Musings: Opportunities Abound, From India to Turkey

Alex here with your latest Friday Macro Musings…

As always, if you come across something cool during the week, shoot an email to and we’ll share it with the group.

Latest Articles/Podcasts/Videos —

Your Monday Dirty Dozen [CHART PACK] — I look at signs of slowing growth here in the US along with data pointing to a rebound elsewhere. Plus, we take a look at where the money is flowing, check-in on sentiment, discuss a potential major bottom in a LatAm country, see what’s going on in Japan and point out the massive compression regime in major FX pairs, and more…

Value Hive: Pubs vs. Tourists, Spin-offs and Interviews — Brandon shares some of the latest Q3 investor letters he’s reading along with a number of other great investing nuggets he came across this week.

Lessons From 24 Years of Operating: Bowl America, Inc. (BWL.A) — Brandon shares what he learned reading through 24-years of shareholder letters from an incredible yet little known business operator, Leslie Goldberg.

Invest Like the Greats: Fox Corporation, Inc. (FOX) — Brandon lays out the value case for Fox.

Articles I’m reading —

Linda Bradford Raschke released a free ebook on trading this week titled “Building a Trading Foundation”. To download, just go to her site here and you’ll see the option in the right-hand column. It’s 59 pages of some great stuff with wisdom in there that traders of all skill levels can appreciate. And it’s free… so I highly recommend giving it a read. Here’s an excerpt from the book.

“Anytime that you’re in a trade and you start to have questions like, “Well, what should I do now? Should I get out now? Should I take profits now? Should I stay in a little longer? Should I add to the position?” Anytime you have a question like that, you have no business being in that market. You have lost your edge because you don’t have any control or game plan in that market. So, first, before you start swing trading, realize that you never want to put yourself in a position where you’re going to be reacting to that market.”

Brookfield (BAM), an asset management firm, made some interesting remarks during their recent earnings call regarding the long-term investment opportunity for India (h/t to Collective member Jon K.). You can find the transcript here and to save time you can just jump to the section where managing partner, Anuj Ranjan, lays out the major shift they’re seeing on the ground.

Here’s a clip from the call.

“For the first time ever, we’re seeing a transformation in which India 2 [middle class] and India 3 [rural poor] are becoming included in the formal economy, and this is happening for 3 reasons: data penetration, reforms targeting inclusion and a strong government that’s driving change. Let’s start with data. India has risen from being 150th to the first ranked country in the world in mobile data consumption in only the last 3 years. This explosive growth has been brought about by affordable data plans and falling smartphone prices. India now has 600 million Internet users, but what is shocking is this is only 40% of the population, implying a sustained and continued growth in the future. This digitization has contributed substantially to the inclusion of India’s large population, and it is translating to high growth across most businesses. We’re excited about this trend and actively evaluating opportunity in data infrastructure, including the acquisition, I earlier mentioned, of the country’s largest telecom portfolio.”

India’s set to become the fastest-growing major economy over the next 10+ years. A country of over 1bn people will soon be hitting the Wealth S-Curve. This is going to have profound impacts on markets and commodity demand around the world. Pay attention…

Lastly, Kuppy wrote up a great piece outlining the difficulties of being a small-cap value investor in this environment (link here).

Charts I’m looking at—

India’s CLI is squarely in the slowdown quadrant as the country, along with much of the emerging world, wrestles with an economic slowdown and a painful liquidity crunch.

Video I’m watching —

The GOAT of investing, John Malone, was on CNBC this week for an hour-long interview where he talked about the streaming wars, which companies he likes best in that space, big tech and much more. Malone is a wellspring of wisdom. Give the interview a watch, it’s worth your time (link here).  Here’s what he had to say about Disney (DIS), which is our biggest position (h/t @bluegrasscap).

Also, I really enjoyed this talk that Peter Thiel recently gave titled “The End of the Computer Age” at the Manhattan Institute. Peter talks about the current challenges facing the country, how we can better compete with China, and structural changes that are coming to the global economy. His talk starts around the 10min mark (here’s the link).

Book I’m reading —

This week I started reading Robert Shiller’s new book “Narrative Economics: How Stories Go Viral & Drive Major Economic Events”. I’m halfway through and thoroughly enjoying it. Shiller walks us through some economic history, a little neurolinguistics, and psychology, even some epidemiology… all to profer up a new way of approaching the study of economics. It’s good stuff.

Here’s an excerpt from the book:

“Narratives appear in constellations partly because their credibility relies on a set of other narratives that are currently extant. That is, they sound plausible and interesting in the context of the other narratives. The storyteller does not need to refute the other narratives to set the stage for the current one. Also, the narrative may be based on certain assumed facts that the teller and the listener do not know how to test. Some narratives are contagious because they seem to offer a confirming fact. We can say with some accuracy that most people put on a show of their own knowledgeability and try to conceal their ignorance of millions of facts. Hence narratives that seem contrary to prevailing thought may have lower contagion rates that do not result in epidemics.”

Trade I’m looking at —

I have no position and probably won’t put one on since there are more interesting trades out there right now, like in shipping. But… The Turkey MSCI Country ETF (TUR) is breaking out of a basing wedge pattern (chart below is a weekly).

It’s been a while since I last checked in on what the mad ruler Erdogan is up to, so I may study up over the weekend. For what it’s worth, inflation there is normalizing and the lira (USDTRY) looks like it may be about to break out against the dollar. Also, the bond market has been catching a bid with Turkish gov 5yr yields dropping to multi-year lows along with CDS’s pricing in less risk relative to earlier in the year.

Quote I’m pondering —

Every limitation has its value, but a limitation that requires persistent effort entails a cost of too much energy. When, however, the limitation is a natural one (as, for example, the limitation by which water flows only downhill), it necessarily leads to success, for then it means a saving of energy. The energy that otherwise would be consumed in a vain struggle with the object is applied wholly to the benefit of the matter in hand, and success is assured. ~ The I Ching, circa 8th century B.C.

That’s it for this week’s macro musings.

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

Musings: The Killing Fields of the Oil Patch

Alex here with your latest Friday Macro Musings…

As always, if you come across something cool during the week, shoot an email to and we’ll share it with the group.

Latest Articles/Podcasts/Videos —

Your Monday Dirty Dozen [CHART PACK] — I look at signs of a global rebound in growth, green shoots in Europe, trouble ahead for US bonds, check-in on the four drivers of gold, and check out oil extraction costs in different parts of the world, plus more.

Trading Politics [Part 1] — Tyler lays out how to use services like PredictIt to profit from mispricings in the betting market which is good stuff to know with election season drawing near.

Value Hive: Q3 Letters and LEGOs as Investments — Brandon dives into the latest investor letters, including those from Loeb’s Third Point and Einhorn’s Greenlight Capital and more.

Articles I’m reading —

I’ve been digging into the oil and gas sector quite a bit lately. It’s going through a much-needed culling and as is often the case in a widespread industry downturn, I’m seeing many babies getting tossed out with the bathwater. This is great since it takes periods like these of long drawn out value destruction to create total investor apathy and hence amazing value opportunities for those willing to come in and sift through the rubble.

Sam Zell, the man known as the “Grave Dancer” since he’s made his fortune in the distressed debt market, seems to be thinking the same. In a recent Bloomberg article (link here) Zell is quoted saying:

“The amount of capital available in the oil patch is disappearing… I compared it to the real estate industry in the early 1990s, where you had empty buildings all over the place, nobody had cash.”

A recent report by SRSrocco titled “The U.S. Shale Industry Hit A Brick Wall in 2019” lays out in very stark terms the inflection point in which the industry is currently going through (link here). Here’s a cut from the article which is worth reading in full.

