White mountain WEEKLY BY Pinecone Macro July 28th, 2018 · “Simplicity is the ultimate...

WHITE MOUNTAIN WEEKLY BY PINECONE MACRO JULY 28TH, 2018

www.pineconemacro.com @pineconemacro [email protected] 1

This week we will learn a lesson from the whitebark pine and a

disease it has struggled with known as blister rust. We will learn

from nature, from Taleb, from Aikido, and from Thoreau, Emerson,

and Da Vinci. We will also examine the US dollar, uranium, and

hear from Epictetus.

Whitebark Pine

The Whitebark Pine grows in the Pacific Northwest mountain ranges

including the Cascades, the Sierra Nevadas, and the Yellowstone

area in Wyoming. Whitebarks grow at varying altitudes and have

adapted their features accordingly. This tree is one of the only found

on top of some mountains in Yosemite and has a shrub like

appearance instead of the typical pine tree structure.

There is a lot to learn from this endangered tree. The whitebark is at

serious risk after a multi-front attack from disease, bugs, and

humans. Perhaps millions of whitebarks have died from mountain

pine beetles (especially near Yellowstone) but I want to focus our

attention on white pine blister rust.



White pine blister rust is a fungal disease that has affected

hundreds of thousands of whitebark trees. Illustrating the severity of

the disease, it has infected about 80% of the trees in Mt. Rainier

National Park. This infection starts on a single branch, eventually

works its way to the trunk and develops an orange or light red

“canker”.

From there, spores are released that eventually girdle the branches

until the disease spreads and engulfs the tree in red foliage called

“flags”.



Thankfully for the whitebark, a few trees have a genetic resistance to

blister rust. Now people are growing new seedlings from the

resistant group in order to try and overcome the disease. The level of

resistance is reported to be approximately 66 percent in the

seedlings and over-planting by about 50% is required.

Once again, nature gives us a chance to learn a lesson we can apply

to our tradecraft. Blister rust does not spread from tree to tree, it

requires ribes to spread. Ribes are a bush that include currants and

gooseberries. These act as an alternate host. The disease has a five

stage cycle and two of the stages occur on ribes before the most

important stages occur on the white pines. Your first thought may

be, well just get rid of the ribes. We tried that for about fifty years

and it was costly and largely ineffective. The obvious answer is rarely

the right answer and that applies here.

Ribe eradication was using a brute force or even an opposing force

mentality when the answer is to harness the power of nature. In the

Japanese martial art of Aikido, you are taught to avoid using force,

but to instead blend with your opponent’s energy – to guide and

https://www.fs.fed.us/rm/highelevationwhitepines/Threats/pdf/whitepine_PHP2001_0924_01.pdf



control it. Aikido teaches Ki (気) which roughly means “life force” or

“energy.” It is the living energy that flows through all things. Being

in harmony with this energy rather than resisting it is an important

concept in the art. Instead of the brute force of trying to destroy

millions of plants from enormous forests – the better route has

proven to be guiding and using nature’s own resistance to the

disease.

In our trading, we can view brute force as countertrend trading and

the Aikido approach as harnessing the energy of a trend and riding

it. We all know a lot of bears who love to bash FANG and love to do

an end zone dance when one of them falls 20% after a 1,000%

advance they watched from their skeptical sideline. I for one

countertrend trade all too often, and sometimes it works when done

right. In the end though, most of your trades should be with the

trend. Using the energy of the market is how we make money in the

long run.

“In Aikido we never attack. An attack is proof that one is out

of control. Never run away from any kind of challenge, but do

not try to suppress or control an opponent unnaturally. Let

attackers come any way they like and then blend with them.

Never chase after opponents. Redirect each attack and get

firmly behind it.”

― Morihei Ueshiba



Taleb highlights something in Antifragile that I want to inject. Taleb

says “everything alive or organic in nature has a finite life and dies

eventually…but it usually dies after reproducing offspring with a

genetic code.” He adds “nature does not find its members very

helpful…nature prefers to let the game continue at the informational

level, the genetic code.” His point is that individual members of

nature must die for nature itself to be antifragile. Nature’s members’

mortality gives nature it’s immortality.

White pines were going to survive without us, because of the game

the trees would have played with the code they passed down.

Thanks to our understanding of the tree’s code, humans are able to

attempt to keep their drawdown from being so deep.

Our Investor Code

As an investor we have our own “code.” Think of your code as one

not passed to your offspring when you die, but to your future self.

Take your own evolution seriously because it is what will make you

a great trader. In the early days as a macro trader it is normal to

add and add and add: new indicators, data points, talking heads,

research, technical approaches, etc. Eventually you pile up so many

inputs that nothing could possibly be distilled into making sense.

One day you wake up and you are a macro quant value investor that

chases momentum stocks after a great Elliot Wave breakout above a

failed head and shoulders that was at a trendline because the stock

beat on its earnings thanks to more daily active users and it helped

that the Fed didn’t raise interest rates...

