Strategy Note /
Global

Lines In The Sand

  • Line in the sand - a line one won't cross or as the Dead sang: a point beyond which one really won't go.

  • Cross asset markets feature many such lines - be it technical levels, policy lines, or FX levels - many seem out of line

  • Our model portfolio review noted a sharp line btwn V poor sentiment & strong relative performance by Commodity & EM ETFs

Jay Pelosky
Jay Pelosky

TPW Founder & Global Strategist

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TPW Advisory
9 September 2022
Published byTPW Advisory

Lines in the sand feels about right – a line one won’t cross, or as the Grateful Dead sang in their classic tune “Fire on the Mountain”, a point beyond which one really won’t go. The origin story traces back nearly 200 years to the fight at the Alamo so it’s fitting that the Horns are 20 point dogs to Bama in tomorrow’s big game, the biggest display of lack of faith since the 70s according to my UT buddy.

 

It strikes me that there are all sorts of lines in the sand these days – interest rate lines (how bout the end of ZIRP in Europe – worth celebrating no?), commodity spike lines (Dutch Nat gas down 40% from its high – who knew the Russian shut in of NS1 would be bullish?), policy lines (EU to cap energy prices and support consumers, China’s $30B bailout package draws a line under its property sector woes). 

 

There are also lines in wartime. Note the Ukraine advance and its potential to cut off Russia’s resupply lines. Keep the name Kupyansk in mind – it is a key transport/resupply/logistics hub for Russian forces. The conflict has stretched on longer than we anticipated but the battle lines are shifting in Ukraine’s favor, drawing more Western support.

 

There are lines in the sand throughout the cross asset markets as well. We have long written about the utility of technical analysis in the current ahistorical period; is it a surprise that the S&P bounced right off the 61.8% Fibonacci retracement line? What about those inflation breakeven lines – US 5 year at 2.45%, down from 3.6% last March and right in line with the 10 yr. average of roughly 2% - speaks well to that Fed credibility concern one reads so much about.