“There several factors that have negatively impacted the U.S. Shale Industry in 2019; the compounded annual decline rate, the massive debt–inability for shale companies to raise money, and the stunning amount of new wells necessary to increase overall production.  While shale experts are knowledgeable of the typical 60-70% first-year decline rate of shale wells, not much is mentioned about the “compounded annual decline rate.’”

The commodity fund Goehring & Rozencwajg explained in a recent letter (link here) how out-of-whack the valuations have gotten in the space, writing:

“In particular, the bear market in oil exploration and production companies has created value that can hardly be believed. We analyzed the universe of all US-listed E&P companies with market capitalizations over $100mm and proved reserves that are at least 50% oil. We then compared the current stock price to the net-debt adjusted SEC PV-10 measure from their 2018 10Ks. As you may recall, a company’s PV-10 measures the discounted cash flow of all proved reserves at the prevailing oil and gas prices. Under normal market conditions, E&P stocks trade at a premium to their SEC PV-10, reflecting the expected value of any future reserves not yet “booked” in the reserve statement. However, due to the overwhelming bearishness among energy investors, the average company now trades at a 12% discount to its net-debt adjusted SEC PV-10 per share value.

While we have seen individual companies trade at a discount, we cannot recall a time when the industry average was less than its SEC PV-10 value. We should point out that the price used in most companies’ SEC PV-10 analysis for 2018 was $55 per barrel, not materially higher than today’s price.”

If you’d like to read my long-term take on the energy sector then give this piece I wrote a while back (link here) as well as this great follow-on update put together by Evergreen Gavekal (link here).

I think there’s going to be incredible opportunities in this space. I have a basket of offshore E&Ps that I’m tracking closely. All have solid balance sheets, great long-term assets, and generate tons of free cash flow even in this low pricing environment.

These companies are not only going to benefit from the oncoming culling with all the uneconomic supply getting taken out to the woodshed. It’s also going to give them the opportunity to pick up great assets from forced sellers for pennies on the dollar.  In an illiquid environment, those flush with cash are kings.

We’re still in the early stages of this game and there’s likely more downside than upside in the very near-term. It’s going to take some large scale bankruptcies (see CHK) and the funding tap to get completely turned off in order for a durable bottom to be put in. Plus, I’d like to see a confirmed cyclical top in the dollar as well.

I’m thinking this is a 2H 2020 play. But the opportunity is so great it’s worth keeping a very close eye on now.

Charts I’m looking at—

The extended bear market in oil was caused by two things (1) China’s growth story hitting a brick wall and (2) unproductive US frackers funded by cheap money and over-eager investors.

China has entered a period of decline which will not end anytime soon. But… India and other parts of Asia are not burdened by Everest sized piles of debt and happen to be hitting the knee of the Wealth S-Curve. This is going to drive a secular exponential rise in energy demand. And to our second point, as investor willingness to fund unprofitable producers declines so too is drilling activity, which we can see by the steady fall in rigs over the last year.

Podcast I’m listening to —

The journalist Bethany McLean published a book last year titled “Saudi America” that I recommend reading. She does a good job telling the origin story of the US fracking industry as well as explaining the inherent structural problems that the sector is now dealing with.

She was on the podcast circuit promoting the book earlier this year. Here’s a good short (30 mins) interview she did with NPR where she summarizes the main points from the book (link here).

Video I’m watching —

Not at all trading related but I really enjoyed this so I thought I’d share. Here’s a short clip of Steve Jobs talking about how he thinks about marketing (click on the image to see the video) in terms that advertising genius Rory Sutherland would approve. Jobs explains that building a brand and marketing products is not about logic but about invoking feelings and imparting values. Give it a watch, it’s great.

Quote I’m pondering —

What matters isn’t how well you play when you’re playing well. What matters is how well you play when you’re playing badly. ~ Martina Navratilova

As true in markets as it is in tennis…

That’s it for this week’s macro musings.

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

Musings: How To Spot A Fraud, O’Shea’s Market Models, And Words From PTJ And Gang

Alex here with your latest Friday Macro Musings…

As always, if you come across something cool during the week, shoot an email to and we’ll share it with the group.

Special Announcement  —

Bradon our value guy at Macro Ops just published his latest pick which he thinks has 5-bagger+ potential…

You can read all about it in this month’s edition of Value Ventures.

Until this Sunday, November 10th you can pick up a subscription of Value Ventures for $497 a year. The letter normally sells for $697/year and prices will increase into 2020.

There’s also a 30-day money-back guarantee on all purchases so there’s no risk to stopping by and kicking the tires a bit.

Click here to subscribe to Value Ventures!

And now for the musings…

Latest Articles/Podcasts/Videos —

Your Monday Dirty Dozen [CHART PACK] — I look at price targets following new record highs, check out rising global markets, dissect fund flows to see where capital is headed, look at world equity valuations, and see what’s going on in Putin’s Russia, plus more…

It’s The Downside That Matters — Brandon lays out why it’s so important to focus on your downside first when analyzing an investment citing famed investors such as Klarman, Greenblatt, and Bury to make his point.

Why The Traditional Financial Advisory Model Will Fail — Brandon discusses the secular changes in financial advisory and what players are going to have to do to stay alive and thrive.

Articles I’m reading —

Somebody on the twitters (apologies, I can’t remember who) shared this great report on famed short-seller Jim Chanos. It covers everything from Jim’s start in the business, early lessons learned, what factors make for a good short along with what characteristics make for a successful short-seller. There’s also a number of case-studies of some of his bigger trades. Here’s the link and a section on “How To Spot A Fraud”.

Here’s something cool. Apparently, Hedge Fund Market Wizard Colm O’Shea has a blog (h/t Chris M.). It’s titled Applied Macro, here’s the link. Colm was profiled in Shwager’s last Market Wizards book, my friend Kean Chan wrote up a summary of that chapter here.

He covers a number of things on the blog from politics to psychology, how he approaches hiring and managing people, and then, of course, trading. There’s a bunch of good stuff on there including posts where he shares his framework for various asset classes; like how he looks at FX markets as well as fixed income. It’s definitely worth taking some time digging through.

Charts I’m looking at—

I tweeted this about the bearish setup in bonds the other week which looks to have triggered. I get the sense that we’re seeing the start of a BIG unwind in consensus trades at the moment; trades, which according to BofAML, are highly correlated to the UST 10-year yield. This. Could. Get. Interesting…  (h/t @macrocharts for the chart).

Podcast I’m listening to —

Mark Dow (@mark_dow) was on the Stansberry Investor Hour podcast the other week. I’ve never listened to this podcast before as I’m not a huge fan of Stansberry, personally. But, Mark is one of my favorite follows on the twitters, so I figured I’d give it a listen and was glad I did. Mark covers a wide range of subjects from the big misconceptions over the repo rate hysteria, to the drivers behind negative interest rates, along with his views on gold amongst a few other things. It’s an hour well spent. Here’s the link.

Video I’m watching —

Must watch: Ray Dalio and PTJ sat down and talked shop recently at the Greenwich Economic Forum. They discuss politics, policy, and markets. It’s great.

My one big takeaway though is that man… does PTJ have a poor grasp on macro. That’s not even a knock against him really, just an observation. I mean, he’s still PTJ and I’m just some dude typing away in a van down by the river and all that… And, really, it’s a testament to his trading prowess and how macro is overrated in comparison to cold hard trading skills. Druck is the same way too.

Anyways, it’s a fun watch. Here’s the link.

Book I’m reading —

This week I started reading Trading Price Action Trends by Al Brooks. A number of members of our Collective have been diving into his training lately. I had read one of his earlier books, I think it was Reading Price Charts Bar by Bar a number of years ago, but I thought I’d revisit his work. I’m only a quarter of the way through the book. It’s dense and tends to read more like a textbook than a thriller. But the content inside is excellent.

