A quick update for this potentially pivotal week

Right now, the market is not easy to navigate. The price action over the past few weeks has become increasingly unusual and untethered from reality. This is typically what we see at the top (max confusion), and most of my indicators still point in that direction

For instance, the market is showing a return of euphoria, meme stock mania, and a level of complacency that feels eerily similar to the setups before the 2000, 2008, and 2020 crashes (respectively). Another data point worth mentioning is that Tech and AI now account for over 45% of the S&P 500 after the insane rise of the past few weeks.

Yet, even if it is less likely, it is important to avoid betting the farm on one outcome because the stock market could just start another impulse up (and for a longer period of time that we think it can stay disconnected from reality). So, in short, for me right now it is about being ok with the portfolio either way (crash up or crash down).

Here are a few other key takeaways I can share with you in the meantime:

The BoJ & Yen Carry Trade

For years, investors have borrowed cheap Japanese Yen to buy global assets in a strategy known as the carry trade. While the Bank of Japan desperately wants to keep interest rates low, they are being cornered into a hike for three main reasons: defending a rapidly depreciating Yen, combating the resulting imported inflation (especially in food and energy), and preventing massive capital flight to higher-yielding markets. If they are forced to hike, the Yen strengthens, making these carry trade loans incredibly expensive and potentially forcing investors to liquidate global risk assets to cover their positions - a scenario that triggered the flash crash in August 2024 when markets were not expecting a rate hike from the BoJ.

The US Swap Lines

Swap lines are tools the Federal Reserve uses to provide foreign central banks with US dollars. When set up ad hoc like we are seeing, this acts as a stealth emergency measure indicating severe, hidden dollar shortages in the global banking system. Furthermore, there is a real risk this mechanism could be used for stealth money printing, where foreign nations borrow USD through these lines and channel those funds directly into US assets, artificially propping up the market.

Earnings: The Perfection Trap

Stock prices are currently demanding absolute perfection. Contrary to the usual trend of lowering expectations heading into earnings season, analysts have unusually revised their targets upward. As you can see in the chart attached below outlining the schedule for major Tech earnings (including Tesla, Microsoft, and Apple) and global interest rate decisions, this creates a dangerous setup where even a strong earnings report could trigger a massive sell-off simply because a company failed to clear these artificially high hurdles.

The Gold/Oil & Dow/Gold Ratios

These historical ratios are pointing toward higher gold prices and significantly higher oil prices - a reality the broader market has not yet priced in. For context, during the 1973 oil embargo, the market initially dropped 15%, but the real devastation - a further 40% stock market crash - actually happened AFTER the embargo was lifted. This historical precedent highlights the delayed, crushing payback of energy shocks once reality sets in.

Gold, Silver, and BTC

These three assets are testing our patience because they are still sitting in the critical decision zone. I’m waiting for a confirmation signal: either one last leg down (alongside the broader stock market), or confirm the start of their next major upward trend.

Until then, keep your risk management tight and do not let the market's euphoria dictate your strategy.

Hope this helps,

Nico de Bony

If you found this briefing helpful, feel free to share it. For those ready to build a defensive process, the links to my training are below.

• Watch my Free Masterclass to understand the 5 core hedging strategies.

• Watch the Practical Demo to see me execute these trades live.

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