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Market Insights with The Carny – Feb 11, 2025 (Please like, RT and comment if useful, thank you!) The news was light last night as Trump implemented the telegraphed steel tariffs—a largely non-event. More interesting is the reciprocal tariff plan coming out in the next two days, which I feel is a big deal that people aren't paying enough attention to. Regardless of your views on Trump, a simple rule that sets tariffs at the same level that other countries impose on the U.S. is not only easy to follow, but it's also a lot closer to "fair" than tariff by tweet. It's great for the Trump administration's PR. Very few people know that the UK tariffs cars at 10% while the U.S. sits at around 2%... or that France tariffs wine at 25%. Don't even get me started on China. With this rule, tariffs can increase to match—or even decrease together. It's hard to see how that won't be a popular play. After the initial shock (as it's a "Tariff!" moment), people will relax, and other countries will be a lot quicker to play ball since they have little defense when it would be their country imposing tariffs higher than those in the U.S. This will cause a relaxation in fear across the board and is hardly inflationary. A simple ruleset is good for everyone. ---------------------------------------------------------- Overnight News - President Donald Trump substantially raised tariffs on steel and aluminum imports on Monday to a flat 25% "without exceptions or exemptions", affecting imports from Canada, Brazil, Mexico, South Korea and other countries that had been entering the U.S. duty free under the carve-outs. (RTRS) - Trump said he would announce plans to impose reciprocal tariffs on other countries over the next two days, doubling down on comments he made on Sunday. (RTRS) - Trump said he had spoken to Chinese President Xi Jinping since taking office on January 20, but did not offer details on the topics of their conversation. (RTRS) ---------------------------------------------------------- Stock Market Outlook: With the C-MAPE score at 6 and the CCS at 4, we're in a short-term bullish backdrop, but as the time horizon extends, returns begin to fade. Does that mean it's time for the big short? Probably not. I suggest never making equity shorts your main play—they're designed to go up—but the risk/reward of going max long on stocks here isn't as attractive as it was at the beginning of the year. This morning, we'll get a good read on whether dip buyers are still around. The steel tariff was already known, and this reflexive selling on tariff headlines—failing for the fourth time in a matter of weeks—will likely cause most players to shut down that algorithm. The tariff drama is overblown; we have countless sets of data showing how little effect tariffs actually have on long-term inflation, and if growth remains steady—albeit slightly cooling—that's not a disaster scenario for stocks. Valuations are too high, but that's the norm, and timing markets on valuations has always been a fool's game. It's just too hard of a fight to wake up every day and want stocks to be down. It's better to trade other macro products from the short side and buy dips in stocks. It'll make your life a lot better, and your mind will be far sharper than getting stuck in the trap of hating equities in a rigged game. ---------------------------------------------------------- Bond Market Analysis: Bonds are now waiting for the CPI's next move—and the headline number will be crucial. In every report, market participants ignore fading metrics in favor of figures like super core or extreme airfare data. When back-testing inflation numbers, details like airfare figures are quickly discarded—they don't really matter. This focus on crafting a desired narrative, rather than acknowledging that inflation isn’t as severe as expected, has led many to miss the recent lows in bonds. The bottom in bonds is likely in, making it an ideal time to buy the dips rather than sell. However, with the March Fed cut currently off the table, there's a cost to holding bonds compared to short-term bills or cash. The two-year note will become much more attractive once another Fed cut is expected, but for now, its absence is a drag on duration. We need a headline push to drive the two-year yield above short-term rates and renew interest. Until then, if March remains off the table, bonds may stall—not selling off much, but struggling to push higher. ---------------------------------------------------------- Currency Markets: We've navigated the currency moves very well this year. As noted, the DXY at 110 was grossly overvalued, so we covered our trades in dollar pairs near the 107 level to avoid a reflexive short covering bounce. While we've favored the yen, the fact remains that we're at the bottom of a longer-term channel, and USDJPY could stall. Our long-term target for short USDJPY trades is far lower than the current price, but as we've said many times, carry doesn't die easily. I'm personally short near the 160 level and have no intention of changing my long-term positioning, although I've closed out of most of the JPY futures calls. I now favor using spot and holding if you're already in, rather than adding to or chasing the short, as a reflexive bounce toward the 154 level is likely. The EUR has struggled to gain strength, and its long-term destination is parity. However, if you want to short the EUR, you need a large push higher—you cannot chase it here. I have no intention of being long EURs at this point. AUDUSD is looking better in the face of a weak retaliation from China on the tariff front. Their economy and inflation metrics