Brooks is a Trader’s trader. He’s the consummate professional, someone who has spent decades refining his price action-based approach to markets. Brooks does a great job of explaining the reasoning behind various price setups. His work is detailed, thoughtful, and backtested. Most importantly, his emphasis is on the process (ie, how to manage trades) versus focusing primarily on setups.

The book is the first in a three-part series. I’m planning on cracking open the next one as soon as I’m finished with this. Here’s a section from the first chapter.

“If you think about it, trading is a zero-sum game and it is impossible to have a zero-sum game where rules consistently work. If they worked, everyone would use them and then there would be no one on the other side of the trade. Therefore, the trade could not exist. Guidelines are very helpful but reliable rules cannot exist, and this is usually very troubling to a trader starting out who wants to believe that trading is a game that can be very profitable if only you can come up with just the right set of rules. All rules work some of the time, and usually just often enough to fool you into believing that you just need to tweak them a little to get them to work all of the time. You are trying to create a trading god who will protect you, but you are fooling yourself and looking for an easy solution to a game where only hard solutions work. You are competing against the smartest people in the world, and if you are smart enough to come up with a foolproof ruleset, so are they, and then everyone is faced with the zero-sum game dilemma. You cannot make money trading unless you are flexible, because you need to go where the market is going, and the market is extremely flexible. It can bend in every direction and for much longer than most would ever imagine. It can also reverse repeatedly every few bars for a long, long time. Finally, it can and will do everything in between. Never get upset by this, and just accept it as reality and admire it as part of the beauty of the game.”

That should be read and then re-read and then re-read again. Don’t go creating “a trading god”…

Trade I’m considering —

I’ve shared this one a number of times lately because I’m watching it close and I’m about to pull the trigger on it. The stock is Geopark (GPRK), it’s a Chilean E&P with assets located around Latin America. The chart below is a weekly and it’s looking ripe for a run…

The company reported strong earnings yesterday. Here’s a snapshot from the report. The stock is trading on the CHEAP. Its got strong FCF and a solid balance sheet.

Plus, oil itself is starting to look like an attractive long to me, though I’m waiting on further confirmation from the tape. The curve is in backwardation, open interest and long hedge fund positioning has collapsed and inventory growth is starting to come down. Also, not sure if you’ve seen the latest Economist cover but it’s some rendition of the “Death of Oil” narrative that’s now back in vogue.

Keep a close eye on this one.

Quote I’m pondering —

You can’t build in a feedback or reactive model, because you don’t know what to model. And if you do know — by the time you know — the odds are the market has changed. That is the whole point of what makes a trader successful — he can see things in ways most others do not, anticipate in ways others cannot, and then change his behavior when he starts to see others catching on. ~ Richard Bookstaber

That’s it for this week’s macro musings.

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

The Man That Solved The Market And An Annual 11,367% Return

Alex here with your latest Friday Saturday Macro Musings…

I’ve been laid up the last few days with the flu hence my tardiness in getting this out.

As always, if you come across something cool during the week, shoot an email to and we’ll share it with the group.

Latest Articles/Podcasts/Videos —

Your Monday Dirty Dozen [CHART PACK] —  I look at breakouts, breadth, and credit confirmations that are ALL signaling a move higher in global risk assets. Also, we look at positioning amongst inflation assets and see where the pain points in the US dollar are amongst CTAs.

Brandon’s Value Hive — More of our favorite value manager Q3 letters. Tiffany receives a premium takeout offer. A 16-page article on everything Jim Chanos. TechCrunch has an ‘oopsie’ with SnapChat, and more!

Articles I’m reading —

Barry Ritholtz wrote a review of a new book about Jim Simmons and the hedge fund powerhouse he founded, Renassaince Technologies. The book is titled “The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution” written by Gregory Zuckerman. George spent nearly three years researching the firm and was given direct access to the hyper-reticent Simmons for interviews.

Here’s the link and a cut from the article.

“…Zuckerman painstakingly reconstructs the 30-year track record of the firm’s crown jewel, the Medallion Fund. Although rumors of its performance have long circulated on Wall Street and in the press, the actual numbers are even more mind-blowing: From 1988 to 2018, Medallion returned 66.1% annually before fees. Net of fees, the gains were 39.1%. Estimated trading profits during those 30 years amounted to $104.5 billion. About those fees: If the standard hedge fund management fee of 2% of assets under management, plus 20% of the profits sounds expensive, then what do you think of Medallion’s “5 and 44”?”

I’m looking forward to reading this one.

Dylan Rice of Calderwood Capital Research is back to publishing his “Popular Delusions” series. In the latest report, Dylan covers the failed state of Venezuela (and goes through the value case for Venezuelan bonds), then gives his take on MMT, and ends with a quite unfavorable review of David Graeber’s book “Debt: The First 5,000 Years”.

Here’s the link along with some of his thoughts on MMT.

“To repeat, I really don’t like this and find it a terrible idea on many, many levels. Primarily, I don’t buy the premise that we are all better off because central bankers and government officials have some clever way of ‘managing’ the macroeconomy. To me prosperity, wealth, job creation are micro, not macro phenomena.

But bad ideas can still become policy (eg imperialism, eugenics, socialism). And if I was a host to the macroeconomic meme, and I believed that my judicious interventions could make the world a more prosperous and harmonious place, I’d be looking at MMT’s idea that government spending should only be constrained by the economy’s inflation speed limit, and I’d be excited. I’d be thinking, “Globally inflation is low and falling. Economists have been warning about the dangers of deflation for years now, and we’re getting closer. Surely, that can only mean … we’re not spending enough money fiscally!”

Alternatively, if I were a megalomaniac politician living for votes and seeing myself as some kind of wise benevolent dictator, I’d be rubbing my hands and salivating.”

Looks like Dylan and I are on the same page in regards to MMT. It’s an okay idea in theory but one that’ll surely be abused in practice.

Lastly, GMO recently published a report touting the favorable valuation tailwinds for emerging market stocks. With the dollar stumbling and EM stocks showing strong technicals, it might be a good time to check your EM exposure. Here’s the link and a chart.

Charts I’m looking at—

@MacroCharts has been killing it with his fintwit charts lately. He considers the below Stock/Bond ratio to be one of the most important charts in the world at the moment. I agree.

Podcast I’m listening to —

I listened to two great podcasts this week. The first is Eric Weinstein’s “The Portal” with comedian Bryan Callen. Eric and Bryan talk for more than 2-hours on everything from the enlightenment, “cancel culture”, the holocaust, to gender dynamics and more. The Portal has quickly become one of my new favorite podcasts. This latest episode doesn’t disappoint. Here’s the link.

The second is the latest Bloomberg OddLots interview with Brad Sester of the CFR. They talk about the Taiwanese life insurance industry and the massive position they’ve built up in USD denominated assets — I wrote about this a few months ago but Taiwanese Lifers own something like 15% of long-term Corporate debt, which is wild.

The interview is a LOT more interesting than the title makes it sound. And it’s an important development to stay abreast of, especially if we see the dollar start a new downtrend. Here’s the link.

Book I’m reading —

This week I returned to a book I’d read years ago and had to pick up again for a piece I’m writing. The book is “How I Made One Million Dollars Last Year Trading Commodities” by Larry Williams. It’s a poorly edited so-so read but there’s a few interesting nuggets in it.


The book is about Larry’s legendary run in the 87’ World Trading Championship where he clocked an eye-watering 11,367% return — a record that still stands to this day.

Wanna know something interesting? The third all-time record return in that same championship was 1,000% and made a decade later by larry’s daughter, Michelle Williams. If that name sounds familiar it’s because Michelle is also a famous Hollywood actress who was once married to Heath Ledger. Pretty wild, right?

Here’s Larry’s “most important trading advice”.

Buy only on down days

Sell only on up days

That advice is worth thousands of dollars. It’s hard to follow, like all good market techniques. But, it’s dynamite. It will put you into positions at optimum prices where you are protected and well-entrenched.

