you know

geopolitics can then set off a set of

reaction functions this is what's

happened so far so important to note the

context of where we are um in a broader

cycle um but also to understand those

macro drivers hence the macro and flows

um but yes window of weakness so very

important to not what happened on next

last Wednesday um also important to

understand from a macro

perspective

that what happened last weekend with uh

the assassination attempt on Trump as

well as several weeks before that with

the Supreme Court decision is a

Confluence of very powerful meaningful

effects to the broad uh structure um you

know Global structure and what's what's

going to be what the environment will be

like for the months to come why are

those two things so important together

one the Supreme Court decision has

essentially allowed Trump to be much

more

unconstrained in the next 4-year period

if he is to get elected which is highly

likely on the back of that so impact is

bigger right on the back of that we now

have a dramatic increase in not only the

probability of trump being elected which

was already highly probable um with with

the assassination attempt but a higher

probability that he has both uh sides of

Congress also so has much more of a

mandate and an ability to impact also to

be un constrained and to impact

policy these are two critical things we

can talk about Trump and be focused on

the personality but it's one thing if if

Trump is constrained by Congress it is

another thing if he is constrained by by

the uh Judicial System both of those

constraints have been removed so that

that creates a a entity in Trump that is

U much more UNC constrained than than

the last time he was in there yet has a

considerable desire to make significant

impact

that has to be considered in the broader

picture of where volatility might lie

and and how and when timing May matter

important to note when Obama won and had

both sides of Congress and Biden won had

both sides of Congress we saw dramatic

policy shifts happened at the beginning

of the the year Obama with

Obamacare Biden with with the massive

covid uh stimulus which is historic um

both of those things are historic uh

things and have had significant

impacts uh so important to note a a

trump who I would argue is even more

intent to to make significant uh changes

relative to the status quo um and and

it's significantly less constrained uh

uh than than uh before uh represents a

significant source of

volatility what are Trump's policies

this is very important who is is he and

what do we think he stands

for there is a three-legged stool I like

to refer to it as of

Trump's

policy uh one is protectionism we all

know this right he's threatened tariffs

on China of up to 80 to

100% um obviously this is structurally

inflationary this de globalization that

that drives in the short term we can

argue whether uh we should be doing that

or we shouldn't for for uh for for

reasons internal to the country and and

long-term longevity reasons but from a

short-term economic perspective there's

no doubt that not being able to import

cheap Goods is inflationary

domestically two part of the reason

we've avoided some of the inflationary

effects of Labor despite those

structural effects definitely being

there is a open immigration

policy we can debate again politically

whether this is positive or negative or

we should be doing this or we shouldn't

be doing this but politically it's very

unpopular Trump who is a very keen

marketer and knows uh the benefit of

these things has focused on this

xenophobia and broadly uh tighter

immigration policy uh with last time

building a wall the wall was largely

symbolic and nothing really was done

there but this time we believe that he

will make significant policy de

decisions that will actually now that

he's UNC constrained

have dramatic effects on

immigration that IM lack of immigration

will drive up labor costs it's also

driving up pay for people so um not

arguing again whether this is positive

or negative um but it is populous both

of these are very populous policies for

the people internal of the country

and executing on these are structurally

very

inflationary third of all is uh

is an activist is encouraging an

activist fed now again we can argue that

whether or not the FED is independent or

not or whether they will listen to Trump

or um or if he has any real power over

over the Federal

Reserve I think it's fair to say

historically uh presidents who want

activist feds get activist feds the

question is how soon will Powell will he

find a way to uh to ditch Powell early

um or wait till his retirement in ' 06

sorry in in 26 um I would argue there

will be moves to really encourage his

departure sooner rather than later again

an

unconstrained Trump has significant

means to accomplish those goals and is

fairly immune from uh oversight and and

and getting his way um so I would I

would argue that there's a higher

probability Than People realize of the

FED being bent

towards his will um so these three

things again are uh

together demand push economics we will

be driving money to labor in the United

States uh both via protectionism and

rebuilding internally as well as cutting

immigration and getting money to the

people that are here currently with

limiting labor Supply while still

pushing money uh and capital into the

