MSTR to infinity. Europe, not so much.
Hello. It’s Friday. Thanks for signing up. I’m Brent Donnelly.
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Cyberhornet Infinite Money Glitch
Here’s what you need to know about markets and macro this week
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Global Macro
Europe managed to steal the limelight for all the wrong reasons this week as fears of an Old World economic debacle on the back of US tariffs have driven the PMIs in the Eurozone down into the ground. They came in low, and lower than expected.
This has unleashed a full-on melt of the European single currency as EUR/everything waterfalls through every important technical level. European equities are also gripped by sadness as the Trump victory, difficulties at VW, French jitters, horrendous PMIs, and better opportunities in the USA have led to a chart that looks like this:
Of course, this trend has been in force for years.
You can see there that Eurostoxx has gone from 3k to 4.8k while the SPX has gone from 2k to 6k over the past 8 years. American Exceptionalism is a real thing, and buying European equities because they are cheap vs. SPX has been like buying commodities because they are cheap vs. SPX. No bueno.
The debasement of global fiat has been great for US equities and crypto and gold, but not so good for oil, silver, European stocks, and many other assets. Debasement is a tailwind but it’s not a single variable that makes all assets go up.
The other big “macro” story this week has been the rise of MSTR as Michael Saylor is playing the financial engineering game in God Mode. He can borrow money for free to buy an asset and then each time he does so, that asset is instantly revalued at 3X in the market in the form of MSTR stock. It’s stunning. And then you layer on a bunch more leverage via 2X leveraged ETFs like MSTU, and you have a mega flywheel of leveragy awesomeness. It will break one day but not before it enriches many degens and bankrupts the DCF establishment. I will discuss MSTR more in the crypto section.
The other percolating theme in macro has been the flurry of appointments by Trump as they point to a strong rejection of the status quo and a bunch of new faces that given a mandate for radical change. We are still waiting for the most important announcement: Treasury Secretary.
There was this mistaken belief after the US election that gambling markets are some kind of oracular prediction machine, but you can see from the gambling odds on Treasury Secretary that the wisdom of the crowd is only so wise. Nobody has a clue on this announcement as the media and the gambling odds have been staggering around a pitch-black room with arms outstretched, searching in vain for some truth to hold onto.
Much as sports gambling odds are accurate in aggregate, but often wrong game-to-game, Polymarket is the same. It’s an aggregation of the best available information, but not a crystal ball. At all.
Don’t forget to buy the 2025 Spectra Markets Trader Handbook and Almanac here.
Stocks
Stocks have come off the highs, but are still trading pretty OK. Here’s your stat of the week on how expensive stocks are right now (via GS).
Valuation is useless in isolation, but can be useful bigger picture in combination with positioning—and right now the market is all in bullish. There are many shades of 2021 with the AI boom, crypto mania, universal equity bullishness, dovish Fed, etc.
I don’t stay bearish stocks for long periods, because that’s the most expensive bias in finance. There is a strong positive drift to US equities, and so if I’m going to be bearish, I pick my spot and pick a stop loss and if we go through that level, I give up quickly. Sitting short for long periods in a bull market is dumb.
The S&P chart is coiling as the ranges narrow. If we get a daily close above 6020, my bearish view is wrong, and I will move on.
TSLA is top of mind for me right now as we got the rare double whammy magazine cover indicator with Elon Musk smirking gleefully at us from the covers of both The Economist and Time Magazine this week.
The Magazine Cover Indicator hasn’t been great this year, though it most recently pegged the highs in NVO, which is down >10% in the past month since being featured on the cover of The Economist.
Below I show the complete out of sample performance and you can see how it degraded this year. Note that this is out of sample since 2021, but the original study was done in 2016 and the results were good out of sample 2016 to 2021, too. Time nailed the TSLA short in late 2021 as the stock dropped 50% after Musk appeared as Man of the Year.
https://www.spectramarkets.com/amfx/the-magazine-cover-indicator/
This week’s 14-word stock market summary:
SPX risk/reward looks poor for longs … as long as we are below 6020.
Interest Rates
We’re seeing tremendous divergence on interest rates as European yields collapse, Canadian yields bounce, New Zealand looks dovish, and the US holds firm.
Europe looks increasingly like a dog as there is nothing to love there and much to hate. China’s refusal to refill the bathtub, Trump’s desire to tariff the world, Germany’s fizzling export machine, France’s grody politics, and the structural and regulatory malaise infecting Europe make for a horrifying macro environment. The current ECB rate is 3.25% and the implied rate for July 2025 is 1.4%!
In contrast, USA is at 4.75% with an implied rate of 4.0% in July 2025. Divergence! Then again, the European rates curve is nothing compared to Switzerland, where yields are currently 1% and look to be headed to the dreaded zero bound by the end of 2025.
Fiat Currencies
You would think that with European yields cratering and US yields staying firm, EURUSD would be way lower. And you would be right! Here’s a 5-minute chart of what happened this week in EURUSD:
This is an important technical break for EURUSD, as we have now broken out of the range that defined things for the past two years.
As long as EURUSD remains below 1.0500, it’s a very bearish set up. This creates a bit of a weird situation because the end of the year tends to see massive EURUSD buying. But not always! When dealing with seasonality and positioning, you always have to judge it vs. the overall macro story. Seasonality gives you a small probabilistic edge when used correctly, but it doesn’t give you the answers to the test. Many times, macro overwhelms seasonality.