The herd instinct almost forces us to buy on up days while the laws of probability (which work well with commodities) tell us that up days are more likely to be followed by down days. Especially if it’s the third or fourth up day of a move. Don’t fall for these sucker plays!

Trade I’m considering —

A bunch of EM names are setting up nicely. The EM relative outperformance against the US over the last few months could spark a feedback loop fueled by heavy investor concentration in the US where capital flows out to EM driving the US dollar lower and thus raising the total returns of EM assets and so on.

One of the names I like is Sea Limited (SE). Here’s a chart of it on a daily basis.

Sea Limited is a holding company whose subsidiary’s include the online marketplace platform Shopee which primarily serves Southeast Asia ( Indonesia, Taiwan, Vietnam, Thailand, Philippines, Malaysia, and others).

Hayden Capital put out a good slide deck on the company last year (link here). I like the chart and the long-term macro drivers of the business. I’m still doing some digging but this one is worth keeping on your radar.

Quote I’m pondering —

It belongs to the imperfection of everything human that man can only attain his desire by passing through its opposite. ~ Soren Kierkegaard

That’s it for this week’s macro musings.

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

Musings: The Illusion of the Great Moderation and an Update on Shipping

Alex here with your latest Friday Macro Musings.

As always, if you come across something cool during the week, shoot me an email at and I’ll share it with the group.

Latest Articles —

Your Monday Dirty Dozen [CHART PACK] — We look at the widening gap between the positive hard data and the horrendous soft data, we check in on global central bankers to see what they’re up to, take a look at earnings season and where the beats and misses are trending and more.

Value Hive: Investor Letters, Options Trader Wins Big and More! —  This edition is LOADED with investor letters as we clear the deck for one of our favorites: Scott Miller. We’ll touch on some other things, such as a trader turning $700 into $100K+. Artko Capital continues to kill it. And Howard Marks discusses negative rates.

Articles I’m reading —

If you’re looking for a good laugh then give Matt Levine’s latest on the WeWork/Softbank circus titled “How Do You Like We Now” a read (link here).

Daniel Want of Prerequisite Capital shared his latest quarterly letter. I enjoy Daniel’s letters, the guy has good taste in books and always finds a way to weave in interesting quotes and excerpts into his writing. Here’s the link along with an excerpt he shared from Garet Garret’s terrific book “A Bubble That Broke the World”, published in 1932.

“The general shape of the universal delusion may be indicated by three of its familiar features.

      1. First, the idea that the panacea for debt is credit.
      2. Second, a social and political doctrine, now widely accepted, beginning with the premise that people are entitled to certain betterments of life.
      3. Third, the argument that prosperity is a product of credit, whereas from the beginning of economic thought it had been supposed that prosperity was from the increase and exchange of wealth, and credit was its product.

Result: Much more debt. A world‐wide collapse of foreign trade, by far the worst since the beginning of the modern epoch. Utter prostration of the statistical serpents. Credit representing many hundreds of millions of labor days locked up in idle industrial equipment both here and in Europe. It is idle because people cannot afford to buy its product at prices which will enable industry to pay interest on its debt. One country might forget its debt, set its equipment free, and flood the markets of the world with cheap goods, and by this offense kill off a lot of competition. But if this thought occurs to all of them, and so all with one impulse, raise very high tariff barriers against one another’s goods, to keep them out.”

I’ve been meaning to write an update on shipping but then I saw Kuppy’s latest I figured he did a better job than I could so why bother, I’ll just share his instead (link here). The important takeaway is “operating leverage”. Charter rates have been going through the roof — a VLCC recently chartered for $300k a day — while operating costs stay the exact same. This means that the rising higher margined revenue passes directly through to shareholders; one reason why bull markets in shipping can get as wild as they do.

Lastly, Srinivas Thiruvadanthai of The Levy Forecasting Center, published this excellent paper calling out the problems with inflation targeting and our over-reliance on monetary policy to boost aggregate demand.

Srinivas points out that “The mechanisms by which monetary policy works to stimulate demand inevitably leads to rising private sector debt ratios and a tendency toward asset price bubbles” and “The stability created by the so-called Great Moderation in reality was an illusion, and it compromised the resilience of the financial system.” He goes onto make the case that we need a total rethink of our economic policy framework, one that emphasises fiscal policy and not just leverage induced demand.

I agree on all points. Unfortunately, I don’t think we’ll see any significant changes until we use up the very last bit of our monetary policy (balance sheet expanding) juice.

Charts I’m looking at—

@MacroCharts shared this great chart on the twitters this week. The Global PMI is back in the green after it’s longest slowdown since the 90s.

Podcast I’m listening to —

A few weeks ago I shared the research piece titled “Bubble or Nothing” that was put out by the Jerome Levy Forecasting Center. It was an excellent paper and is essential reading if you’re trying to understand the increasingly binary macro environment we’re in, and a fragile binary one at that. This week Bloomberg’s Oddlots podcasts had on David Levy, one of the coauthors, to discuss how the economy works in a world of oversized balance sheets and leveraged risk taking. It’s a good listen. Here’s the link.

Trade I’m considering —

Not a trade, though there’s certainly trades to be made off this broader trend, but a number of markets are breaking out globally. This is important for a few reasons (1) it means that markets are looking past the current manufacturing recession and betting on a coming recovery (2) the strongest bull trends happen when markets around the world push higher in unison and (3) capital has become incredibly concentrated in the US due to chasing of US relative outperformance. This trend has flipped since August and if it continues it can become self-fulfilling as capital outflows drive USD lower, making RoW more attractive, leading to greater RoW outperformance and more capital outflows from the US etc…

Quote I’m pondering —

“Victory smiles upon those who anticipate the changes in the character of war, not upon those who wait to adapt themselves after they occur.” …General Giulio Douhet (1869-1930)

Anticipate, anticipate, anticipate…

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

Musings: The Anniversary of Black Monday and the Infamous PTJ “Trader” Doc

Alex here with your latest Friday Macro Musings. 

As always, if you come across something cool during the week, shoot me an email at and I’ll share it with the group. 

Latest Articles — 

Your Monday Dirty Dozen [CHART PACK] — We look at more charts showing the pervasive bearishness amongst investors; from sentiment near multi-decade lows to persistent outflows in EM stocks. We also check out seasonality, some gold charts and more.

Value Hive: Shipping Stocks, Water Assets and Jeff Bezos Interviews —  PG&E hides under the covers and shuts off power. Greece throws their hat into the negative-yielding debt parade. The short seller that screams loudest doesn’t always win, and more!

My Favorite Investing Resources — Brandon shares his favorite value investing related books, podcasts, and videos. 

Articles I’m reading — 

Here’s a slightly older but excellent long-form piece from the New Yorker, titled “Personal Best” that I happened to stumble across this week and gave it a reread (link here).

It’s written by the renowned surgeon and author, Atul Gawande (he wrote “Checklist Manifesto” which is a great book and was required reading when I consulted for the tech company, Palantir). 

I love reading about people who are beyond obsessive about pushing the boundaries of excellence in their respective fields. And this article is a great example of that. Gawande details his recent experience of using a coach to critique his surgical performance and to help him break through a personal plateau. Here’s a great section from the piece (emphasis mine). 

Élite performers, researchers say, must engage in “deliberate practice”—sustained, mindful efforts to develop the full range of abilities that success requires. You have to work at what you’re not good at. In theory, people can do this themselves. But most people do not know where to start or how to proceed. Expertise, as the formula goes, requires going from unconscious incompetence to conscious incompetence to conscious competence and finally to unconscious competence. The coach provides the outside eyes and ears, and makes you aware of where you’re falling short. 

