Monday Dirty Dozen [CHART PACK]

All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake in the day to find that it was vanity; but the dreamers of the day are dangerous men, for they may act their dreams with open eyes, to make it possible.  ~  T.E. Lawrence

Good morning!

In this week’s Dirty Dozen [CHART PACK] we walk through positioning indicators for the equity market and check out the worst 5-day fund flow streak for an ETF in over a decade. We then look at some dollar charts that suggest a short-term bottom in the USD may be near while the longer-term outlook doesn’t look so hot. We then end on a positive note for the broader US macro picture.

Let’s dive in.

***click charts to enlarge***

  1. UBS’s US Composite Positioning indicator, which measures the active manager positioning using a “proprietary database of over 930 MFs with AUM of $5.5trn across US equity MFs and allocation funds”, shows that the big players, on the whole, are under positioned risk. Though they’ve been aggressively working to correct this over the last couple of weeks.

 

  1. But that under-positioning has been somewhat balanced out by the speculative fervor that shows in the options market where Put/Call Ratio MAs (inverted) are at levels that create fragility and tend to preceded decent-sized corrections. One major reason why the odds favor a continuation of the move lower this week.

 

  1. Vanguards Total Stock Market Index (VTI) saw its largest 5-days of outflows in over a decade last week. Hmm…

 

  1. Copper is the market you want to follow for sniffing out early trends in global growth. A promising sign on that front is that the cash market / 3-month copper curve is close to flipping into backwardation. This implies a tightening market and likely higher copper prices ahead (chart via Bloomberg).

 

  1. According to CS 42% of Russel 2000 companies have negative earnings. That’s the highest on record. Now, there are two ways to look at this (1) wow, this is really bad or (2) huh, this is maybe as bad as it can get and perhaps a bottom is near for small-caps? I don’t yet have a strong side.

 

  1. This other chart from CS shows the differences in COVID trends between those states that opened early and those that didn’t. I get the sense that that COVID and the lockdown risk narrative might be coming back to the fore.

 

  1. In a recent note, DB pointed out the tightening supply dynamics in the oil market. They wrote “US oil production dropped by a very large -600kb/d this week equalling the 3 April decline, while the oil-directed rig count also fell by a further 10 rigs. Oil production from the US has now given up two full years of gains.” That’s quite significant…

 

  1. Here’s some good news. More US companies have been offering a brighter financial outlook than a gloomy one as the quarter comes to a close (chart via Bloomberg).

 

  1. Last week CS made the bear case for the dollar, pointing out its 1.5stdev overvaluation and the deterioration of the US’s net investment position over the last decade and a half.

 

  1. While I am sympathetic to the bearish USD case over the longer-term. I’m becoming quite concerned that the opinion is nearing a consensus — at least at the IB level, if not the broader market (yet). Plus, positioning is nearing levels that have marked short-term bottoms for the DXY in the past (chart via UBS).

 

  1. The Conference Boards Leading Economic Index YoY% recently turned up from its lows. Now, it’s too early to say whether this is a change in trend or just a bump along the road lower. But…

 

  1. If it is a change in trend then that’ll bode very well for the stock market. Because, when the LEI YoY is below zero and rising, the equity market tends to have its best average annualized equity returns — averaging 29.5%, which isn’t too shabby.

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.

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

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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.

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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.

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