No Landing Now = Hard Landing Later… [Dirty Dozen]

Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes. Speculation is far too exciting. Most people who speculate hound the brokerage offices or receive frequent telephone calls, and after the business day they talk markets with friends at all gatherings. The ticker or translux is always on their minds. They are so engrossed with the minor ups and downs that they miss the big movements. ~  Jesse Livermore, “How To Trade In Stocks”

In this week’s Dirty Dozen [CHART PACK], we talk no landings and hard landings, cover dying disinflation, discuss Chinese demand, economic surprises, bond volatility, and SPX levels, plus more… 

  1. H1’23 “no landing” = H2’23 “hard landing” via BofA’s Flow Show… (highlights by me)


  1. Disinflation no more… via BBG “the January CPI data showed that core goods disinflation, which has been a drag on inflation in recent months, is running out of steam. Core goods prices rose 0.1% month on month in January. Together with resilient services spending and persistent shelter inflation, the risks to the inflationary outlook are once again skewed to the upside.” 


  1. Gavin Baker posted a good thread to the twitters (link here) outlining what we at MO have been writing about for the last few months, which is that no landing now means a harder landing later via higher for longer rates and tighter liquidity


  1. Positive surprises: BBG’s ECSU function shows the sectoral breakdown of economic surprises (prints relative to consensus expectations). The index is in the top plotted with the 6-month change in SPX (orange line). And the bottom panel shows the positive contributors are housing and real estate, labor, and retail with the biggest detractor coming from the industrial sector. 


  1. Extended widescale draconian lockdowns mean that the Chinese are coming out of their homes with a lot of savings to spend. The pent-up demand is estimated to be in the ballpark of $2trn USD equivalent according to BBG (charts from Citi). 


  1. Volatility in bonds tends to precede volatility in equities. This makes sense as UST yields are the basis for valuing everything else. This is why the elevated level in BofA’s MOVE index (a measure of bond volatility) needs to be watched closely (green line below). Higher for longer likely means higher vol, which makes me wonder if we’ll see a similar VIX/MOVE conversion as we did in 08’. 


  1. On the positive side though, sentiment and positioning remain supportive of this bear market rally, for now. Here’s the summary from the latest BofA Global Fund Manager Survey with highlights by me. 


  1. Average percentile rank of growth expectations, cash allocation, and equity allocations via BofA… 


  1. Our weekly Nervous & Number Indicator, which is a measure of the relative changes in SPX and the VIX, looks like it’ll trigger a sell signal this week. Red circles mark past signals.


  1. This one is for the mouth breathers who think we’ve started a new cyclical bull market. I appreciate your optimism, but no… That is not how this works… You don’t have cyclical bottoms when aggregate median valuations are in the 88th percentile and the Fed is still in the midst of its most aggressive hiking cycle in decades (table via GS). 


  1. We turned cautious two weeks ago for a number of reasons (short-term extension, significant resistance, yields breaking down, etc…) Another one of these reasons is seasonality, which is quite negative for the SPX until March 10th


  1. While the weight of the evidence is still supportive of further upside in this bear market rally. The rise in yields and bond volatility has to dampen our short-term optimism. In an effort to keep this simple, we’re in neutral territory. A daily close above the green line, say 4,150 would be game on for the continued bull rally. A close below the lower Bollinger Band (around 4,000ish) would mean we’re likely rolling back over into the next bear market leg. 

Thanks for reading.

Stay frosty and keep your head on a swivel.

Subscribe To Our Newsletter

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.