In 1987 the NYT profiled the three top hedge fund managers of the year: John Templeton, George Soros, and Gilbert de Botton. The article is a short read with some fun market anecdotes. Here’s a snippet I liked from the Palindrome: “If you’re doing poorly, the first move is to retrench,” he says. “Don’t try to recoup. And when you start again, start small.” And “You don’t need to know everything about a situation to make money… As with any scientific thesis, you should start in a small way, adding to it if the hypothesis looks good. Then, if it passes the tests, you’ll have a big reward.” That’s excellent advice from one of the greatest at riding winners for all they’re worth. (Here’s the link.)

Not trading related but worth reading nonetheless, is a piece from Nautilus (one of my favorite science publications) exploring the fractal nature of our consciousness (you can read it here). Here’s an excerpt: 

Giuseppe Vitiello, a physicist at the National Institute for Nuclear Physics in Italy, takes a different approach to the application of quantum physics to brain dynamics (using quantum field theory instead)—but he, too, likens it to an ordering along fractal lines. Like a magnet, he says: disordered on the microscopic level until a trigger causes the magnetic “arrows” to all point in the same direction and result in an organized macroscopic system. Vitiello showed that the advent of this coherent structure—namely, of coherent quantum states—corresponds to the way fractals are represented mathematically. In other words, underlying the brain’s fractal processes is quantum coherence.

There’s a market analogy in there somewhere…

Charts I’m looking at—

Check out this chart from @pricesmatter which shows EURUSD coiling tight against 50-years of support (looks like he uses DEM for the period before the euro was created). Maybe we bounce this time or maybe we finally break through the long-term trend-line lower. 

Podcast I’m listening to — 

Srinivas Thiruvadanthai was on David Beckworth’s Macro Musings podcast last week. Sri (@teasri) is one of my favorite macroeconomists to follow. He looks at the world through the lens of the Levy/Kalecki Profits Equation which is the proper way to view the macro-financial balance sheet. 

In their talk, Sri and David discuss the safe asset supply challenge, the fallacy of composition in macroeconomics, and ways in which the Fed could ease the cost of being the world’s banker. It’s a timely interview. Give it a listen, you’ll be sure to learn something (link here).

Video I’m watching — 

In the spirit of the 30th anniversary of Black Monday tomorrow (aka: the crash of 87’). I downloaded my copy of the infamous Paul Tudor Jones (PTJ) “Trader” documentary to YouTube. You can watch it here.

We should all aspire to one day trade the markets while wearing Bruce Willis’ high top sneakers “The man’s a stud”. 

Trade I’m considering — 

I keep sharing this one but the technical and fundamental set up on the Mexican peso is just too good. The below chart is a weekly of the MXNUSD cross. It’s nearing a major breakout point, perhaps another cut at this month’s FOMC is the spark that starts the fire? 

Quote I’m pondering — 

Understanding how our brains work — our limitations, endless mental shortcuts, and deeply ingrained biases — is one of the keys to successful investing. At Baupost, we believe that it is sometimes easier to predict how investors will behave in certain situations than it is to predict a company’s bottom line. At times of market extremes, by avoiding emotional overreaction and remaining aware of our biases, it may be possible to know market participants better than they can know themselves. ~ Seth Klarman

If you’re engaged in markets then you’re playing in Keynes beauty contest whether you realize it or not. If you’re not playing the player then you’re the one getting played…

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily. 

Have a great weekend.

Musings: The Market, To Be Commanded, Must Be Obeyed

Alex here with your latest Friday Macro Musings.

Housekeeping note: Fall enrollment for the Macro Ops Collective has begun. Go ahead and give this link a click if you’re interested in joining our team. If you’ve got any Qs don’t hesitate to shoot me an email. Disregard the cheesy copy. We’re traders, not salesmen :).

Latest Articles —

Your Monday Dirty Dozen [CHART PACK] — We look at the trend in global PMIs and what that’s meant for sector returns going forward, plus we look at falling oil demand and dropping rig counts, and end with a look at some lending data and a coiling high carry FX trade.

Value Hive: Q3 Letters, Russian Stocks and P/E Misconceptions —  Brandon shares the Q3 Investor Letters he’s reading, discusses Elliot Management’s latest idea, Canadian bank stocks, and pitches the bull case for a Russian financial.

Ditch the Predictions and Play the Odds — I go on a bit of a rant about the huge difference between odds-based scenarios and needlessly gaudy predictions (ie, constant recession forecasting).

Part 1: The Tape Tells All and It’s Odds On We’ve Started a 10%+ Correction — I imagine alternate market scenarios and evaluate the weight of the evidence by running through the technicals, internals, and sentiment in this post.

Part 2: #Recession2020, Really? A Review of the Data —  I talk recession and how we should think about them as traders and investors. I then share my Recession Dashboard along with what it’s currently telling me.

Articles I’m reading —

 Morgan Housel’s latest post titled “Three Big Things: The Most Important Forces Shaping the World” might well be his best. Which is saying something since he seems to only produce great work.

In the post, Morgan talks about three subjects that are near and dear to my heart (1) demographics (2) inequality and (3) access to information. Using WW2 as an analogy in how BIG events echo through time, creating all types of unpredictable outcomes decades later. He writes how these three forces are sure to shape the future in ways that are unimaginable to us today.

Here’s the link, make sure to give it a read.

You can follow up Morgan’s piece with this complimentary one from Ben Carlson titled “World War II: The Economic Anomaly”.

Carlson talks about how WW2 essentially created the middle class. The post is filled with some great anecdotes and charts. For instance, did you know that by 1945 US GDP was 2.4 times its size from just five years earlier? Carlson quotes the author Frederick Lewis Allen who called it “the most extraordinary increase in production that had ever been accomplished in five years in all economic history.” Here’s the link along with one of the many great charts.


Lastly, I might be confirming my bias here but I think this macro outlook by Joe Little (Joe’s a good follow on the twitters, you can find him here) and the HSBC asset management team is solid — it’s right in line with what I’m seeing.

The gist of the report is that there’s a big “bull market in pessimism” at the moment and investors are spending too much time fretting over a recession. Sure, there are risks… global growth has been slowing and political uncertainty is on the rise. But most of this and some has been discounted in the market and the risk premia that’s now on offer on global equities relative to UST 10-years is pretty fat.

This is at least my quick take from the report. You can, and should, read the whole thing here. Here’s a clip.

“The fundamental outlook remains tricky. Political uncertainty has imposed an economic cost. Our Nowcast – a big data economic model – indicates that global growth is running just above 2%. This is not strong, but it looks broadly stable. We believe we are in the “cyclical slowdown” phase of the economic cycle – growth and profits are coming under pressure, but are not yet compromised. Global labour markets and services sectors remain firm. Importantly, there is a concerted effort underway to ease policy in the US, China and Europe. Low inflation gives policymakers a free-hit to focus on stabilising the macro cycle and revitalize animal spirits. Of course, we have to be realistic about what policy stimulus can achieve – we shouldn’t expect a return to the “Goldilocks economy” of 2017- early 2018. But – critically – policy activism is largely pre-emptive and insures us against the worst macro outcomes.”

Oh, and one more thing. Take a few minutes and give this short FT article on the Hong Kong protest a read. It’s a well written and sobering take on what’s likely to transpire next. Actually, one more last thing, promise. Ben Thompson’s latest post on the NBA/China controversy is excellent and a must-read (link here).

Charts I’m looking at—

Here’s a cool graph from the above report. It’s a narrative map. Apparently they use fancy NLP software to crawl millions of news articles to see what the global collective is worrying about. The answer? Recession, the Fed, and trade policy. In that order.

This chart from RENMAC shows that SPX net-surprises are in the top 20% of their historical average, which is generally bullish (marked by the green up arrows on the chart if you couldn’t guess). With consensus estimates predicting negative 3.4% EPS growth this quarter we might be seeing another easy earnings layup in Q3.