system for cyclical

benefit these things will allow us to

somewhat export some of the inflation

and maximize growth but it will come

with

inflation so we have to ask ourselves

you know uh what what will this mean for

markets one of the best trades out there

in my view is is a steepener trade given

these Dynamics structural inflation is

likely to get worse uh it does not come

overnight but we will structurally build

more and more inflation in the system as

we close the

system and as we drive more

stimulus um we believe that that this

process will ultimately uh create a more

stagflationary

environment and broadly create uh you

know because we are in a

declining growth model right now uh we

believe can have significant delerious

effects via Market channels and the

wealth effect in terms of uh lowering

money supply as long-term interest rates

go higher this is the big picture right

this is not the flows this is the bigger

macro picture and what is more likely to

come now that we have more clarity not

just on who will be president but the

circumstances of the presidential um uh

of their situation Trump is likely to be

a very powerful president with more

Powers than most any president has had

uh not only in terms of his ability but

his now desire to make a dramatic um

non-status quo

impact so that's next year right that's

the likely outcome but from a flows

perspective where are we

now well right now all as I've mentioned

is very well supplied we don't go from

very well supplied to not at all

supplied overnight right uh without uh

something very idiosyncratic happening

like a nuclear bomb going off uh

something like that takes a series of

events to shake this false

Supply it takes timing and windows and a

lack of supply and and other effects uh

and Market structure to play along we

believe we are starting to see those

things and as we mentioned last month in

late summer it is the time to start

preparing to for the rise in volatility

and again it won't happen over overnight

but the way to play that is really

through calendar exposure to get longer

dated VA on the books meaning November

December uh even better January February

March of next year and we really believe

March of next year represents one of the

best

opportunities

um but for the short term uh you know

there is still a significant amount of

allall Supply at the index level that

ball supply has been so important to

this dispersion trade and until it's

completely unpinned this dispersion

tread will continue to work we believe

for another month or so but it is

beginning to work at in a different way

right whereas and we mentioned that this

would uh be likely at some point we've

seen a dramatic turn from one rotation

to another and that's what the

dispersion trade does it pins the middle

and forces decorrelation but the

direction is not clear the direction is

a function of other factors the reason

that Trump's comment towards Taiwan

which in other markets might be

insignificant or not that important to

the market have were so important this

last Wednesday and kicks off this

decline are are very important to

understand with the B Supply at the

index level and the week before Nvidia

beginning to slow in its

momentum we had a setup in

Nvidia which was uh where where by the

way the the positioning of the dealers

was short gamma short upside calls much

like Tesla for many years um and some of

these meme names there has been so much

call buying which has been profitable

and so much profitability driving more

call buying in the AI uh names that

dealers have gotten caught short call

dramatically and long

stock now that game works as long as the

momentum keeps going but if momentum

slows for any reason and it really

started to slow last week um what

naturally happens is that dealers are

forced to sell as V comes down and time

passes the Vana and charm that we talk

so much which are usually in the index

on the put side on these calls uh in nid

in Nvidia uh you have the Opposites you

have selling that happens structurally

that not only in a slow momentum forces

less momentum because it force is less

upside but it starts to to create a slow

moving liquidation at first that creates

the

circumstances uh for something like this

happening so that was one that was the

most important thing that people we

talked about uh before uh in this last

couple weeks likely happening but but

two the other thing that's important is

with the index fall

pinned we actually began to see massive

call buying in the

Russell drunken Miller came and bought

as his biggest position out of all of

his positions calls in the Russell about

a week ago there were all kinds of

headlines call positioning in the

Russell has hit alltime highs about a

week ago it's not just drunken Miller

it's lots of other entities buying those

calls well what did that cause when

Nvidia started declining and the index

was pinned uh and the mar index started

grinding still last week that forced a a

dramatic um opposite effect to Nvidia in

the Russell so now we started getting a

squeeze in the rustle right and the more

that's happening with the index fall pin

that had to force other things the other

way whereas Nvidia had been the

beneficiary of these flows now Nvidia

has quickly became the opposite has now

being hurt by those flows that again

