The Never-Ending War Meets "Generational Buying Opportunity"

• Crazy Bifurcated Market

• US Tech On Sale

• More Support For My “New Volatility Regime” Thesis

• Final Thoughts: The Countdown

Crazy Bifurcated Market

“If you had told me last year that the $VIX would be up 12% in a day, $AAPL down 4%, oil above $116, and $SPY not even down 1%, I would have laughed in your face.” Beardo

That’s just a random post on X that caught my attention as it sums up the market activity pretty well.

On one side we have elevated oil, dollar, yields and VIX - not willing to back down until they have a reason to: either Iran OR Trump.

And on the other side, earnings expectations are ratcheting higher and Goldman is calling tech a “generational buying opportunity”.

The escalation threat via headlines is foreboding:

• Trump Threatens Iran’s Decimation by Midnight Tuesday if No Deal

• Trump is criticizing NATO, South Korea, Australia and Japan for not helping the US with its assault on Iran.

• Trump says the US has a plan “where every bridge in Iran will be decimated by 12 o’clock tomorrow night, where every power plant in Iran will be out of business, burning, exploding, and never to be used again.”

Iran responds in kind:

• “We will target U.S.-affiliated infrastructure in a manner that will deprive America and its allies of the region’s oil and gas for years”

• IRGC Warning to Neighboring Countries: Restraint Is Over

• Iran officially threatens to close the Bab al-Mandeb Strait. An additional 7 million barrels of oil per day will be taken off the global market

Headlines - all day long every day - as Trump escalates/de-escalates and Iran continues to defend itself/threaten retaliation.

It’s the never-ending war.

Ray Dalio posted today - after I settled on my title of “The Never-Ending War” - an expose on geopolitical and monetary dynamics that is a must read:

We Are In A World War That Isn’t Going To End Anytime Soon.

“As history has shown, the most reliable indicator of which country is likely to win is not which is most powerful; it is which can endure the most pain the longest.”

Speaking of threshold of pain... America is 250yrs old threatening to bomb a bridge 2000yrs old as a human chain of women stand atop it in defiance.

Iranians are doing this wrong: they should be asking Americans to stand with them on that bridge.

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US Tech On Sale

Goldman says it’s a “generational buying opportunity“...

“Goldman sees weakest relative returns for U.S. tech in 50 years”

On the one hand, it’s pretty cool that I timed the “ worst stretch of performance against the broader market in half a century”!!

I called the top to the day with my “Zero Dollar Club” post Oct 14th, and made the prediction we would hit new ATH in December, while value would outperform growth Nov/Dec/Jan/Feb AND Big Tech would sell-off under the surface.

I gave my highest conviction MAG7 shorts in MSFT & ORCL post earnings which are both down SUBSTANTIALLY - while continuing to show clients for months that tech was in distribution.

Everyday, I highlighted my intermarket analysis read - from my Growth/Value ratio and MAG7 ratio roll-overs - as proof!!

And BOTH breatch indicators for tech continue to roll-over I might add!

But Goldman Sachs’s chief global equity strategist, Peter Oppenheimer, sees it differently.

“The U.S. equity market no longer looks so expensive on a relative basis. Its earnings have remained strong while it has suffered a correction”

and
“The PEG ratio for tech is now below that of the global aggregate market, another green flag for budding “valuation opportunities.””

also
“Even amid worries about rising capital expenditure and lower prospective returns, the return on equity for these stocks remains high, with earnings revisions more positive than for any other sector. The result is a record gap between performance and underlying earnings growth for tech.”

and last but not least...
“The Iran war is offering yet one final reason to buy tech, because the longer disruption to Strait of Hormuz shipping traffic continues, the higher the chance of a “perceived growth shock” that will limit interest-rate rises.”

Ironic that this is in large part what I discussed Monday live:

Earnings Expectations Rising With Tail Risk:

More Support For My “New Volatility Regime” Thesis

Imran Lakha of Options Insight posted some thoughts on X regarding VIX that I wanted to share - as it supports in large part my repeated mantra for months that VIX would stay bid. Originally, my Stock/Bond ratio intonated “Mar-May” and that has played out since I warned clients in late January!