Podcast I’m listening to —

My friend Kean Chan (@keanferdy) recommended this older episode of NPR’s Hidden Brain podcast. The episode is called “How Science Spreads: Smallpox, Stomach Ulcers, And ‘The Vegetable Lamb Of Tartary’”. It’s about how beliefs and narratives spread. There’s a lot in here that can be directly applied to markets. It’s a short listen, less than 40-minutes and worth the time.

The main takeaway? We can never be absolutely sure about anything. On top of this, our brains are packed full of biases and blind spots. So we should think about our beliefs in terms of degrees and probabilities rather than certainty. That’ll help us get to better answers over time. Here’s the link.

And for those of you interested in learning more about the study in how narratives and beliefs spread, I recommend picking up the seminal textbook on the subject titled “Diffusion of Innovations” by Rogers. It’s a favorite of mine.

Book I’m reading —

A while back I wrote a post (link here) on Amos Hostetter. If you’re not familiar with the name, Amos was one of the original co-founders of Commodities Corp — the trading shop that birthed many of the original greats: Kovner, Marcus, PTJ, and Seytkota to name a few.

Amos was considered the wise mentor of the group. Nearly all the traders would go to him when they were working on a problem or riding a rough patch. As you could imagine, he was quite the wellspring of knowledge.

Following his untimely death in 77’, management at CC decided to compile all of his trading wisdom that was remembered through talks, written on memos and letters, and jotted down in his own personal trading journal. The result was an internal booklet titled “A Successful Speculator’s Approach to Commodities Trading”.

We’ve had it hung up in our Collective Vault for a while but I found myself turning back to it this week for a piece on theory and execution that I’m writing. It’s 44 pages of pure gold.

Here’s the link to the pdf.

Let me know what your favorite takeaways are. Here’s one of mine.

“Sometimes it is hard to draw a sharp line between trading principles and money-management principles. If I were to paraphrase a famous saying, I think it would provide an accurate summary of one of Mr. Hostetter’s most important trading and money-management principles: the market, to be commanded, must be obeyed.”

Trade I’m considering —

Global ex.US markets might be in a protracted slump and US markets may have gone mostly sideways for the better part of two years, but there’s always a bull market somewhere. That is… if you know where to look. That somewhere is shipping, a sector we at MO have been writing about since the start of the year.

Many shipping stocks are up 50%+ on the year (STNG, our largest position, is up 70%ytd) and the party is just getting started. I love this trade because the charts and fundamentals have been playing out beautifully but there’s still hardly anybody talking about the sector.

I don’t know what it is. Maybe it’s misconceptions about how the trade war will affect the industry (hint: it’s bullish as it reroutes shipping lanes from traditional routes, meaning more nautical miles travelled) or maybe it’s overblown concerns about slowing global growth. Whatever it is, there’s still incredible opportunity in the space.

Here’s DSSI, a company our value guy Brandon wrote about a few months back (link here). The stock is up roughly 50% over the last two weeks. If this shipping bull market is anything like the others past, then this is not even the first inning of what will be a wild game (read: lots of money to be made).


Quote I’m pondering —  

The self is the friend of a man who masters himself through the self, but for a man without self-mastery, the self is like an enemy at war. ~ The Bhagavad Gita

Perspective is everything. Alter your perspective, alter your reality. All mastery begins and ends at the self. Da Vinci said it well, “One can have no smaller or greater mastery than mastery of oneself”.

Turn inwards and take the journey.

P.S. Fall enrollment for the Macro Ops Collective has begun! We regulate the number of new signups because we’re going for quality over quantity and want to make sure we’re able to provide the most value to our fellow Collective members as possible and keeping the inflow limited helps us do that. If you’re interested in checking us out then go ahead and click this link here to see what’s on offer or feel free to shoot me an email with any Qs you may have at

Either way, thanks for being a reader and good luck in the markets.

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

Musings: A Physicist Who Trounced the Market and “a Sh*t in the IPO Pond”

Alex here with your latest Friday Macro Musings.

Latest Articles —

Your Monday Dirty Dozen [CHART PACK] — We look at more short-term sell signals indicating further downside ahead, a massive collapse in global auto demand, a profit contraction in Germany and a possible recession in Mexico, plus some unprofitable IPOs and 230-years of global debt.

Value Hive: Spooky Times for WeWork, Zero Fees and More! —  Brandon discusses the Forever 21 bankruptcy, WeWork’s dropped IPO and the race to zero in brokerage commissions.

Articles I’m reading —

This New York Magazine interview with Scott Galloway is straight fire… Galloway talks WeWork and the crumbling of the collective delusion surrounding Softbank funded zeros. Take a few minutes and give this thing a read (link here). Here’s a clip from the piece.

“There’s going to be a lot of fallout here, but one of the things, there’s going to be an overdue immune reaction. We’ve decided the narrative has superseded numbers. I think that’s going to change. It’s already changed. Basically Uber started the decline and WeWork has massively increased the momentum. It’s like we’ve had this cocaine-fueled party at Studio 54, Uber was the lights starting to go on, and now they’ve gone on so bright it’s like you’re in an operating room. Endeavor couldn’t get out. Basically, these guys have totally shit in the IPO pond.”

Tim Duy writing over at his blog Fed Watch put out a short note this week saying that the data now calls for the Fed to cut rates again this month. I agree and think they need to surprise the market with a 50bps cut if they want to get any bang for the easing buck. Here’s the link and an excerpt.

“To prevent another rate cut, the Fed needs a reason to believe that they have eased enough to offset the forces weighing down the US economy. It is difficult to see that they can reach such a conclusion without an improvement in the data flow. It is almost impossible how they can reach this conclusion now that it appears the negative forces on the economy are intensifying. By only the first week of October, the stage will likely be set for a third rate cut at the end of the month.”

The ISM Manufacturing index sunk to its lowest level since the GFC last month. This has led to an increase in the general claims that we’re now, or very soon about to be, in a recession. While these weak numbers — especially the horrendous export orders print (chart below) — are nothing to sneeze at. Many are pointing out the contrast between these latest ISM numbers with those by IHS Markit, who constructs a more reliable indicator of our manufacturing health — at least in your author’s opinion. This post from Markit explains the key differences between the two indexes.

Lastly, give this great profile on Doyne Farmer, a physicist who specializes in the field of complexity, a read. Farmer is an interesting cat. He was one of the first people to hack roulette by building a small wearable computer device. Later, after someone suggested he apply his knowledge of non-linear systems to the market, he — without any prior investing or market knowledge — set a goal of “making $5 million in five years — a sum he’d substantially surpass.”

He ended up starting a hedge fund that averaged risk-adjusted returns “about five times the S&P 500s” before selling out to UBS for $100 million in 05’. He’s now working with a band of global central bankers on applying agent-based modeling to untangle the world of global finance and expose vulnerabilities.

Charts I’m looking at—

Since there’s plenty of bearish charts being passed around, I thought I’d share this contrarian one from the veteran market technician, Martin Pring (@martin_pring).

The chart is of the Pring Turner Leading Economic Indicaotr (LEI) which according to his accompanying post, is “a weighted ROC for three key economic sectors and a financial one. These are construction, consumer spending, employment and the stock market.” Pring notes that this indicator “has led every recession since its inception in the 1950’s. To be fair, it also signaled the non-recession of 1966. Signals are triggered by the “Recession Caller” in the lower window dropping below the red trigger line. The latest data point to the indicator moving away from that line in the direction of renewed recovery and away from a business contraction.”

Video I’m watching —

Here’s a short interview with forecasting expert, Dr. Phil Tetlock, on how to apply super-forecasting skills to the dynamics of investing in markets. The talk was put on by Greenwood Investors. It’s a short 14-minutes and worth a watch.

