Through bitter experience, I have learned that a mistake in position correlation is the root of some of the most serious problems in trading. If you have eight highly correlated positions, then you are really trading one position that is eight times as large. ~ Bruce Kovner
In this week’s Dirty Dozen [CHART PACK], we look at a growing consensus, rising chances of overheating, breakouts in crypto and precious metals, plus more…
1. BofA’s latest Global FMS summary (with my highlights) shows the Narrative Pendulum is inching closer to a consensus (soft landing, buy stocks/dump bonds). We’re likely at least a few weeks out before a climax. I’ll be watching for a proper sell signal on the Bull & Bear indicator.
2. We have a new HUD tool out. You can find it in the Macro tab under “Market Implied Regimes.” These models aim to predict the macro regime six months from now, using the daily data of the five factors from the Fama and French Factors as the primary inputs. A logistic regression is then applied to each macro regime to display the probability of that macro regime being true.
The models currently imply a 20% (and rising) probability of an “Overheating” regime (ISM > 55 and CPI > 3%).
3. If the US does enter an “Overheating” regime, the catalyst may come from China, where China’s 5s10s yield curve implies a large rebound in money supply growth. This is important because, as BBG’s Simon White argues, “China money is global money… For most of the past 20 years, it [global M1 growth] has tracked China’s M1 almost in lockstep.”
4. Again, Simon says, “Most of the decline in core PCE has been driven by the acyclical component while cyclical PCE remains elevated. What we in fact find is that the ups and downs of acyclical PCE match China’s PPI closely… In other words, most of the heavy lifting in bringing down US inflation has not been due to the Fed, but due to deflation in China.”
5. This chart from RenMac shows how the “it’s because of the weather…” explanation behind the rise in claims doesn’t check out.
6. In September, we reiterated our bullish market stance in “It’s A Good Time To Buy.” The market continues to climb, and the bullish technical signals keep coming in.
7. And some more…
8. We’re long BTCUSD and will also be looking to add ETH to our book this week. It just completed an inverted H&S bottom. Both sentiment and positioning for BTC and ETH are bearish, which is bullish.
9. Our portfolio is up 48% ytd with much of this performance coming from our precious metals book (both in the futures and equities side). We’re still very bullish the PM space as the evidence suggests this trend is still early innings. You can read my most recent article on precious metals here.
Silver is giving us another chance to add, having recently completed its 5-month inverted H&S continuation pattern.
10. We like to play a quietly rising trend accompanied by falling speculative involvement. This means that PMs have staying power, as we’re far from the speculative excess phase of the trend.
11. This chart from NDR gives us another look at just how far this trend could go before it becomes “extended.”
12. One of our favorite plays on this trend continues to be Andean Precious Metals (APM:TSXV). We first wrote them up (link here) in January, and the stock has risen over 150%+ since.
We think this name will 2-3x from here, at least.
Thanks for reading.