It is at this point that your trading genetic code is worthless because

you have no idea what works. You should learn and collect these



tools and inputs as you go along but it is essential to edit them. It

was imperative to collect these tools and these inputs, but it is truly

essential to edit them.

Removing inputs becomes the way you alter your code and evolve

into a more and more robust version of yourself. What we should

end up with is a very simple trading operation. To be a great trader

we must edit and evolve as much as we can. We must be intentional

about learning from mistakes and reinforcing what works. We must

also try to understand why these inputs do or do not work for us.

Traders must stay flexible and open to eternal evolution, because

everything changes in trading, as in nature. If you consider every

month you trade to be a lost trading life – what genetic code would

you want to pass along to the new you that will trade the next

month? Which mistakes would you never want to make again? What

process would you want to be sure you fully incorporated? Which

indicator or news source can you cut out of your trading life to make

it more robust? Make sure you have a code as a trader – and make

sure you pass it to your future self in the most informative and

thoughtful manner possible. Simplify!

“Simplicity is the ultimate sophistication”

–Leonardo Da Vinci

“To be simple is to be great”

– Ralph Waldo Emerson

“Simplicity is the law of Nature”

– Henry David Thoreau

“Our life is frittered away by detail. Simplify, simplify.”

– Henry David Thoreau



Market Wrap

Why the Dollar Rally is NOT Over

QT is ramping up from $30 billion to $40 to $50 billion per

month by the end of the year – less supply of dollars

Soaring US budget deficits – sucking up dollar liquidity

Fed raising rates – Fed Funds to continue higher which is

turning the dollar into a carry trade asset while it still holds

safe haven appeal to many investors – this is becoming self-

reinforcing

Tax reform bringing dollars home via repatriation - this is a

stock, and more importantly, a flow issue that is dollar positive

- no need to stash dollars abroad with low tax rates at home

EM currency pain becoming reflexive – the lower they go the

more dollars they need (more demand in a world of falling

supply) – add to this the correlation of EM currencies to

Fed/ECB/BOJ balance sheets and you realize US QT and global

tightening are both headwinds

Trade war – the way the world gets their hands on dollars is

largely via our massive trade deficit – if Trump gets his way, the

trade gap will narrow which would mean less dollars going

abroad – again, less supply but the dollar debts remain

The technicals are still bullish the dollar – charts to follow

Inflation keeps trending higher – underpinning this entire move



The dollar is currently at a level where it is battling between about

$95.50 and $94.00. The winner of this roughly two month battle will

likely decide the near term trend. With that said if the dollar does retreat

to the $90-$92.50 level it will still be a very healthy looking trend in my

opinion. Sentiment and positioning could make that happen. I also

would not be surprised to see a new break higher. The dollar has now

seen 3 attempts at $95.50 and the subsequent retreats from that level

that dollar bears have celebrated have actually formed an inverse head

and shoulders on the daily chart. So if that neckline and $95.50 area do

break – we will see another leg higher in the dollar.

I also wanted to include a chart I tweeted out that shows some symmetry

in the current triangle in the $EURUSD chart. The price range of the

triangles is very similar and so is the date range if this triangle gives way

next week. We have an important triangle and rectangle to keep a close

eye on in the weeks ahead.



One could argue this triangle will resolve lower because it is in the

direction of the trend or one could argue it will resolve higher because of

sentiment and positioning. I have no idea and will happily trade either

technical outcome. With that said I would be more aggressive if the dollar

breaks higher because my personal macro view supports that outcome.

You can click the picture to view the tweet and the chart if you want.

I have one last chart I want to highlight and that is it for this week.

Below is the chart of uranium futures. An enormous mine was just

taken off line for the foreseeable future, which reinforces a wave of

supply destruction that has occurred recently. The bottom line is supply

is getting tight, demand is growing, and utilities are like a deer in

https://www.bloomberg.com/news/articles/2018-07-25/cameco-suspends-production-at-canadian-uranium-mine-indefinitely

https://www.bloomberg.com/news/articles/2018-07-25/cameco-suspends-production-at-canadian-uranium-mine-indefinitely

https://twitter.com/pineconemacro/status/1022645864999792641



headlights, not buying. We are watching the setup of a lifetime for a

cyclical commodity to experience a really special bull market.

“It is impossible for a man to learn what he thinks he already knows.”

― Epictetus

Thank you so much for your readership and if you are enjoying the

letter please send it to your friends.

Disclosure: There is risk in trading markets. Pinecone Macro is not an investment advisor. My letters are based upon information gathered from various sources and believed to be reliable, but are not guaranteed as to accuracy and completeness. The information in this letter is not intended to be, and shall not constitute, an offer to sell or a solicitation of an offer to buy any security or investment product or service. The ideas and trades I share are my own and are for informational and educational purposes only and should not be construed as investment advice. Accordingly, you should not rely solely on the information in making any investment. You should always check with your licensed financial advisor to determine the suitability of any investments.

White mountain WEEKLY BY Pinecone Macro July 28th, 2018 · “Simplicity is the ultimate...

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Transcript of White mountain WEEKLY BY Pinecone Macro July 28th, 2018 · “Simplicity is the ultimate...