Podcast I’m listening to —

Do yourself a favor and go and give the latest Bloomberg Odd Lots podcast with economist Michael Pettis a listen (here’s the link). Pettis understands international capital flows and national accounting identity better than almost anyone. His ideas about what really drives trade imbalances and high national savings rates will sound counterintuitive to many but are how things actually work.

Collective members can read my detailed explanation of this concept in our Vault. I wrote about it in the paper titled “We Will Bury You” where I explained the idea in the context of China’s current macro situation.

Here’s a short summary of the talk from co-host Joe Weisenthal.

Book I’m reading —

I’ve enjoyed following the renowned technician Walter Deemer (@walterdeemer) on the twitters and so I decided to pick up one of his books “Deemer on Technical Analysis”.

Walt has been in the trading game forover 50-years. He’s learned a few lessons along the way and shares many of them in this book — along with some great trading war stories from the past. At roughly 300 pages with big type, it’s a relatively short and easy read. I’m maybe halfway through it so far but have read enough to recommend it to those looking for a good book on trading and technical analysis. Here’s a cut from the chapter on timing and selection.

“How Do You Know When the Market Has Topped? How Do You Know When to Sell?

First and foremost, gauge market sentiment. When the time comes to sell, you won’t want to.

At some point, everyone who wants to buy has bought, and pricess will stop going up. That is a bull market top.

At a bull market top, the market advance usually slows over a lengthy period of time. No one wants to sell. Everyone is happy. Everyone thinks that the market will keep going higher. The newspapers are full of glowing headlines and reports. It takes a bit of intestinal fortitude to say that this news is the reason why the market has already gone up, and it, therefore, may be time to back away and do some selling.

When everyone who wants to buy has bought, there is usually not much for sale. But unlike, say, commodities, where fear of scarcity causes price spikes, prices tend to remain steadier than seems normal.

Market tops usually take a while to form. There is usually time to get out. But always remember: When the time comes to sell, you won’t want to; the news is always good — very good — at a top.”

Trade I’m considering —

Short USDJPY (long JPY).

The technicals are set up nicely. The chart below is a weekly. It’s overextended on a short-term basis so I’d wait for a bounce to enter. But if we’re entering a period of risk-off, as I think we are, then we should see the yen strengthen from here.

The trend in rate differentials is moving in its favor. Net spec positioning has just moved to being a little long after being very short for the better part of the last few years. Risk reversals are trending in the right direction and sentiment is neutral.

Quote I’m pondering —

Why focus on the process when the world is outcome driven? Don’t results matter?

Yes, results do matter.

But if you optimize for the outcome, you win one time.

If you optimize for a process that leads to great outcomes, you can win again and again. ~ James Clear

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

Musings: Murder, Regression to the Mean, and a Stock Ripe for a Short…

Alex here with your latest Friday Macro Musings.

Latest Articles —

Your Monday Dirty Dozen [CHART PACK] — We look at MORE bearish positioning across equities, fund managers buying protection against a fall at a record rate, signs of an intermediate top in gold, and macro indicators that say a recession is still a long ways off, plus more.

Value Hive: Sony Says No, AT&T Listens and China Talks! — Brandon, the value investor formerly known as Mr. Bean, talks Dan Loeb and Sony, AT&T and Elliot, and a trader who lost his shirt and some…

Articles I’m reading —

Alex Danco published a great piece titled The Founding Murder and the Final Boss (Danco is the one who did the excellent Rene Girard primer I shared a number of weeks ago). It’s another Girardian take, this time on the ritualistic narrative Silicon Valley partakes in when one of its own flounders and goes belly up.

The idea is that the Valley subconsciously evolved a social contract in order to stave off the collective belief that we’re in the midst of another dot-com bubble — the Valley’s “Founding Murder”. Put another way, they ritualize the death of one of their own in order to “make sure that the struggle or failure of any one company would never be interpreted by the community as a warning sign that the whole undifferentiated bubble could collapse” as Danco puts it.

It’s a thought-provoking piece and makes you question what other social rituals we may have evolved to distract us from the truth in order to serve a narrow purpose. Here’s the link and a section from the post.

As a community, we’ve gotten impressively good at collectively interpreting these failures in the healthiest way possible: founders are rarely demonized; there’s just the right amount of performative fretting, but no serious fear. For small failures, anyway, we’ve gotten really good at ritualizing them into the highest level of “failure interpretation”: not by panicking (the lowest, most dangerous level) or by isolating it as an ignorable one-time thing (the intermediate level, which works when used sparingly), but in an active form of kayfabe where failure is good!

The collective memory of the real founding murder (the dot com crash) is an essential part of keeping kayfabe. The stronger that memory, the more effectively we can say “up is down, black is white, failure is great” with a straight face, mean it, and actually perpetuate a desired outcome that is useful. It’s an remarkable conjuring trick, really; if enough of us believe that failure is good, then it becomes good.

Here’s one for the mon-pol nerds.

I recently came across a fantastic blog called “Concentrated Ambiguity” that dives into the nuts and bolts of international capital flows — he also has some great posts on the recent repo hysteria that has infected so many amongst us. It’s heady stuff but super interesting if you’re at all into learning how the international finance sausage is made (link here).

Lastly, Bessemer Trust recently published a report looking at the Japanese stock markets (link here).

The report is overall neutral on the country. They like some things, such as its improved capital discipline, governance, and rising buybacks, but are put off by the upcoming consumption tax increase. I myself am more bullish on Japanese stocks over the intermediate-term. There’s quite a lot to like from a purely technical and positioning standpoint. Plus, there are things like these two charts below from the report (1) buybacks are rocketing higher and (2) it’s trading on the cheap.

Charts I’m looking at—

The trend in these two charts below has me worried. Both aggregate return on equity (ROE) and net profit margins have rolled over again and are trending lower. There aren’t many times in history where we’ve seen margins and ROE contract this much and then not experience a recession.

Just some food for thought. There’s a lot to be bullish about — at least in the near to intermediate-term — but there’s also increasing signs of trouble on the horizon.

Video I’m watching —

So I’ve just started watching this one and am only a few minutes in. I’ve been on somewhat of a Peter Thiel trip these last months and this interview seems interesting so far. Thiel is a strange creature. I certainly don’t agree with many of his views but he’s at least a thoughtful and incredibly bright guy. Plus, some of his ideas are so far out in left-field that I often find myself thinking about a topic in an entirely new way after hearing him speak.

The video is titled “Peter Thiel on ‘The Straussian Moment’” and was put on by Stanford’s Hoover Institute (link here).

Podcast I’m listening to —

Earlier today I listened to David Perrell’s recent North Star interview with the critical thinking savant, Adam Robinson. Adam is a consultant to hedge funds and has quite an original approach to markets, some of which I’ve written about before (link here).

I enjoyed the talk and think you will too. Here’s the link.

Book I’m reading —

The other week I finished reading Sutherland’s book “Alchemy: The Dark Art of Creating Magic…” after seeing a number of people rave about it on twitter. I don’t know how to describe this book because it’s so much more than a book about business and branding. It’s about the oddities of the human mind, the quirky things we do and the real reasons behind why we do them, and much more. It’s a fantastic book, the best one I’ve read this year. Read it. You won’t be disappointed.

Here’s a section from it:

One of the most important ideas in this book is that it is only by deviating from a narrow, short-term self-interest that we can generate anything more than cheap talk. It is therefore impossible to generate trust, affection, respect, reputation, status, loyalty, generosity or sexual opportunity by simply pursuing the dictates of rational economic theory. If rationality were valuable in evolutionary terms, accountants would be sexy. Male strippers dress as firemen, not accountants; bravery is sexy, but rationality isn’t. Can this theory be extended further? For instance, is poetry more moving than prose because it is more difficult to write? And is music more emotionally potent than normal speech because it is more difficult to sing than to talk?

