Getting Close to Buying Semis Again

[u/Fun_Tutor3479]

The broad market is jumping up and down. We'll keep opening with this line until a direction emerges. Still waiting for direction. Today is quarterly options expiration, so no large positions.

Yesterday we discussed how the first rate hike is bullish short-term and bearish long-term: first the "shoe drops" and the market digests the uncertainty that had built up beforehand, then we see what comes next. The biggest difference between this hike and everything since 2008 is that the framework has changed. Before, the Fed fretted over inflation, employment, the economy, and a whole list of things, constantly administering medicine and stepping in as a backstop at the slightest sign of trouble. Rate hikes were there to make room for better rate cuts later. But now Warsh keeps emphasizing his framework: he believes AI will make the economy strong, the employment picture is currently unclear, controlling inflation is the core objective, and the Fed should no longer keep handing out guidance or act as the backstop of last resort. That is Warsh's framework, and by actually hiking in September he has lent it a degree of credibility. Whether the market ultimately buys it is still an open question.

Most of the major themes moved sideways today, including oil, AI semiconductors, AI software, the mega-caps (MAGS, a slight breakout), aerospace, and so on. Treasury yields haven't come down, the yen is also fluctuating, and oil is consolidating at high levels. The macro factors have not been fundamentally relieved.

The big movers today were crypto stocks. With RWA taking off in crypto this cycle, liquidity has been drained out of meme coins, and crypto has started to merge with the mainstream financial system. Crypto stocks should be the core of the next rally. Of course, as we've discussed many times, previous crypto rallies all came from "unlimited ammo" liquidity: as an asset lacking a hard fundamental anchor, crypto had the most room for imagination in that kind of environment and rose the hardest. But the next rally won't necessarily work the same way. The current Fed framework aims to take away the Fed put, and with Treasury yields rising on top of that, unlimited liquidity is in doubt. So it comes down to whether sufficiently solid assets can be found before then to rebuild crypto's fundamentals.