Uranium is set to be more scarce than expected in 2024

🔗 Citi

Considering the recent selloff in Bitcoin since its ETF release (down almost 20% since Jan 11), I think it's worthwhile to look back at this theory from JPM, which noted that Bitcoin outperformance was a proxy for hedge fund pain (their most shorted positions would see short squeezes/rallies).

The theory seems to be consistent, with hedge fund shorts having recently turned profitable as bitcoin underperforms.

🔗 Fundamental L/S Alpha Chart

GS Research estimates gross $840 billion corporate buybacks in 2024, 4% more than in 2023 which was a top 3/4 year for corporate buybacks... This may help mute weakness specifically in the largest tech stocks throughout the year.

And quickly, here's JPM's market reaction matrix for the CPI in a half hour:

Note that these are headline MoM figures, not core MoM. Headline has tended to print lower than core recently, but the two are close and markets are paying attention to MoM prints. 0.2% and below and stocks run with it.

As for what the options market is telling, today's straddle is pricing about a 1.0% move.

Expected market reaction for tomorrow's CPI from GS

Clear upside risks

We're back with the options course. Remind me to never again begin a project three days before Christmas.

In case you feel overwhelmed by the sheer volume of posts (I left it at 12 for today), just understand that I am proceeding at a snail's pace and that none of the content on @DTPrimers is going anywhere. Here's a table of contents, which is continuously updated, if you want to move between sections.

Thanks for the support and the kind words.

Also if you have any comments re: the options course, feel free to ask in these comments or in the Dissident Thoughts chat.

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DT Primers

THE OPTIONS COURSE (Will edit this list as the posts get out there). - Intro - Options Basics - Premium, Intrinsic Value, and Moneyness - Extrinsic Value: Time & Volatility - Risk Profile - Long call example - Options Valuation - The Greeks - Directional…

Note that the Trading Flow chart shown above does not describe net positioning, but instead the change* in positioning over the last year. However, the divergence between cyclicals and defensives is still significant.

The Pain Trade of 2024

Hedge funds are very clearly betting on recession in 2024. This is not suggested by just one side of a pair trade taken on by funds doing L/S, but by their net positioning flows over the last several months and recent double-downing into energy shorts.

The Cyclical/Defensive pair trade is the recession trade: Defensives (Consumer Staples, Health Care, and Utilities) will tend to outpeform Cyclicals (Energy, Materials, Industrials, Financials, and Real Estate) during economic malaise, or at least perform less worse. At least in theory.

Thus, in anticipation of recession, one might short cyclicals and buy defensives. Based on trade flows, this is what funds appear to be positioning for. Absent recession, this trade falls apart as the shorts (cyclicals) outperform the longs (defensives).

This dynamic creates one giant Pain Trade for 2024, and it is no landing (no recession). We don't expect a U.S. recession in 2024 — an election year. The Treasury will run inane deficits to put it off further.

🔗 GS Prime