Market Commentary

State of the Trades

Brief note here to give some color on a couple of trades and express some thoughts on trade management.

The short gold trade got off to a galloping start when we got short on October 17^th and has been consolidating in a range since then.

The easy thing to do would be to take profits and move on with life. This however would be inconsistent with the targets laid out on October 20^th. Listed here 👇

This is not to say we should get religious about the shiny toy model. Things do change and one must adjust their priors accordingly. What has not changed is the trajectory of the thing that was stated to be the dominant risk to the long gold trade: a rising dollar.

The dollar has recovered its summer losses and seems to be on the good foot with respect to other currencies.

The structural drivers of the dollar were covered in this note and should be revisited.

The cyclical argument is simply that world got too bearish on the U.S. economy after Liberation Day, and the recent repricing of one less Fed policy rate cut validates the view of over-bearishness. There is more scope for the dollar to improve and recover pre-Liberation Day levels given the pending annulment of the tariff structure in their current form.

Thus, the short gold trade is really a long dollar trade in drag and will remain open, and Pinebrook will likely add to this short should gold return to the 4150 area, where there is strong technical upside resistance.

Last week Pinebrook got long ZN, the future contract for the 10-year U.S. treasury note and doubled up on weakness. The motivation for the long and the double is primarily driven by the expected forward evolution of the labor market (weaker), and a reaction function dictated by preferences for labor market support.

Price action was consistent on the long end after the Fed presser selloff, until yesterday. Reasons cited include:

• A strong ADP private payrolls report. Keep in mind ADP does not cover government jobs. Also, while ADP does converge to NFP over time, it has a non-predictive short term correlation the official government time series.

• A stronger than expected ISM Services report.

• Talk of how tariff annulment would require additional treasury issuance to fund refunds, and a worsening fiscal score for the U.S. Government given the fall in long term tariff revenue.

While the above makes for good chatter and copy for the financial journalists, it does not address Pinebrook’s core motivation of labor market weakness.

The fact of the matter is we are flying blind without government statistics. What light the official data releases show on the labor market is what we are waiting for.

• If the data goes against the thesis, the trade will be closed out at a loss.

• Should the data validate the thesis, then a decision will be made to take profits or maintain the position.

With an average print of 113.05 vs MTM 112.71 on 4-contracts, the position is an 8bps PNL hit to total AUM, and thus nothing to worry about.

Correct sizing fixes a lot of mistakes and allows one the freedom of mind to live with some 🐕 💩 or move on without regret.