US Stocks Can Keep Grinding Higher: 3-Minute MLIV

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00:00There's not a huge amount of momentum, it seems, right here and now, in terms of where to take

00:05this conversation. I'm sure we've got the tech trade, that that dip was bought in the United

00:09States. I guess that tells us something. Yeah, absolutely. I think we're lacking some of the

00:16fundamental threats on the horizon that normally give people kind of wonder whether the narrative

00:21will change. We don't have an obvious central bank meeting that's in doubt that's going to

00:25change things immediately coming up. We're not getting U.S. data at the moment because of the

00:28shutdown. Sure, we're coming into earnings season, but we're not getting into the major heavyweights yet.

00:34And so I think overall, it's unlikely that we're going to see, unless always there's an open to a black

00:38swan, there's no point even talking about it, unless you get a black swan, there's not an obvious reason

00:42fundamentally for narratives to change at the moment, which is probably positive for stocks.

00:47They continue to grind over that wall of worry. If you wanted to see a change of narrative, it's probably

00:52going to come internally. And what I mean for that, it's going to come from markets that just get too stretched

00:57and trip over themselves. And if you're looking for a source of that, the most likely one for me is, as you

01:02know, we've talked a couple of times this week, I do think the dollar is ripe for a year-end rally, and that

01:07might put a few positions under pressure, which might have some spillover effect. That said, as long as it stays

01:13relatively, you know, not too rapid, it's a controlled rally, I don't see it having too much cross-acid impacts,

01:20but it's what I'm watching for.

01:22Nassim Taleb says there are no more black swans, they're all white swans, we know what the risks are,

01:26and as a result of which we've just kind of got to wait for them to come and deal with us. Mark,

01:32just kind of work me through this dollar rally. So if the dollar starts to rally, and I'm looking at the

01:36screen this morning and I'm starting to see some early evidence of that, just walk me through the

01:39process of how this will ripple through into other asset classes and how that process will work.

01:45So I think most importantly, a stronger dollar is a slight tightening of financial conditions

01:53for the rest of the world. And obviously, many assets are priced in the dollar. So you take one

01:58of the most consensus trades in the world out there, bullish gold, it makes sense, it's a logical trade,

02:03but everyone's on it. Now, if you have a strengthening dollar, that is, you know, immediately that's the

02:07other side of what gold is measured in and how people have their gold trade on. Now, the two biggest

02:12marginal inputs for gold, I'm not saying they're the fundamental drivers, but the marginal inputs

02:15are the dollar and higher yields. And we're in an environment where higher yields have been

02:19pressured higher. So if you suddenly have a move where people are losing on their short dollar

02:24positioning, which is where the speculative market is, it is true that the world is structurally

02:27long dollar, but the short positioning is short dollar. So they get squeezed in that. They get

02:31squeezed on a consensus long gold position. And then suddenly they start going, hey, we're starting to

02:36hurt some of our positions into year end. And that's where they start saying, why don't we start taking

02:39some profits and the other things that have been working very well. And that's how you can get an

02:43internal change of narrative. Now, I've lined up that scenario. That's not my base case. My base

02:48case is actually that equities continue to kind of grind higher over this wall of worry because it is

02:53a very, very high bar for us to get an internal hurdle to trip us up. It can happen. It's what I'm

03:00watching for. And the only reason I'm watching for it is because there's not a fundamental scare

03:04in the horizon. So stay probably bullish, but expect dollar to bounce.