Trade I’m considering —

Short insanity… In other words, short incredibly overvalued crowded momo names like Coupa Software (COUP) that has an $8bn+ market cap and is trading for 26x sales. There’s a big unwind happening in these names and stocks like COUP have a long way to fall just to get back to normal overvalued levels.

Quote I’m pondering —

Mimicking the herd invites regression to the mean. ~ Charlie Munger

There are plenty of ways to play this game well. Doing what everybody else is doing is not one of them.

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

Musings: Bubble or Nothing, a Major Regime Change, and a DEEP Value Energy Pick

Alex here with your latest Friday Macro Musings.

Latest Articles —

A Monday Dirty Dozen [CHART PACK] — We look at technical and sentiment indicators showing short-term overbought levels in US equities, incredibly low hedge fund exposure to stocks, the ‘pain points’ for CTAs in bonds, really cheap European banks and more.

Oh, How Quickly The Narrative Pendulum Swings! — I share a video that illustrates how quickly changes in price lead to changes in sentiment and the narratives behind them.

Much Ado About Nothing: Repo Rates and Doom Narratives — I dismantle the popular doom narrative that’s spawned around the repo market.

Market Brief: Value in Energy — Cover the latest BofAML Global Fund Manager Survey, the ripe setup for a major bullish move in stocks (after a pullback first), the drone attack in Saudi Arabia, and the deep value on offer in energy [Collective Member access only].

Trade Intel: FOMC Update and More Bad News for Bears —  Talk FOMC and more repo + the latest data that totally annihilates the bear thesis on the US economy [Collective Member access only].

Articles I’m reading —

 The Jerome Levy Institute put out a monster of a report titled “Bubble or Nothing” where they discuss the balance sheet trap that the US (along with the rest of the developed world) now finds itself in. I’ve written on this subject a number of times over the last two years (here’s my most recent post from April) but this report really goes into the troubling economic weeds in which DM economies are trapped.

The problem?

Dangerously leveraged balance sheets (ie, too much debt).

The solution?

Short-term, we can keep things going by further expanding our balance sheets. But… this just increases the problem. Also, there’s a saturation point in which more debt won’t move the needle — we just don’t know where that point is. If we stop, then the whole thing craters in on itself and things get… bad. Hence the title “Bubble or Nothing”.

It’s the unfortunate consequence of being at the tail-end of the Long-Term Debt Cycle. I wish I could say the report offers some viable solutions for us to safely remove ourselves from this trap. It doesn’t. Either way, it’s critical that as investors we understand the large underlying dynamics of what’s going on so we can learn how to protect ourselves, and maybe even make a profit when things finally turn. Here’s a link to an executive summary of the piece and the link to the full report.

I highly recommend giving the full report a read or at least take the time to give it a good skim through. Here’s a section from it.

“The disproportionate expansion of private sector balance sheets profoundly altered the parameters of the choices decision-makers faced, compelling them either to accept lower returns and other poorer outcomes than they had come to expect or to take actions that increased their financial risk. For some, this may have been a Hobson’s choice, a choice that was really no choice at all, since they may have deemed the sacrifices associated with avoiding bigger risks to be unacceptable. Even if no individual’s behavior was forced, it is fair to say that in a large population in which individuals make varying choices along a continuum, something that alters the relative attractiveness of the choices does change the collective outcome—it does force a change in collective behavior. Accordingly, increasing balance-sheet-to-income ratios unequivocally caused increased risk-taking.”

If you’ve been closely following our work then you know we’ve been broadly bullish on the market since the start of the year. And, in fact, we think we’re about to see another major bull leg higher (possibly, after a small dip over the next few weeks).

You might be asking: how am I so bullish considering the above? The answer is that it’s a matter of timeframe. The turning of the debt cycle is “background timing” information. It’s something that’s not yet actionable but will be someday. The bullish impulse we’re expecting is strategic timing and is primarily influenced by what the market itself is saying.

The best opportunities are when all timeframes align; from the background all the way down to the tactical. That doesn’t happen often.

Moving on… Here’s an excellent post from @MacroCharts laying out the technical bull case for global stocks (link here). He makes some of the prettiest charts in the game and points out the major breadth thrusts we’re seeing right now across a number of markets. I agree on all points and think the next 6-12 months are going to be wild. Here’s the summary from the post.

“The weight of the evidence suggests Global Markets are in broad alignment and starting a potential historic Bull Market extension rally. Short-term moves notwithstanding, markets are sending a powerful message of strength which should be respected.

Historically, prior Bull Markets typically ended with epic rallies, usually lasting several months and with every region in the world participating. While it’s impossible to know if this Bull Market will follow the same script, one thing seems absolutely clear – almost no one is ready for such an outcome.”

Lastly, I enjoyed this write-up on Cobalt 27 (a cobalt mining company) by Massif Capital (link here). They’ve done some really good work on the battery supply chain (link here) that I also recommend reading. Energy storage is going to become a huge market over the coming decade. Governments across Europe are planning on making “renewable energy” a key focus in their turn to greater fiscal spending and investment and battery story will be a critical component of that.

If you prefer listening over reading then here’s a recent podcast they did on the cobalt, nickel, and lithium markets (link here).

Oh and one more thing. The Sante Fe Institute offers some amazing online classes, some free, some paid. Most of the classes center around the institute’s specialty which is complex and dynamic systems, of which the market is one.

They have a free course launching on Oct 1st titled “Introduction to Dynamical Systems and Chaos”. Here’s the link for those of you interested (link here).

Charts I’m looking at—

These are just two of the many great charts included in the Levy report. Both illustrate how, beginning in the 80s, the growth in debt began exceeding investment; meaning, debt was being used for financial engineering which has driven asset price inflation.

Video I’m watching —

 This week I came across an interesting Ted Talk titled “Your brain hallucinates your conscious reality”. The talk is given by Anil Seth, a professor of Cognitive and Computational Neuroscience at the University of Sussex.

Seth dives into the fascinating research that’s being done in neuroscience around the concept of consciousness and what’s actually taking place in the brain when we interact with what we call “reality”. According to Seth, we’re all hallucinating all the time and reality is just what we call the hallucinations that we agree upon. Give it a watch, it’s less than 20-minutes long (here’s the link).

Podcast I’m listening to —

If you own bank stocks or are thinking about owning bank stocks or are just curious as to why they’ve been doing so poorly, then give this OddLots Podcast with fund manager John Hempton a listen (here’s the link).

Book I’m reading —

@MacroCharts shared a short white paper titled “Planes, Trains and Automobiles: A Study of Various Market Thrust Measures” by Wayne Whaley. If you’re at all interested in learning about some of the various measures and indicators of market breadth, then I recommend giving this paper a read. It’s short, only 14-pages long, but chock-full of good information on breadth analysis (here’s the link).

Trade I’m considering —

 I like energy stocks here. There’s a number of reasons why (1) they tend to outperform later in the cycle (2) capital discipline has finally been forced upon the industry (3) the capital cycle strongly favors a major industry upturn (4) it’s the most hated and least own area of the market (5) conversely, there’s incredible value in the space if you know where to look (6) its dividend yield to treasury yield spread is the highest amongst all the sectors and is at record levels (7) it now makes up less than 5% of the index for the first time ever (8) I love catching falling knives…

One of the companies I like in the space is Geopark LTD (GPRK). They’re an E&P that operates in Chile, Colombia, Brazil, Argentina, and Peru. They trade at less than 4x EV/EBITDA and have a very nice looking chart.

I’m still digging into this one but there’s a lot to like, especially the current technical setup.

Quote I’m pondering —

I was prepared for a regime change, whereas other people were acting within a prevailing regime. And that is where I think my awareness that conditions can undergo revolutionary change was useful. ~ George Soros

Are you prepared?

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.