The Start of a New Commodity Super Cycle [DIRTY DOZEN]

Some narratives are contagious because they seem to offer a confirming fact. We can say with some accuracy that most people put on a show of their own knowledgeability and try to conceal their ignorance of millions of facts. Hence narratives that seem contrary to prevailing thought may have lower contagion rates that do not result in epidemics. ~ Robert Shiller, “Narrative Economics”

Good morning!

In this week’s Dirty Dozen [CHART PACK] we look at breadth signals indicating high odds of positive forward market returns, inflation expectations driving yields up, signs of a major cyclical if not secular bottom in energy, uranium, and commodities in general. We then talk about a turning point in DRAM pricing and what that means for our highest conviction equity play, and end with a DEEP value Australian uranium miner that’s likely to 10x or more before all is said and done, plus more…

Let’s dive in.

***click charts to enlarge***

  1. This was the first year since 2009 where net share issuance was flat or positive. Anemic buybacks (down 54% this year) met a wave of share issuance as company’s sought to shore up balance sheets. Net issuance is a critical part of our Equity Supply & Demand Equation so it’s a good sign the market has held up as well as it has, considering. And it bodes well for 2021 when cash flush companies are expected to more than double their share repurchases.


  1. Last week, the NYSE McClellan Summation Index (NYSI) surpassed 900 for the first time since August. @twillo1 points out that SPX forward returns following a NYSI reading above 900 leads to consistently good returns over most timeframes. Read another way, this is not something you see at tops (h/t @ukarlewitz).


  1. Positive vaccine news, constrained global supply chains, waves of fiscal stimulus, and a falling dollar are driving inflation expectations higher, which are to account for the majority of the rise we’ve seen in yields.


  1. A new USD bear market meeting an extreme Capital Cycle meeting rebounding global growth = a cyclical turning point in energy shares.

The % of energy stocks trading above their 200dma is 97% after spending time near 0% for the better part of the year. It’s not a coincidence there are a number of similarities between today’s breadth and technical picture and that of the prior two major cyclical bottoms.


  1. Small-caps are extremely extended from their 200-day moving average. There’s a few ways to think about this (1) is that the only other two times the index was this extended over the last 40-years it happened to mark a major top or (2) looked at in context, this extension follows a severe extension under the moving average and is much more like 2009 than 2000.


  1. I want to reiterate that this is the most important chart to watch right now. If yields stay suppressed then equities can extend an overheated rally. If they rise they’ll meet hot sentiment and increasingly crowded positioning.


  1. Asset managers are holding record short positions in the US dollar. I’m looking at the 18’ lows for a potential rest / retrace in the new USD bear trend (chart via BBG).


  1. Like short USD positions, emerging markets are increasingly becoming a consensus trade. But they have a lot of room left for repositioning. The chart below shows that EM equity and bond flows are still negative on the year (chart via BBG).


  1. Our highest conviction equity bet this year has been Micron Technology (MU) which is off to a good start. But this trend is only just getting started… DRAM pricing has bottomed and is now kicking off what will be a multi-year bull cycle.


  1. Commodities have put in at least a cyclical if not a secular bottom. Over the next two decades we’ll see demand juiced by incredibly powerful Wealth s-curve tailwinds. You want exposure to this trend.


  1. Veteran technician Martin Pring (@martin_pring) tweeted out the following last week.

“When gold is outperforming commodities, it is discounting future inflation. When the ratio’s KST peaks a commodity rally typically becomes a reality. The KST has peaked again. Surprise, commodities have also started to firm up…”


  1. A sector that is joining in on this cycle turn is the uranium space. Australian miner/producer Paladin Energy (ASX: PDN) is one of two of my favorite ways to play this thematic, the other is Centrus Energy (LEU). If nuclear becomes popularized into the ESG trend (which it should), then these stocks will 10x or more.


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.