A Monday Dozen [CHART PACK]

Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited. ~ George Soros

Good morning!

In this week’s Monday Dozen we ask the question: Is FX volatility the last shoe to drop? Plus, we have wage growth and rising margins in the eurozone, fund managers pulling money out of EM, and a big-data machine-learning analyzing the US economy.

1) Back in March, I wrote a piece titled “There’s a Big Macro Move Brewing in Markets” noting the compressed volatility across the wide range of macro instruments; from rates and precious metals to major FX pairs. Since then, we’ve seen bond volatility rip (chart via MS).

2) And then precious metals vol followed… Vol compression regimes tend to lead to expansionary regimes (ie, big trends).

3) Now we’re waiting for the last shoe to drop (major USD pair FX volatility). EURUSD 6-month vol has only been this low two other times (2007 & 2014). Both compression zones led to massive trends. Vol compression doesn’t dictate direction, it just signals that a major move is coming. But… gold does tend to lead USD at major turning points and rising gold points to a lower dollar.

4) There are a lot of good looking long-term USD pair charts out there (USDJPY, EURUSD, USDMXN, USDCAD, USDCHF etc…). Here’s a weekly of the Brazillian real. If this were a stock, would you want to buy it or sell it?

5) The US dollar is one of the most overvalued currencies in the world right now, according to a number of valuation measures. Here’s The Economist’s Big Mac index, showing that the euro is over 20% undervalued relative to the dollar.

6) The history of the dollar in 7-year cycles. The early 80s bull market in USD lasted 1,650 days. The late 90s bull, 1,719 days. If the current dollar bull market is, indeed, still alive, it’ll be the longest at 2,063 days and counting.

7) Euro area wage growth is picking up while inflation breakevens are plummeting. I’m guessing this divergence closes with breakevens ripping higher — think what that may do to European bonds currently yielding sub-zero (chart via Credit Suisse).

8) UBS’s Evidence Lab finds that European corporates are turning more optimistic on their pricing power and subsequent margin expansion over the next 12-months.

9) GEM fund manager weight versus the MSCI Emerging Market index relative to their 5-year average/min/max. The graph shows that fund managers are underweight EM relative to the index and their 5-year average (chart via MS).

10) And investors have been pulling their money out of emerging markets for 10 out of the last 10 weeks (marked by gray vertical bars).

11) BofAML’s big-data machine-learning US Business Cycle Indicator shows that the US economy is moving away from a recession regime and into a “soft patch”.

12) This chart from Barclay’s shows Iran’s exports and key sanction dates. Iran has gone from exporting over 2.5 mb/d in 2018 to less than 1mb/d today. When the current deceleration in global growth bottoms, the oil market may become a bit tight…

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

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AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

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