Quick Note

Just a quick note followed by a brief macro update while away from the office this week...

A modest gain in our core allocation on the week is giving way this morning to broad selling in virtually everything growthy, including commodities and our non-US equity exposures... All else the same, the one intuitively-speaking surprise is the 2% drubbing gold is taking as I type.

Here's our tentative view on the action in gold taken from the synopsis below... "Since inception" refers to when we added it to our core allocation:

"GLD is -1.9% on a day when the long end is rallying and the dollar is only +0.16%. Gold is being sold as a funding source, not on its macro drivers. With GLD at +125% since inception, it’s the obvious place to raise cash."

We're noting some interesting breakdown in this year's correlations across certain asset classes -- as, with regard to rates and oil in particular, I pointed out in last weekend's video.

Suffice to say that markets are beginning to -- for the moment -- price the economic threat posed by high energy prices and a newfound fear that the AI-spending train may have already run its course... While the latter is without doubt an ultimate potentially-serious economic and market headwind, we remain skeptical that the day is yet upon us.

That said, the latest action in markets is consistent with typical late-cycle dynamics.

Note -- supporting the economic headwind view -- the following core positions action this morning:

XLP (consumer staples) +2.58%,  XLV (healthcare) +1.37%, TLT (Long-term treasuries, which we have a call option on) +1.27%... Again, the position you might otherwise expect to be doing well this morning is GLD (gold), down 2%... While there are a few other pockets of relative strength in our core mix, suffice to say that there's not enough there to fully offset the drubbing in tech-related, non-US and commodity exposures on the day so far... Of course, while we forever assess short-term dynamics (separating signal from noise) as we test our theses (and as we determine whether any tactical and/or additional hedging action makes sense), make no mistake, our strategy will always reflect our longer-term structural view on global macro realities. 

I'll offer up a more robust analysis of all things macro over the weekend.

Stay tuned...

Oil Spikes, Markets Read It as a Growth Problem*

Oil climbed to its highest level since May this morning after fresh attacks on tankers near the Strait of Hormuz and on Saudi infrastructure. The surge followed strikes in Saudi Arabia and damage to tankers in the strait, raising concerns about further supply disruption. What stands out is how markets are interpreting the move. Investors are treating it less as an inflation scare and more as a tax on growth. Long-term Treasury yields fell. Consumer staples, healthcare and utilities moved higher. The selling concentrated in technology, semiconductors, industrials and commodity-linked stocks. gab

The physical picture is better than the headlines suggest. Middle East crude exports are averaging above their pre-war levels so far in October, according to Kpler. Flows through the Strait itself have recovered to roughly four-fifths of pre-war levels. Today’s price reflects fear about whether those flows can be sustained, plus heavy demand for hedging, more than any shortage of barrels. That distinction matters. Premiums built on fear can unwind quickly if the coming days pass without further escalation. boereportboereport

Two other threads are worth watching. Large technology companies gave back ground despite solid earnings, as investors grow more selective about the payoff from AI spending, and the semiconductor group took the brunt. Precious metals also sold off alongside other commodities even as yields fell. That looks more like investors raising cash from a strong performer than a change in the long-term case for gold.

Next week brings policy decisions from the Federal Reserve, where a hold is widely expected, and from the Bank of Japan and the European Central Bank. In Europe, French government borrowing costs have moved above 5%, a reminder that fiscal strain is not a uniquely American story. Portfolios remain diversified across areas that respond differently to an oil shock, and we aren’t reacting to a single session’s headlines.

*The section titled "Oil Spikes" was prepared with AI assistance, reviewed and edited by Marty Mazorra, Chief Investment Officer.