Your Monday Dirty Dozen [CHART PACK] #15

…the poker world is so competitive that if you don’t fully capitalize on every advantage, you’re not going to survive. I absolutely understood that concept by the time I got down to the options floor. I learned more about options trading strategy by playing poker than I did in all my college economics courses combined.  ~ Jeff Yass


Good morning!

In this week’s Dirty Dozen [CHART PACK] we question whether our bearish bonds stance is still valid. We then dive into what falling yields could mean for other areas of the market and go through some charts of gold, silver, and emerging markets. Let’s dive in…

***click charts to enlarge***

  1. December’s ISM Manufacturing data printed its lowest number in 10-years, remaining in contractionary territory for the fifth straight month. New orders, Production index, and Employment all made new or near cycle lows (the production index squeaked in a slightly lower low in Jan of 16’).

There’s a number of reasons to believe that we’ll soon see this data reverse. For example, Markit’s PMI — which is of higher fidelity — has already bottomed and is trending higher. Also, a number of regional Fed survey data is showing a rosier outlook. Plus, this month was the last month in which the survey was conducted before the tentative trade deal was reached. I’m not expecting a hockey stick rebound like we saw in 16’ but we should see a bottom be put in soon.


  1. Treasury yields tend to follow the trends in the ISM. This makes sense as a growing economy (rising ISM) usually drives investors to sell bonds and move further out the risk curve and vice-versa. Considering this, the current divergence between the two is interesting.


  1. It’s possible that the bond market is expecting a swift rebound in the ISM or that it’s just been lagging in response and we should expect higher bonds / lower yields in the weeks ahead. This monthly chart of bond futures ($ZB_F) shows bonds recently put in a micro double-bottom and closed at their highs for December.


  1. I’ve been bearish on bonds the last few months. One of the reasons why was due to what the metals market was saying with the copper/gold ratio leading yields higher. But this ratio has collapsed in the last few weeks and is on the verge of signaling a new trend lower.


  1. Another thing that makes me question the continued validity of my bearish bonds stance is how well they’ve held up considering the market’s low volatility grind higher. When something doesn’t sell-off when you expect it to then that’s a signal in and of itself.

This reluctance of yields to move higher (bonds lower) has been a major tailwind for stocks since stocks and bonds compete for capital and higher yields make bonds more attractive on a relative basis.


  1. These low yields have been keeping financial conditions extremely loose.


  1. And falling real yields have been driving gold higher (real yields is inverted).


  1. This monthly chart of gold shows that it’s making an attempt to break out of its 5-month consolidation zone by breaching the $1,550-1,600 area. A significant level that has rejected it twice before.


  1. Falling real yields and rising gold typically go hand in hand with relative outperformance from emerging market stocks. The chart below shows the 5-year change of gold and SPX vs. EEM indices.


  1. The gold/silver ratio remains extremely elevated. Historically this is bullish for future returns in precious metals, especially silver.


  1. This monthly chart of silver (SI_F) shows the metal trying to break out of its 5-month long bull flag.


  1. When looking at miners I care about technicals over everything else since the space is primarily driven by narratives and sentiment. There’s a number of great looking technical setups in gold and silver miners at the moment. Here’s a chart of Silvercrest Metals (SILV) on a weekly basis.


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.