have nothing to do with Nvidia

specifically it has more to do with it

being in a vulnerable state and the rest

of the market starting to push up in

terms of the rustle and the and the

breath and the index itself being pinned

we talked about this in several podcasts

U so this combination of the slowing in

Nvidia along with the acceleration of

other names while the indexes pinned has

forced a selling pressure upon

Nvidia that is vulnerability now at the

heart of that you have Trump who now

speaks to how Taiwan should be paying

the United States for its defense and

how he's taking a different tax

something we haven't heard for four

years from from Biden on whether cares

or will be you know trying to defend or

prevent China from moving on Taiwan

again whether how we regardless of how

we feel about policy this gives T China

more of a green

light um to moving on on Taiwan so with

the odds were

40% of of China moving on Taiwan

sometime in the next 3 four years you

have to believe based on those comments

and based on the policy that Trump is

alluding to that we are likely to see

higher probabilities of China moving on

Taiwan this is important for narrative

which is very important but also for

reality the probabilities are likely

increasing with the Trump presidency and

given his stance of China moving on uh

Taiwan at the heart of the Nvidia trade

is this risk the reason in in 22 that

Nvidia was left for dead this despite

it's not that we didn't know about AI or

believe about the believe in the

opportunities yes it was pre chat

GPT but but the ai ai is not a new

phenomenon it's not something that is

not is newly

understood the reason that the stock was

undervalued was because of those

realities and those

risks those have largely been forgotten

and left out of the

narrative Nvidia has doubled and then

tripled and became the largest stock in

the world yet has by far the most to

lose of almost any stock in the event of

a China invasion in Taiwan You could

argue that Nvidia could decline 75% back

to 22

levels in the case of a Chinese Invasion

Taiwan so this is a massive risk to not

only Nvidia but to the

market anyway so that's important to

understand and that is why a big part of

paired with those flows this is why

macro matters as well as flows to some

of the fear and some of the liquidation

that we're seeing in those AI names and

broadly in a basket the tech

leaders when you start to shoot the

generals you have to be worried because

this Market will have a very hard time

riding on the

back of smaller cap

stocks it will have a harder

time doing what it has been doing

creating the momentum without the growth

leadership that we have

seen so understandably this rotation

causes more risk this way than it did

the other

way underneath the hood now it's

important to know even though V in the

index level has not become unpinned we

are beginning to see some real pain and

in some hedge funds and some other

little corners of the market due to

these four or five Sigma events on

rotation a lot of people who have been

caught despite vnut exploding uh the

rotation has really caused some pain in

the

market if it continues you could see

significant acceleration that eventually

unpins the middle of the market it has

brought us in this window of weakness in

a very short period of time

just in two days about the NASDAQ down

5% and the S&P back all the way to its

20-day moving average we've talked about

how the simple moving average uh the

20-day essentially a month long period

represents a balance of power and how

the market responds in that window in

this window to those technical areas is

a sign of momentum and strength in the

market the early break today and then

recovery is important if it is able to

maintain this as time moves forward

those flows for now the August

expiration will eventually come back in

a week and a half on top of that at the

end of the month if we continue to stay

positive on the month or go higher you

will see a reflexive reinvestment

leverage effect which we've talked about

at the end of the month that will also

support the

market down at one standard deviation

down in the 20-day we see approximately

the exact lining up of

unchanged um on the month uh of of July

so a move back to the one standard

deviation down uh would represent a

dismantling of the reinvestment flows

that come at the end of this month and a

decline below that becomes technically

uh scary not just from a technical

perspective a momentum perspective but

on a flows perspective it's likely to

mean selling pressure at the end of the

month instead of buying pressure so

structurally in terms of Market

structure it's important to understand

there's significant risk that sit here

below the market if this break continues

in this short win of time so a very good

time to put Place Hedges um into the end

of the month very short dated uh to play

actively you can still have your Longs

but then be hedged against them looking

for stability time passing and then a

chance for us to run again um important

also are the risks that behind this

supply of all that still exists here uh

in the August period here end of for the

end of July through August behind that

is uh a September corly expiration that

has a lot a of short interest and a lot

of downside

risk If This Were to accelerate much

like a lot of these other cor

