Contrarian Consensus Trades for 2024

And a couple of Black Swans

Happy New year and wishing health and happiness to everyone, with a few multi-baggers along the way!

As you know by now, I have a bit of a Contrarian side of me that loves to figure out the consensus trades to fade (or not).

When I was thinking about positioning into 2024, I set out to figure out the Contrarian trades. To my dismay, a lot of smart folks also came up with the same Contrarian trades. So the risk is that these Contrarian trades become Consensus before they even start! Let’s call them “Contrarian Consensus” trades.

I do believe that it’s not really consensus until all the monkeys are in the same boat, so I figured out it’s worth laying out these “Contrarian Consensus Trades for 2024”.

1. Breadth Improves

   The SPX was up 930 points in 2023 and >60% of that move was attributed to the Mag7. That number was a lot higher before the Janet & Jay Double Pump.

   I have a pretty simple view here:

   • on one hand, EVERYONE is now long the Mag7 as a “safe haven”.

   • on the other hand, Janet is out to “Save the Ponzis, to Save the World”, not to “Save the Mag7”

   • Therefore, I expect breadth to be very healthy in “risk on” days, with Mag7 underperforming i.e. the pain trade is for Mag7 to not go up much from here if there’s risk on, which will force the monkeys to chase other stocks

   • AND I also expect Mag7 to NOT be a “safe haven” when the market corrects ie Mag7 will have a beta closer to the market

   

2. China outperforms US

   China (FXI ETF as a proxy below) underperformed the SPX by 40% in 2023.

   A Contrarian Consensus trade is that China will outperform the US.

   I like to keep things simple and as I wrote in “The Ghost of Bubbles Past” , I like the setup to enter 2024 positioned with upside calls on China (FXI etc) and Commodities.

   What I will say is that I have more faith in the US outperforming China in the long-term and maybe even in 2024, but for January I expect China to outperform the US. Maybe it’s a Catch-up of China to the US or maybe it’s a Catch-down of the US to China. You’ll find out in 30 days!

PS I checked the seasonality of the China / FXI in January and it’s actually quite strong, especially after Covid. It may have something to do with Chinese New Year being in February so maybe China gets their “Santa Rally” in January?

3. Either Biden or Trump doesn’t “make it” by the Election

This is quite a macabre Contrarian Consensus prediction but let’s be honest, neither candidate is exactly a spring chicken so probability-wise there’s a 10% chance of this turning out to be true. I wish them both health and to prove these pesky contrarians wrong.

Black Swans for 2024

True Black Swans are ones that if I write them here, most of you will say it’s crazy. With that in mind, here’s 2 Black Swans for 2024:

1. China Invades Taiwan: If that happens ignore everyone’s predictions for 2024 and hide under your bed.

2. OPEC breaks up or something funky happens like the Saudis turn on the taps: probably more likely given the OPEC spare capacity but still on none’s radar.

These are very low probability events but worth bearing in mind.

I lay them out here because there are visible triggers that can cause a domino effect e.g. Taiwan Elections in January may trigger Xi, or MBS may turn on the taps if he gets annoyed with shale’s growth or with other OPEC members.

With that in mind, let’s hope for a Peaceful 2024 :/

Disclaimer: You should know by now that this isn’t financial advice. this is the trading blog of a Shrub. Don’t be Stupid.