Dumping Dollars

US assets are being dumped.  They are dumping US stocks.  They are dumping Treasuries.  The last 2 months have been a massive reversal of global capital flows which have gone from the rest of the world into the US for the past 15 years.  There are a lot of foreign investors overweight US assets and they are feeling the pain.  Not only are they losing money on the dollar weakening vs the local currency, they are also losing as the SPX goes lower along with long term Treasuries.  

This is a huge problem for the US government and for those with big allocations to US stocks and bonds.  Dollars are weakening despite the Fed remaining hawkish amidst Trump's trade war.  I am no Trump fan, but Powell is definitely playing politics.  How do you suddenly go from dovish and overcutting in a red hot stock market and easy financial conditions in the fall of 2024, to being hawkish and watching and waiting as the US economy weakens rapidly.  Powell should be fired.  He's the most political Fed chair in modern history.  He only cares about maintaining power, and he's taking out his grievance against Trump who won't reappoint him with hawkish policy while the US economy weakens.  Sure, Trump's tariffs are the main reason for the economic weakness.  But the Fed's job is to focus on the economy, not on fiscal policy.  

Here's a look at fund flows into US stocks:

Cross border inflows into US assets has been skyrocketing since the beginning of 2022.  There is a lot of foreign hot money in US stocks.  

YTD inflows into equities is ~$250B, that's in less than 4 months, approximately 2/3 of which is going into US equities, while the SPX has been going sideways and then down.  A lot of investors are caught offside here.  Not a  good sign for the rest of the year for bulls.  

The most risk-taking of investors are pumping huge amounts into leveraged long ETFs, with the biggest weekly inflows on record happening in the past week.  There are still a ton of dip buyers, especially among retail investors.  The buy the dip mentality is still going strong.  This mentality is not what durable bottoms are made of.  

Lastly, let's take a big picture look at the call/put ratio, or the ISEE index of opening calls to opening puts ratio.  This shows that we are at a historically elevated ratio for the index, still showing lots of call speculation.  

The long term fund flow and positioning data are all negative for the SPX.  In the short term, you can get counter-trend moves that get bulls excited again thinking the worst is over.  But the long term factors such as valuations, positioning, and speculative activity are all showing that we are in the early innings of this downtrend, not the late innings.  

I haven't even gotten into the fundamentals of the market, which are on shaky ground with Trump's infatuation with tariffs, and animosity towards trade with China.  China has the upper hand in this trade war, as Trump's pain threshold is much lower than Xi's.  Wall St. is already breathing down Trump's neck, along with his group of trade hawks in Navarro and Lutnick.  Wait till Main St. gets upset when the effects of the tariffs really hit home, and prices for imported Chinese goods skyrocket and/or are just unavailable due to lack of inventories.  

These tariffs will be so painful for the US economy that they won't ever gain traction, and Trump will backtrack quickly, or be forced to give up his tariff powers as Congress takes away his keys to the tariff controls with a 2/3 vote if he remains intransigent.  

Covered the short last week, as I was wary of holding shorts over the long weekend.  Unfortunately, I covered too early as we are getting a big gap down this morning, along with the long end of the Treasury curve selling off hard.  This is a terrible market to be a long term long in US stocks.  I believe we will be chopping around in a range between SPX 5150 to 5450 for the rest of the month, so we are closer to the lower end of that range at the moment.  I may nibble on SPX longs if we get some further selling after the cash open.  Will not chase longs higher.   Eventually after the chop for the next 2 weeks or so, I expect another sharp move lower towards SPX 4800-4850 in May/June.