Uranium, Unemployment Cycles, and The Fat Pitch

Tyler here with this week’s Macro Musings.

As always, if you come across something cool during the week, shoot me an email at alex@macro-ops.com and I’ll share it with the group.

New MIR Report Out Soon Sign Up Now: In this month’s MIR, we’ll be revealing our highest conviction asymmetric macro trade idea for the end of 2018 and start of 2019. On top of that we’ll be talking about our process for short-selling and pitching some interesting plays that fit within that framework. To cap it off the report will end with a Greenblatt style hidden value spinoff. Lot’s coming for the month of November!

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Recent Articles/Videos —

China Won’t Bail Out Global Markets This Time Around — Alex explains why China will shy away from injecting liquidity into the system right now. It’s very unlikely we’ll see a reversal in policy until the end of 2019, at the earliest. This matters big time if your trying to time the recovery in EM.

Articles I’m reading —

The Critical Turtle Trading Teacher William Eckhardt: Launching 1000 Systems —  Eckhardt began trading futures in the 1970’s and also ran the famous Turtle Trader program alongside Richard Dennis. He’s considered one of the founding fathers of the modern day CTA industry.

This article is in interview format with Futures Magazine and spawns a great discussion on the Efficient Market Hypothesis that I agree with.

Futures Magazine: Many in the traditional investment world cling to the notion that markets are efficient. Trend-following is not valid under the efficient market hypothesis (EMH) but here you are 30 years later. Why has the EMH persisted? Talk about this anomaly.

Bill Eckhardt: The random walk model of price change has been so durable because it’s nearly correct. The difference between futures prices and certain random walks is too small to detect using traditional time series analysis. Incredibly, this difference is detectable using trading systems.

Markets are tough to trade because most of the time there just isn’t any edge. The current price accurately reflects all known information. But once in awhile things line up to create a fat pitch where price is clearly wrong. That’s when we have to take a hard swing.

Chart I’m looking at —

The stock market decouples from the real economy quite often. Fear, greed, news, risk control algos, performance chasing and a plethora of other stuff can cause wild gyrations up and down in the broad indices. But those moves don’t stick and continue unless the real economy follows.

That’s why I like keeping an eye on the trend in unemployment. It’s rare for the stock market to have a deep continued sell off without job loss starting to accelerate higher. Before the 2000 bear market and the 2008 bear market, unemployment started to scream higher and breach its 12-month and 36-month moving averages. Bears need to be cautious here in our opinion until the unemployment rate reverses in a meaningful way.

Trade I’m considering —

Energy commodities move in capital cycles. High prices lead to more investment which eventually leads to over-capacity and a supply glut which then drives prices lower sending the process in reverse. Low prices force inefficient producers to shutdown and others to scale back. Eventually these low prices drive excess capacity offline which then leads to tight supply and higher prices. And the cycle begins anew — rinse and repeat.

The Uranium market is at the trough of its capital cycle. CAPEX has shrunk big time as uranium prices have been in a brutal bear market for the last decade.

We’ve taken a couple of shots at some uranium miners over the last two years but with limited success. Price has continued to trend sideways… It’s tough to time when these capital cycles turn.

But now uranium has hit its highest level in more than 2.5 years as big producers of the nuclear fuel buy material in the market and China prepares to reaffirm its plans to build new plants.

We’re taking another research dive into the uranium to space to figure out if this is finally the time that the capital cycle reverses. In the past, one of our favorite picks for this theme has been Cameco (CCJ).

Video I’m watching —

A historic Wall Street documentary — This was shot somewhere between 1920 and 1960 (according to the website). If you watched PTJ’s documentary “Trader” from the 1980’s you’ll get a kick out of this short film too.

Taleb Says World Is More Fragile Today Than in 2007 — Taleb came on Bloomberg TV this Halloween to talk about how we still haven’t solved the leverage problems from 2008. Instead we just shuffled paper around and transferred private debt to the government. He says eventually the US government will hit a point where they won’t be able to borrow enough to service interest payments so they will be forced to inflate the debt away instead. That in turn means high or possibly even runaway inflation. Taleb goes on to explain that he holds gold and land to preserve his wealth for when that time comes.

Quote I’m pondering —

Remember that big stack poker is a game of patience. You don’t have to make a big play in every marginal situation that comes along, just as a good hitter in baseball doesn’t have to swing at balls outside the strike zone. Wait for good solid situations before making big plays. ~ Dan Harrington

Wait for those fat pitches!

That’s it for this week’s Macro Musings.

If you’re not already, be sure to follow us on Twitter: @MacroOps and on Stocktwits: @MacroOps. Alex posts his mindless drivel there daily.



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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.