Recent note from city pointing to crypto weakness as a potential warning sign for equities but saying liquidity could soon turn and revive risk assets into year end. For more Dirk Viller, head of macro strategy and asset allocation at city. Dirk it is good to see you as always.Let's start with that recent note from you all Durk where you were talking about Bitcoin's recent weakness as sort of this this warning sign for stocks since you've said you know wrote that Bitcoin's even weaker but but start there Di ...

Market Evolution & Financial Instruments - Prediction markets are expected to continue evolving [1] - Capital flow into prediction markets is anticipated to continue [1] - Prediction markets are expected to create opportunities for hedges and other financial instruments [1] Hedging & Profit Locking - Prediction markets can be used to hedge positions on crypto prices (15min, 1hr, 4hr, daily up/down) [1] - Prediction markets can be used to hedge positions on equity markets (daily up/down) [1] - Prediction markets enable efficient hedging or locking in set profits by taking counter positions [1]

Market Overview & Risk Management - Equity valuations are high, and markets are on a knife's edge, prompting consideration of hedges like commodities [1] - Diversification into bonds or commodities and option-based strategies are recommended to bolster portfolios against equity market sell-offs [6] - The market offers opportunities to manage risk, and leaning into hedges is advisable given subdued volatility [43] - It's a good time to reduce US-centric equity risk due to valuations and uncertainties [45] Options Strategies - Option markets are efficient, and determining attractiveness requires more than just observing volatility levels [9][10] - Avoiding leverage and ensuring full collateralization are crucial when using options selling strategies [11] - Diversifying the option overlay through laddering (trading a small slice each day) helps adapt to changing market conditions [12][13] - Demand for income and defense against equity drawdowns should drive growth in option strategies [25] Gold & Precious Metals - Gold is traditionally a safe haven during economic turmoil and geopolitical instability, benefiting from falling interest rates [16][17] - There's significant room for gold to run, supported by geopolitical risks and central bank buying (approximately 1,000 tons per year over the last three years) [20][21] - Investors are typically underallocated to gold, with recommendations suggesting a 5% to 15% allocation [33] - Silver's industrial component (60% of overall demand) offers growth potential through industrialization, energy transition, and AI [49][50]

Market Trends & Predictions - JP Morgan predicts Bitcoin could reach $165,000 by year-end, approximately 40% higher than current levels [1] - The rise in Bitcoin and gold popularity reflects growing economic anxieties, with retail investors investing in both since late 2024 [2] - October is seasonally the strongest month for Bitcoin, and Q4 tends to be the strongest quarter for crypto [6] - Some projections estimate Bitcoin could reach $200,000 by year-end [5] Valuation & Performance - Bitcoin was considered $36,000 overvalued compared to gold at the end of 2024, but is now roughly $46,000 undervalued [4] - Gold prices are fairly steady and heading for their seventh consecutive weekly rise [4] - Gold tends to front-run Bitcoin, suggesting a potential rotation from analog gold to digital gold [8] Factors Influencing Bitcoin - JP Morgan revised its Bitcoin call higher due to stronger demand for safe-haven assets like gold and increased retail investor involvement [5] - Liquidity tailwinds, such as stablecoin issuance, are positive for blockchains like Ethereum and Solana [7] - The market is focused on earnings growth and is dialing back the noise from fiscal policy uncertainty [13] Blockchain Technology & Investment - Venture capital is seen as a key area for accessing blockchain technology, particularly in private markets [15] - Increased legislative support and clarity could lead to a real transformation and legitimacy in the crypto industry [16]

Market Trends - Global investors have decreased hedges against a weaker dollar to levels approaching those before the tariff turmoil in April [1] Investment Strategy - State Street indicates a shift in investor positioning regarding the US dollar [1]

Market Trends & Investment Strategies - Trading desks at firms like Goldman Sachs and Citadel are advising clients to purchase inexpensive hedges against potential declines in US stocks [1]

Market Trends & Economic Outlook - Wolf Research notes new market highs led by industrials and tech, viewing these sectors as economic stalwarts [1] - The market may consolidate by 3% to 5% due to typical seasonality, upcoming inflation and job reports, and the Fed's September meeting [14] - There's a risk the Fed might not cut rates in September due to the lagged impact of tariffs and a potentially stronger-than-expected growth outlook [8][15] - A fiscal stimulus bill could add up to $250 billion to $300 billion of stimulus to the economy over the next 12 months, though this is debated [10] Earnings Season & Company Performance - Earnings results have been solid, with 3M showing margin expansion despite tariffs, offset by a weaker dollar [1][2] - A weaker dollar has been helpful for companies like 3M and PepsiCo, but a stronger dollar could increase the sting of tariffs [5][7][8] - Companies are rolling off hedges and not re-hedging due to previous losses, anticipating a weaker dollar [4] Monetary Policy & Currency Market - Implied volatility on earnings is lower than it has been in almost 20 years [3] - The market is potentially too optimistic about Fed rate cuts [8] - The biggest reason for potential rate cuts is the government debt situation, needing to roll a lot of paper [15]

Market Overview & Strategy - The market deserves the benefit of the doubt, favoring growth sectors like technology, communication services, and industrials [1] - Economic data suggests the economy is cooling but not collapsing, with solid retail sales and declining initial job claims [2] - Earning estimates for the market continue to move higher, supporting a positive underlying trend [2] - The market is warming up to a 30-year rate floating around 5%, with focus on the velocity of the move [3] Hedging & Portfolio Allocation - Gold remains a diversifier in portfolios, performing well when stocks and bonds decline [4] - The firm is more focused on the equity side, seeing more upside overall in the market [5] - International equities have been moved to neutral, but the firm maintains a US bias, favoring US large caps and growth sectors [6][7] - International equities experienced mean reversion after underperforming since the 1990s last year [6]