are holding up, and the chart is near multi-year swing lows. The odds of a total breakdown of the Aussie seem low at this point. Although China hasn’t done anything new on the fiscal side, there appears to be a rumor or sentiment based on recent stock market changes that they might. I like this one for a trade, but being long AUDUSD is still dangerous, so if you join in, keep the risk light. ---------------------------------------------------------- Commodities Market Analysis: Yesterday, I put out a post explaining that it was far too early to look for a short in oil again. That trade has played out, and as we approach $70 in CL, you have to be careful not to get caught in a short covering or FOMO rally. That's playing out this morning. A test of the $74–$75 level would make sense as oil chops around and forms a new range. I expect oil to hover between $71 and $74, with occasional pushes up toward $76 and down toward $69. Many believe that oil producers won't "drill, baby, drill" near the $70 level and that Trump is somehow on their side in this. That's just not true. Breakevens are far lower, and while people always argue with me about this, every time I try to place a bet with them, the price of drilling shuts off quickly—dropping from $72 down to $65. Oil's long-term destination is in the 60s for now, though it won't get there overnight. Gold is in full FOMO mode, and it's useless to examine the underlying factors driving it higher because there are none. This is purely an inflation hysteria and FOMO trade at this point. You should not join in, as a weak CPI number or a deflation scare could trigger a quick flush lower. Overall, gold's fair value lies somewhere in the $2700 area, but once FOMO kicks in, there's no stopping it. A push to $3000 is on the table, so I would avoid this trade from both the short and long ends for now. BTC is struggling to hold above $100K, and we're not interested until it either holds above that level or breaks down into the $80K range. ---------------------------------------------------------- VIX term structure: As we near VIX expiration, the front spread is becoming less attractive as a hedge for stock index longs. The VX curve shows a slight building pressure as you move further out, but even though it's a bit higher than normal, it's nothing to worry about at this point. Overall, the front fly has relaxed, and caution continues to be pushed out to the 30-day range. For now, all rallies are being sold—while that can't last forever, it can persist for a very long time. The flys signal some hedging activity in the 30–50 day out range, but nothing extraordinary. ---------------------------------------------------------- TL;DR Summary: - Tariff Policy: Trump's steel tariffs were a non-event, but the upcoming reciprocal tariff plan is significant. A rule aligning tariffs with those imposed on the U.S. promises fairness and eases inflation fears. - Overnight News: Trump raised steel and aluminum tariffs to 25% without exemptions, with plans for reciprocal tariffs over the next two days. He also mentioned a call with Xi Jinping, though details were sparse. - Stock Market Outlook: With a C-MAPE of 6 and CCS of 4, the short-term outlook is bullish, but extended returns are fading. Caution is advised and the overblown tariff drama has little long-term impact. - Bond Market Analysis: Bonds are waiting for the CPI headline. Key inflation metrics (like airfare data) are largely irrelevant. The bottom in bonds appears to be in, making it a good time to buy dips, though bonds may stall if a March Fed cut remains off the table. - Currency Markets: The DXY corrected from 110 to 107. USDJPY is at the bottom of a long-term channel, but caution is warranted due to a likely bounce toward 154. The EUR remains weak, headed toward parity, while AUDUSD is near multi-year lows but remains a risky play. - Commodities Market Analysis: Oil's short trade has played out; as CL nears $70, expect a new range between $71 and $74 with occasional moves toward $76 or $69. Breakevens are lower than many claim, and oil's long-term target is in the 60s. Gold is driven by pure FOMO and inflation hysteria, with a fair value around $2700 but potential for a push to $3000—so avoid trading it for now. BTC is struggling to hold above $100K, and interest will resume only if it stabilizes or breaks down into the $80K range. - VIX Term Structure: With VIX expiration nearing, the front spread is less effective as a hedge. The VX curve shows slight pressure out to 30–50 days, but caution remains as current rallies are being sold off. ------------------- If you’re interested in this type of market analysis, check out our premium service at @DSMMAprivate. We offer quantitative models, market briefings, and technical setups. Link in Bio or DM me @NikLentz, @Jimmyjude13 or @DampedSpring to get started. My market notes and breakdowns on Twitter/X will always remain free. The paywall is for those seeking deeper insights and private attention to excel in the markets. ---------------------------------------------------------- Follow @PiQSuite for best News Source on the internet! Disclaimer: The information provided here is for educational purposes and should not be considered financial advice. Markets carry inherent risks, and past performance does not guarantee future results. Please conduct your own research or consult a financial professional before making investment decisions. All opinions are my own. Please trade responsibly ---------------------------------------------------------- == Preparation Beats Prediction == ---------------------------------------------------------- Good luck and God Bless! - Nik "The Carny" Lentz