I updated Feb/Mar to warn I see it more as a “Volatility Regime” that will last all year.

Imran offered up some great education points on anticipating VIX moves...

“When spot makes a new low and VIX refuses to make a new high, pay attention.
That’s a vol divergence.
The options market is quietly telling you it doesn’t believe the selloff has legs.”

We know this as a practical matter when market is selling off hard but VIX is flat or drifting lower. That’s a great tell folks aren’t buying new/additional protection at that level.

“If vol can’t rally when the market is getting destroyed, what happens when spot bounces even 1%?
Vol gets annihilated.”

But what the VIX telling us right now?

As I have shown for months now, VIX is staying firmly bid above its 10W EMA. If it were a stock, you would love this action with solid accumulation over the past month.

However, VIX is not a stock. Its a mean-reverting index with a high beta to SPX, which means it acts inversely to market direction - MOST OF ITS LIFE.

But that is not what’s happening past few weeks. VIX has remained bid, above its mean, with VIX beta to SPX declining.

Translation: The high sensitivity of VIX to SPX moves is no longer working.

The data is showing a shift in regime: a persistently higher vol environment where the new VIX range will be higher for months.

“When VIX beta is high, vol spikes are sharp but the mean revert quickly so fading them tends to make sense.

When VIX beta is low and VIX is still elevated, the market is telling you these levels are sticky.

Vol isn’t spiking and collapsing. It’s working its way higher to reflect a new reality.”

Imran continues to explain his three “VIX regimes”:

LOW VOL : VIX < 22
MID VOL : 22 < VIX < 32
HIGH VOL : VIX > 32

Irony: How often have I given you 19.50 <> for VIX bearish/bullish line, and how my “Mid Vol” regime is 20-30 with above 30 my “High Vol” regime.

Imran and I are aligned.

Imran goes further and quantifies its stickiness:

“Once VIX spends over 2 weeks in mid vol, the probability of going back to low vol drops significantly. From like 42 to 13%.”

Final Thoughts: The Countdown

I’m focusing on markets for you, as always, but the reality of what could come next is surreal.

Since my first post on this war - Feb 16th Iran Risk Is Not Priced In - I think about the risks - ALL THE TIME.

To feel empathy/sympathy for Iranians and voice anger toward Trump-Netanyahu has caused me to be shadow-banned on X with a barrage of daily attacks on social media.

Clients have also left, to which I remind myself:

“We must always take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented.” Elie Wiesel

I don’t need everyone to agree with me. I also know that my opinions have and will continue to be opposite of others. I’m perfectly fine with that. But this isn’t disagreeing about the value of bitcoin! This actually matters!!

Even posting the idea of nuclear engagement on X, with a subtweet by the Pope that all threats against Iran are ‘unacceptable’, displays the crazy bifurcated sentiment on this topic:

As a mother, I only know bringing life into this world - not taking it out.
As a God-fearing & loving woman, I cannot find any distraction to relieve the worry that Trump-Netanyahu will continue in their illegitimate war (and war crimes) unabated.

Do I know/think Trump will follow through or when or not at all?
No.

Do I think it is unconscionable for the leader of our not-free-world to post "a whole civilization will die tonight."
Yes.

Trump, in blood-partnership with Netanyahu, has succeeded in one thing and one thing only:
to destroy our legacy in America as the moral and political leadership over Western democracies and the defense of democratic values.

The deadline Trump threatens is binary - much like the nation he has divided.

My opinion is not tradable but it is important to reveal to show you the mental gymnastics I must do to "compartmentalize" this disaster from market analysis.

So all the stuff above this fold is market analysis.
But here's what I really think:

Anything less than Trump's full retreat will sever our democratic ("free") nation into full authoritarianism - with totalitarianism not far behind.

Whatever happens tonight, America has already lost.