Deflating Reflation…

“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, CHINA, CIRCA EIGHTH CENTURY B.C.

Good morning! 

In this week’s Dirty Dozen [CHART PACK]  we go through the latest Global Fund Manager Survey and see where all the crowded trades are… We then discuss the evidence for an extended breather in the popular reflation trade. And end with a look at a bearish setup in oil and a long in the dollar, plus more…

Let’s dive in. 

***click charts to enlarge*** 

  1. The latest BofAML Global Fund Manager Survey is out. Here are the highlights.


  1. And the charts of the month… 


  1. Here’s my personal favorite. Global commodities vs bond allocation are at all-time highs. Just above the previous highs made on February 11’. Let’s discuss why this is important. 


  1. The next few charts are from @MrBlonde_macro who’s become one of my favorite new follows on the twitters. 

This one shows that the year-over-year gains in industrial commodities are likely nearing their limits. 


  1. This stretched trend and crowded positioning in commodities and reflationary assets are running into the realities of peak growth, — not to mention the growing concerns around the Delta variant. 

This chart from @MrBlonde_macro shows the cumulative returns of Cyclicals vs Defensive in various growth regimes, using the ISM as proxy. Currently, the ISM is above 50 and falling which puts us in the second worse regime for cyclicals on a relative basis (shown by the grey line below). 


  1. And reversion should be expected following such a large positive deviation. Again, chart via @MrBlonde_macro


  1. If markets are signaling the start of broader risk-off (which we think they are). Then crude should follow XOP back towards its averages (chart via @MrBlonde_macro


  1. Seeing as how crude’s deviation from its 200-day moving average is the widest it’s been in 30+ years, we should expect some catching down ahead…


  1. There’s plenty of kindle for this bearish reversal too. Small spec net longs are coming off their 98th percentile. 


  1. And its Time Spread is diverging lower… 


  1. Plus… if we see continued risk-off here and some length gets taken out of the crowded reflation trade, then the bullish action in the USD should pick up steam. Citi’s FX Pain Index shows the pain trade is clearly up for the dollar…


  1. Looking at the nearest month’s futures contract on crude, we can see that it’s at its lower Bollinger Band. Odds are we get a bounce here before we see a break to the downside. However, if we get a daily close below Friday’s low then the odds flip in favor of bearish follow-through. Oil is coming out of a fairly coiled range which means there’s decent gas for a swift move.


If you enjoy reading these Dirty Dozens each week then please feel free to share them on the Twitters, forward them to a friend, or translate them via smoke signal, etc… Every bit helps us get our name out there. 

Thanks for reading.

Stay safe out there and keep your head on a swivel.

Subscribe To Our Newsletter

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.


Investing & Personal Finance

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.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.