expirations you could see a significant

risk we've highlighted this in the

February and March opcs that happened

during covid in 2020 we've seen many

other Cycles where where these quarterly

Cycles represent a tail risk in the

market so if we were to start

snowballing uh that would be kind of the

epicenter of the risk and we would

likely have a decline that may last up

to two months so a significant two Monon

decline that could be uh very meaningful

If This Were to get started in this

window so important to keep a good eye

on that on top of that we have an

election V behind it where V is also not

well supplied right there are a lot of

Hedges out there we me which means

dealers are short um and so there is a

supply and demand and balance where it's

been very high on Supply and and

providing Vol to the market here we see

dynamics that will likely raise VA going

forward forward and have uh represent

less Vol Supply so naturally if we can

start to P move the market here we can

see a transition that could accelerate

to higher Vol as time moves forward as

well so all very important things to

understand watch 5460 in the S&P or 70

that's about the one standard deviation

uh in uh in the S&P uh

Futures and uh we could really see a

significant decline uh below those

levels um watch fall Supply how how it's

uh moving uh in into that decline uh as

well as rhetoric and things that may

change continue to make the narrative U

worse um watch Nvidia that's one of the

most important things to be watching in

the short term how will it be responding

to headlines how will it be responding

how will the uh the price action respond

and remember that the wealth effect is

way bigger than people ever tell you it

is the momentum effects in the market

are so critical and so important we have

a hundred trillion dollar in U in global

equities about another 200 trillion or

so of assets that are tied to the S&P

500 in Broad markets a 20% decline or

10% decline in the market of about $300

trillion is $30 trillion $30 trillion of

reduction in collateral and assets means

a significant amount of liquidation

across the market it will mean more

selling into end of months as we've

talked about uh a decrease in buyback

pressure into the end of the year and

significant effects of course if we

don't then those momentum effects can

continue the upside into the end of the

year given how much the market is still

up for the year so very important to

watch those Dynamics um if we decline

below 5460 in the futures um I think it

is fair to say that uh we will have not

only a slowing a continued momentum

effect in the market but importantly a

slowing in the economy as well because

you remove collateral you remove

investment that is the opposite of the

stimulus we've been seeing part of the

reason the economy is continue to

outperform expectations because of the

wealth effect if we reverse that wealth

effect now right as the market is the

economy is starting to slow we could see

an acceleration in that Decline and the

FED as much as they say they don't care

about markets do care about money supply

and markets wealth effects are directly

a form of money supply to the market so

do expect acceleration in the federal

reserve's activism if we start to see a

decline before uh and loss of some of

those numbers so we could see an

acceleration of stimulus um as early as

the end of this month if this were to if

this Accel decline was to accelerate for

the next five six seven days be mindful

of that I think that is something that

people are not expecting and could

change very quickly if we were to get a

decline again as always important to

mention we are not getting bearish here

uh we are not uh bullish right here we

are drawing a distribution saying there

is a very short window here where you

have to be careful where there is a risk

and if we start to decline in this

window it could accelerate there is a

structural reality in this window of

weakness given the other structural

effects of ball Supply in the market and

the changes in macro that are coming

from the change in administration and

the change in power dynamics that will

sit within the coming

Administration um that said as you know

a

options expiration if we are to maintain

the stability will provide more fuel uh

as time moves forward for positive

performance if the Vault cannot become

unpinned um on top of that reinvestment

into a positive year into months that

are positive are very positive if we do

not lose this tail it is a very good

time given Vol Supply to own uh puts in

the market particularly a little further

out and to own stock um these are this

is a circumstance in which again V is

starting to begin to make more sense

broadly to the market so there are

positive Trends again you really want to

be situated out uh in September or

Beyond September for this

protection um or playing in this very

short window that's for implied V or in

this very short window playing for very

much at the money down to that one and a

half standard deviation down there so in

the market uh for a very short dated

decline into the end of the month um

that could provide very quick returns um

and hedges broadly to long

exposure as always stay on your toes be

water wishing you the best till next

month take

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