Here is the average seasonal path of EURUSD from 2000 to now. I exclude 2008 and 2020 as its often best to exclude outliers when calculating averages. If you’re not familiar with this concept, we cover it in “Think Like a Market Professional”. Check it out here: www.spectraschool.com
With this chart in my mind, I can still be short EURUSD when the time is right. Between now and next Wednesday, I would expect a ton of USD buying, and then maybe EUR can bottom for a bit. Here’s what EURUSD did after the election in 2016, which was a similar macro setup.
These sorts of analogs can be useful. In this case, you could argue the pattern is that hedgers and speculators go hog wild buying USD (selling EURUSD) and then around Thanksgiving they run out of ammo and fly to see the grandparents and eat turkey so there’s a squeeze. Then, real money sells into the squeeze, and things bottom out just as everyone goes to see grandma and eat ham for Christmas. Low participation markets tend to have less momentum.
Here, for example, is the daily change of EURUSD the Wednesday, Thursday, and Friday of Thanksgiving. Again, when nobody is around, it doesn’t move as much.
Crypto
First up: Sentiment check!
But the big story in crypto isn’t SOL and PEPE friends, it’s MSTR. Everyone in digital and TradFi has been talking about MSTR all week, so I don’t want to bore you with too many details. But in case you have not been following the story:
A man in Tysons Corner, Virginia has unlocked the infinite money glitch. You have a stock that holds just one asset and that stock trades at 3X the value of the asset. You issue stock and buy more of the asset and the asset goes up. You issue more stock and buy more of the asset and the stock and the asset both go up. Forever!
Chat-GPT: Please write a fantastical story about financial engineering. Incorporate elements of Bunker Hunt, Bill Hwang, and Rumpelstiltskin[1].
Here’s the chart:
TradFi CFAs are getting busy mansplaining why it’s bad to pay 3X NAV for a crypto holding company while gamblers understand it’s a memecoin with leverage to BTC. This is similar to other “fair value” plays like VW/Porsche in 2008 or PALM in 2001… Yeah sure, the valuation is stupid. Good luck shorting it. Somebody will make money shorting MSTR, and they will probably make a great movie about that person when MSTR converges to its BTC valuation, but in the meantime there will be 99 others getting rekt.
It’s the same concept as shorting DJT because its terminal value is zero. The terminal value of every memecoin is also zero (except DOGE?). This is not a market in which CFAs will prosper. It’s a gambler’s and trader’s market and the options pricing is so demented you cannot possibly find positive EV trades buying vol.
Short-dated MSTR vol is around 200, which means that right now, with MSTR at $420, you can sell the January 17, 2025, $400 put and sell the $440 call and collect more than $100 for each. You collect $214 for doing that trade. It’s impossible to risk manage, and I am not suggesting you do that… But it gives you a good idea of how insane the options pricing is. $214 premium on a $20 OTM options strangle expiring in two months on a stock that’s trading at $420 is absolutely bonkersville.
It pleases me that the stock is trading right at $420 as I type this. That’s where all memestocks should always trade.
Meanwhile, the actual underlying coin, the swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, is growing exponentially ever smarter, faster, and stronger. The last hurdle before the $13 million target price for bitcoin is the round number and gamma wall at $100,000. Please note that if Saylor’s prediction of $13 million bitcoin is correct, eggs will cost $250 / dozen. It won’t be great.
Speaking of US hyperinflation, this novel … The Reset by Jack Moore … is a dark and stimulating and entertaining read. Don’t read it if you don’t like dark stuff like Requiem for a Dream, Trainspotting, Euphoria, etc. You have been warned.
While TradFi knobs make fun of memecoins mostly to sound smart and intellectually superior, I make fun of them purely because I am jealous. All I got to trade when I was in my 20s was bullshit like EToys, and JDS Uniphase, and Dr. Koop dotcom. Young people today get to trade way funnier bullshit like WIF, PEPE, and BERT.
So if I sound bitter, it’s because I am jealous and wish I was still 27.
BTW. MSTU is an even better store of value than MSTR or BTC right now! (This is the opposite of investment advice).
—
[1] Without the firstborn child as collateral.
Commodities
I have not been talking about oil much lately. Here’s why:
In metals: One of the interesting things in the big huge gold rally is that people keep looking for laggards to play catch up. Stuff like silver, palladium, and platinum would logically be running higher in sympathy with gold if this was a pure debasement story. But it kind of is and it isn’t. So what you get are frequent spikes in those metals, followed by abject disappointment.
Note in this chart that gold went from a low of 1575 up to 2700 or so now (right y-axis). While platinum is unchanged in the same period, trading a spiky 850 / 1125 range. My wedding ring is made of platinum, so I’m continually disappointed each time I mark it to market.
Whew! OK! That was 10 minutes. Thanks for reading Friday Speedrun.
Get rich or have fun trying.
Links of the week
https://squareman.substack.com/p/on-one-hand-live-a-little-on-the
Justin Ross on the Middle Way
https://www.esquire.com/news-politics/a62875397/homelessness-in-america/
The invisible man. 10,000 words. Long read. Very thought provoking.
Music: DC the Don – GOD LEVEL
Contains offensive lyrics and offensive ideas.
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