Equity Positioning at RECORD Levels

“Whoever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times…this arises from the fact that they are produced by men who have been, and ever will be, animated by the same passions.” ~ Niccolò Machiavelli

Good morning!

In this week’s Dirty Dozen [CHART PACK]  we look at earnings season data, high valuations, bullish expectations, and record levels in sentiment and positioning… we then talk about what this means going forward, look at some inflation drivers, and reiterate our bull case for precious metals, plus more….

Let’s dive in.

***click charts to enlarge***

  1. Earnings season is upon us… Bloomberg notes the high bar that’s been set, writing “Based on existing analyst forecasts for earnings in all of 2021, the S&P 500 trades at almost 24 times estimates, among its highest valuations ever. To bring the multiple down to its long-term average of 16 times annual profits, companies in the gauge will have to make about 15% more than the equity researchers currently expect them to earn — in 2023.”


  1. Here are the most anticipated releases this week from Earnings Whispers.


  1. Ned Davis Research lays out the downside of when too much upside is priced in (h/t @modestproposal1 for the chart).


  1. Financials and tech have been two of the strongest sectors year-to-date, following energy which takes first spot. While energy names have benefited from a rerating of extremely bearish expectations to just mildly so, the other two sectors have been boosted by that Buyback Tailwind


  1. More evidence supporting growth and momentum’s relative leadership in this Buy Climax.


  1. China PPI is accelerating which tends to lead to positive inflationary surprises globally.


  1. Speaking of inflation, the Economic Policy Institute published a report last week exploring the relationship between Labor bargaining power and sticky inflation. The EPI writes:

“…the only factor more responsible for weak wage growth for the typical worker is the excessive unemployment perpetrated by central bank policymakers’ high interest rate policies and fiscal austerity. The share of workers covered by a collective bargaining agreement fell from 27.0% in 1979 to just 11.6% in 2019.This impact of eroded collective bargaining lowered the median hourly wage by $1.56 over the 1979–2017 period. Put another way, the median hourly wage was $19.70 in 2017 but would have been $21.27 had collective bargaining not declined (all in 2020 dollars).”


  1. The Buy Climax scenario we said was likely a few weeks ago is playing out to a T. How long it will last is anybody’s guess — buy climaxes always last longer than most expect — but sentiment is getting to a point where it can’t rise much further.

AAII Net is at its highest level since the Jan 18’ blow off top.


And TD Ameritrade’s IMX is at its highest level since then as well.


  1. BBG notes “Investors bought equities in record amounts in the first quarter of 2021, as a combination of generous stimulus and bets on economic recovery drove $372 billion into global stock funds… The first three months of the year saw the largest global equity inflows as a share of assets under management since 2006.”


  1. And wealthy BofA clients boosted their equity allocations to 63.6%, the highest level on record.

All signs suggest this Buy Climax will be followed by an extended — any likely painful — consolidation following this blow off top.


  1. This 40yr+ chart of lumber prices is something else…


  1. Precious metals are going to be the big outperformers in the second half of this year — you can go ahead and timestamp this.

I’m personally starting to slowly build positioning in miners and related plays. EXK, which I pitched back in December, continues to be one of my favorite silver miners. It’s climbed 37%ish since, but still has a long ways to go. The chart below is from back in December.


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

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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.


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.