Monday Dirty Dozen [CHART PACK]

The joy of winning and the pain of losing are right up there with the pain of winning and the joy of losing. Also to consider are the joy and pain of not participating. The relative strengths of these feelings tend to increase with the distance of the trader from his commitment to being a trader. ~  Ed Seykota

In this week’s Dirty Dozen [CHART PACK] we look at supply overhangs and market retracement odds before diving into the virus’ second-order economic impact, then we tally up all the many fiscal and monetary actions taken to date, discuss the poor health of our state finances, and end with a deep cyclical value play. Plus more…

Let’s dive in.

***click charts to enlarge***

  1. The market ran into a supply overhang at the end of last week. A supply overhang is a price point where many players had previously accumulated shares before prices moved against them, making them underwater on their positions. It’s their breakeven point or close to where they can dump their holdings at only a small loss and breathe a sigh of relief.

Odds now favor 1-2 weeks minimum of sideways to down action from here.

 

  1. The NAAIM Exposure Index shows that managers have brought their risk level nearly back up to pre-sell off levels. Nothing like price to change sentiment…

 

  1. Deutsche Bank put out a report over the weekend talking about some of the second-order economic impacts of the virus; one of them being tourism and what the lack of travel means for GDP. They noted that “According to the UNTWO, a couple of years ago, tourism was directly the source of 9% of all jobs globally — and for every job in tourism another 1.5 jobs are created.”

 

  1. Nomura has created a number of “lockdown trackers” to show how much of the global economy is in shutdown. Here’s the tracker showing how much of the global populace “should” be on lockdown in accordance with government mandates.

 

  1. And this one uses alternative data to show what people are “actually” doing.

 

  1. BofA reported that “The number of countries (> 50 cases) reporting a new high in daily cases in the preceding five days is down from 102 (March 27th) to 49 (April 26th). A risk to monitor is a second wave of new cases as measures to slow the spread of the virus are eased”.

 

  1. Morgan Stanley detailed the aggressive monetary and fiscal policy to date, writing (with emphasis from me) “Since mid-January, all of the central banks we cover have eased monetary policy. The global weighted average policy rate has declined to below post-GFC lows — rates have fallen by 64bps since December 2019 and 177bps since December 2018. G4 central banks have announced aggressive quantitative easing programs. We estimate that G4 central banks will make asset purchases of ~ US$13 trillion in this easing cycle. The Fed alone will make cumulative asset purchases of ~US$7.8 trillion.”

 

  1. Here’s a running tally from them of all the global monetary and fiscal measures announced to date (click chart to enlarge).

 

  1. Thank Zeus the money spigots are on or else we would have seen massive credit cascades. This chart shows a lot of companies are raising a lot of money as IG new issuance crushes the former records.

 

  1. While at the same time companies are slashing buybacks and dividends. Buybacks have been an important source of equity demand this cycle and so this trend matters a lot going forward. While many people rightly point out that there’s not a one-for-one relationship between buybacks and the market’s performance, it’s the long-term impact to the supply/demand equation for the market where this shows up.

 

  1. Morgan Stanley pointed out the troubling state of many State finances due to lockdown measures. They wrote, “Joblessness is reducing taxable income, declining retail activity impedes sales tax, weak stock markets stunt capital gains tax revenue, and the decline in the price of oil hurts severance (natural resources extraction) tax revenue.”

 

  1. There’s always a bull market somewhere as Jimmy Buffett would, I’m sure, say if he were an investor. Natural gas is a case in point. Look out past the near-term futures and the charts look good. Antero Resources (AR) is one of a number of good plays on this theme. Capped downside and LOTs of upside, which is what I like to find in a trade. I’m in the process of doing a deep dive into the space that I hope to share with fellow Collective members later this week.

 

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.

AK

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.