Your Monday Dirty Dozen [CHART PACK]

Grave dancing is an art that has many potential benefits. But one must be careful while prancing around not to fall into the open pit and join the cadaver. There is often a thin line between the dancer and the danced upon. ~ Sam Zell

Good morning!

In this week’s Dirty Dozen [CHART PACK] we look at signs of slowing growth here in the US along with data pointing to a rebound elsewhere. Plus, we take a look at where the money is flowing, check-in on sentiment, discuss a potential major bottom in a LatAm country, see what’s going on in Japan and point out the massive compression regime in major FX pairs, and more…

  1. The Atlanta Fed’s GDP Now Forecast is pointing to a big dip in 4th quarter GDP. This is a noisy indicator but my other indicators are saying the same. US growth is slowing…

  1. That’s okay though, we’ve been expecting lower GDP growth and believe it should bottom in the 4th quarter before turning up slightly. When you hear the bears wailing about the lower prints just remember this from Druckenmiller, “The best environment for stocks is a very dull, slow economy that the Federal Reserve is trying to get going.”

  1. Citi’s Economic Surprise Index (CESI) just turned negative for the US. This should help keep yields in the US from rising too much. Which, of course, is supportive of equities. The only two large countries seeing positive surprises at the moment are Canada and Japan — more on one of these in a moment.

  1. This chart from BofAML showing PMI New Orders / Inventory Ratio for the US, China, Europe, and Japan suggests we’re about to see the global manufacturing PMI turn up in a big way.

  1. The new smells of “risk-on” in the air are driving fund managers to divert more and more of their funds from crowded and expensive US stocks into its much cheaper counterparts (chart via BofaML).

  1. And there’s LOTS of fuel for a run higher in stocks. BofAML notes in a recent report that “for every $100 of redemptions from equity funds YTD, $15 of buying in past 3 weeks”.

  1. Despite this rally to new all-time highs in the major indices, the bullish sentiment isn’t as bullish as one might think. BofAML’s Bull & Bear Indicator is in buy territory showing a modicum of bearishness present in the market still.

  1. Below is a chart of the MSCI Chile country ETF (ECH). Chilean stocks have been punished over concerns regarding violent protests in the country and what it may mean for the country’s politics going forward. This monthly chart below of ECH shows that the ETF sold off down to its decade-long support line, one that it’s tested three other times in the past, before reversing back up. We’ll have to see if it can hold onto its gains going into month’s end.

  1. This table from Sentiment Trader shows the few other times that Chile’s IPSA Index has rallied more than 10% in 2 days. They point out that “such strong rallies are rare, with the last 3 signals occurring near multi-year bottoms.” Keep an eye on this one…

  1. Back in early September, I pointed out the bullish technical setup in the Japanese Nikkei and also noted a number of the fundamental tailwinds the country is currently benefiting from (link here). The Nikkei has since broken out, advancing close to 15% over the last two months. There are a number of reasons of why Japanese stocks are doing so well, one of these is simple: earnings are surprising to the upside after a long stretch of negative disappointments (chart via MS).

  1. And even more importantly, buybacks in Japan are breaking records this year. Seems like all the work of US activist fund managers cajoling Japanese boards to be more shareholder-friendly is starting to pay off (chart via MS).

  1. This one is a twofer. Back at the beginning of this year the MO team and I began harping on the incredibly compressed volatility regimes we were seeing across the major macro instruments (precious metals, bonds, FX majors). Here’s a link to one of our pieces on the subject “There’s a BIG Macro Move Brewing in Markets”. We’ve since seen precious metals (gold and silver) break out and move into a vol expansion regime, and then bonds soon followed suit.

Now we’re just waiting on the very last shoe to drop: FX. And in particular, the major DXY pairs. These two charts from DB show volatility for the major G10 pairs is at its most compressed EVER… EURUSD is about to put in back-to-back years of its lowest vol in history… Markets are like rubber bands.  Compression regimes, like the one we’re currently in, mean there’s a lot of stored up energy (the rubber band has been twisted tight). Well, this band is about to snap. Stay on your toes…

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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.

AK

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.

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