Monday Dirty Dozen [CHART PACK] #18

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

Good morning! 

In this week’s Dirty Dozen [CHART PACK] we look at the latest credit, fiscal, and monetary data points from around the world. We then talk about the widening US deficit and what that could mean for the US dollar. We end with some sentiment and positioning, take a look at buybacks, as well as a stock that’s set to benefit from the strong US housing market. Plus more… 

Let’s dive in.

***click charts to enlarge***

1. @Callum_Thomas shared this chart from GS on the twitters last week, showing equity ownership in the US broken down by age group. What’s interesting is that those in the 55-year and over group have seen their share of equity ownership climb from 52% in 1990 to 75% today. This is another one of those pernicious effects of the long-term debt cycle which has led to the current wealth and income divide we see today.


2. China was the country that saved the global economy from slipping into a much more painful and prolonged economic depression in the 2010s following the GFC, thanks to their China-sized fiscal stimulus. While China has once again turned on the liquidity spigots in response to COVID, their ability to drive credit growth has become diminished. You can only build so many ghost towns, high-speed rail lines, and bridges to nowhere before you start to see a negative impulse from investment.


3.  Luckily for markets though, the rest of the world has aggressively stepped up to the fiscal plate. Here’s GS’s latest summation of the total fiscal response year-to-date. The numbers are mind-boggling…


4. The fiscal response along with a weakening dollar has helped put a bottom under EM markets.


5. And this chart from HSBC shows that US excess money Y/Y has a high leading correlation (5-months) to multiple expansion in the SPX.


6. The question for markets looking forward is will the liquidity hose continue to spray at full bore? While the fiscal side is looking more precarious in the US with debates over extending the additional UI benefits, HSBC points out that the Fed still has plenty of room to maneuver, noting: 

“So far the Fed has only tapped c45% of the total funds from the US Treasury, according to our credit strategists. In other words, the Fed still has ample firepower to combat any deterioration in financial conditions and risk-off waves in markets.”



7.  Nominal policy rates across the EM world have fallen to their lowest levels ever. What happens if this trend continues and the entire world effectively ends up at the zero-lower-bound?


8. I know we live in a post-deficits-matter world with MMT and all… But, the US fiscal balance is set to reach the peak hit during WW2 with the next round of stimulus. At some point, the US’s financing needs will begin to surpass the structural demand for those safe assets. And we’ll see that imbalance correct itself either in higher interest rates or a lower dollar. My money is on the latter.

9. Speaking of the US dollar… HSBC’s latest survey shows that USD bears are in the ascendancy. On the surface, this would appear to be a check against the USD bear thesis. However, as the USD chart on the right shows. Most of the respondents believe the USD bear trend is nearer its end than its beginning.


10.  Buybacks are an integral part of my macro fundamental framework. A high net buyback yield (buybacks-net issuance) has kept this bull alive for much of the cycle. With announced buybacks off to a slow start for the year, it’s yet to be seen whether this fundamental driver can keep the party going.

11. Those who still think this bullish rise in risk-assets makes “no-sense” have not been looking at the right data points. We have record-breaking levels of fiscal easing and stubborn bearish sentiment/positioning coming off record lows. That’s it. That’s the bull case. 


12. In Tim Duy’s latest “Fed Watch” note on the economy, he comments on the returning strength of the housing market (link here). A favorite play of ours to participate in this thematic is the home services plan company, Frontdoor Inc (FTDR). Brandon put out an update on this stock back in April when it was trading around $36 — Collective members can find the report hung up in our Research Library.

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.