Time To Put On Your Tin Hats…  [Dirty Dozen]

Modern economists do not get their rewards and awards for being preoccupied with energy, and modern societies become concerned about it only when the supply of any main commercial form of energy appears to be threatened and its prices soar. ~ Vaclav Smil, How The World Really Works

In this week’s Dirty Dozen [CHART PACK] we talk crude’s  bullish breakouts, Nikkei’s nice pullback, weakening labor force trends, rate cut cycle dynamics, a bullish pitch for a tin producer, and more…

1. We got the bullish breakout in crude that we said was coming two weeks ago (link here).

2. This is a Trifecta setup trade with macro, techncials, and sentiment/positioning tilting the odds in favor of further upside. Positioning is at bearish extremes… our guage of Money Manager sentiment is inthe 0th percentile (crude sees avg annual returns of 16% when sentiment falls < 10%). Valuation is in bottom percentile, and seasonality is about to strongly pick up.

Plus, the deteriorating situation in the ME raises the odds of a right tail event driving crude prices significantly higher.

3. The Nikkei 225 (yen contract) is putting in a nice orderly pullback towards its Bollinger Band midline. This gives us a good spot to put in a buy stop above Friday’s highs allowing us to pyramid onto our position (disc: we’re long).

4. This Labor Flows chart from Ironside Macro shows that the job finding rate (flows from unemployment to employment) were the “second lowest in the history of the flow data in December.” If you dig beneath the surface of the headline employment figures, you quickly find that current labor market trends are not as rosy as many think. More on this soon… 

5.  From Brandon Beylo (Macro Ops Value): Dan Rasmussen of Verdad Capital measured annual equity returns against a region’s average annual revenue growth. The basic idea is that, all else equal, countries with higher average revenue growths should generate higher average returns. But according to Dan’s data, that is not always the case (emphasis mine):

“What’s perhaps most interesting is that regressing relative equity returns against relative revenue growth had no statistical significance. The fastest-growing equity markets did not concurrently earn the highest equity returns within each year … There does not appear to be a strong year-to-year relationship between growth and equity returns. That is because prices are forward looking. To successfully bet on high revenue growth, one would need to accurately project this high relative growth over the course of multiple years into the future (e.g., predicting that the US would have the highest revenue growth over the next decade, starting in 2014).”

6. From Brandon Beylo (Macro Ops Value): GLEN, like any mining producer/marketer, is a leveraged play on underlying commodity prices, specifically copper and coal. If you believe copper prices will be higher in 18-24 months than they are today, GLEN is very cheap. They trade at ~5x NTM EBITDA with a ~19% Shareholder Yield (dividends + buybacks + debt paydown).

The stock traded lower with ADM’s accounting scandal. But it looks like we’ll get a failed breakdown close on the weekly chart. This is a great spot to take a swing at the 800lb mining giant with decent size and low risk (chart is a weekly)

7. From Octavio (Macro Ops Quant): The stock market averages +15% returns 12m following the first rate cut. Chart via NDR’s @edclissold.

8.  From Octavio (Macro Ops Quant): But not all cuts are the same… It depends on the context and what type of cut it is. Lowering rates during normalization = market up an avg +13%, recession cut = down -11%, and a panic cut = +17%. Stats and graph via @RyanDetrick.

9.  From Octavio (Macro Ops Quant): We see similar behavior in other equities market. In the last 3 rate cutting cycles, Mexico has seen average returns of +18% 12m later and +44% two years following the first cut. This current cycle could trigger multiple expansion and return to its long term average multiple. (Source GBM).

10. So many reasons we continue to be big Mexico bulls. Here’s one more from @RobinBrooksIIF “Mexico is currently seeing an investment boom of unprecedented size. Prior to COVID, Mexico was in a growth and investment slump, but that is clearly over. Across the entire EM universe (grey), Mexico currently has the largest growth contribution to GDP from capital formation…”

11. We at MO are big tin bulls and think this overlooked metal used in semis, solar arrays, chemical production, etc… is entering what will be massive multi-year bull market.

Some notable recent stats: Last year China added more solar power capacity in 2023 than the entire world did in 22’ and more than the US has added in its entire history. Solar panels were once only a fraction of tin demand but are expected to grow to make up nearly 20% of global demand over the coming decade.

Your can read our primer on the Tin market here. 

12. Our favorite name to play this theme is tin producer Alphamin Resources (AFM:TSX), which currently trades at 3.5x NTM EV/EBITDA. Chart below is a weekly (disclosure: we’re long).

Thanks for reading.

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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.