Your Monday Dirty Dozen [CHART PACK] #8

There are in fact four very significant stumbling blocks in the way of grasping the truth… namely, the example of weak and unworthy authority, longstanding custom, the feeling of the ignorant crowd, and the hiding of our own ignorance while making a display of our apparent knowledge. ~ Roger Bacon

Good morning and a Happy Veterans Day to those of you serving and who have served!

In this week’s Dirty Dozen [CHART PACK] we look at signs of a global rebound in growth, green shoots in Europe, trouble ahead for US bonds, check-in on the four drivers of gold, and check out oil extraction costs in different parts of the world, plus more…

  1. It seems like just yesterday *checks notes: it was yesterday* that the bears were pointing to falling semiconductor demand as incontrovertible proof that we were in a recession. Looks like they forgot to send that memo to the semi index which has been on a complete tear and is now implying a strong reversal in the ISM over the coming months (chart via BofAML, h/t @carlquitanilla).

  1. Speaking of ISM, this chart from Citi shows that momentum (the 3m chg in 3mma) in global manufacturing PMIs has stabilized and is even turning up in some regions.


  1. Another positive development is that we’re seeing real money growth (real M1 YY%) pick up in Europe as shown below in the chart from Citi. This matters because growth in the money stock typically precedes growth in the underlying economy, hence the strong and often leading correlation between the two.


  1. There’s a host of other data points pointing to at least an intermediate bottom in Europe. German orders-to-inventories ratio is turning up along with Ifo Manufacturing Expectations (charts from Citi). And here’s a bonus chart of German New Orders putting in its first positive print on a YY% basis in a while, which more often than not leads Industrial Production.


  1. A rebound in European growth would be notable for a number of reasons. One of these being that negative bound European interest rates have acted as an anchor on US yields, pulling them lower as capital was forced into US bonds to seek a return. German Bund yields bottomed in September and have been steadily rising since. A pickup in growth would accelerate this trend which in turn would lead to a selloff in US bonds (rise in yields). Chart below is a weekly of US T-Bond futures.

  1. JPMorgan’s recent UST client survey shows that there’s plenty of long positioning to unwind.


  1. A selloff in bonds (rise in yields) would be very bad for gold since the real (inflation-adjusted) interest rate is the primary driver of the price of gold over time (falling real rates is bullish gold and vice-versa). Rising real rates will be coming at a time when gold is working off a speculation frenzy shown by historically high open interest, net spec positioning, and sentiment (via Consensus Inc.)

  1. Look for gold to pullback to the $1,400 level near its 200-day moving average (blue line). This will set up another major buying opportunity in the yellow metal.

  1. Rising US rates combined with a recent strong bounce from the US dollar off its 200-day moving average may prove to be a momentary headwind to emerging markets. The below chart is a weekly of the IShares MSCI Emerging Market ETF (EEM). It looks to be putting in a temporary reversal after being rejected by its upper weekly Bollinger Band.

  1. Something to keep in an eye on is the speed at which yields rise over the coming weeks. Luckily for stocks, the rate-of-change in BAA yields is turning up from an extremely depressed level but if it continues rising at this pace it’ll soon begin to exert pressure on equities.

  1. We are seeing increasing signs of extremes in short-term sentiment and positioning as investors rush to gain exposure to the breakout in stocks. But this is coming off the backdrop of longer-term indicators showing extreme bearishness. When in bull trends, like the one we just started, it’s important to not overreact to every sign of overbought/overoptimism. We want to focus on exploiting the broader trend higher and not allow ourselves to get shaken out along the way by focusing on the minutiae. Put another way, short-term extremes in sentiment and positioning will eventually lead to a correction but you’re better off buying the correction than selling the reversal until the bigger picture says otherwise.

  1. And finally, here’s a great chart showing the post-tax breakevens for new oil projects from around the world via the Saudi Aramco prospectus (h/t @acosgrove003).

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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.