Personal intuition does not mean that you can translate last night’s exotic dream into some brilliant choice in the market. Professional money managers often seem to make up their minds in a split second, but what pushes them over the line of decision is usually an incremental bit of information, which, added to all the slumbering pieces of information filed in their minds, suddenly makes the picture whole.~ Adam Smith’s “The Money Game”
Q3 2022 hedge fund letters, conferences and more
In this week’s Dirty Dozen [CHART PACK], we cover commodity supercycles, tech cycle peaks, positioning changes across commodities, and FX. We then update the USD fundamental drivers, look at a pairs trade, the growing need for lithium, and a major compression regime in BTCUSD, plus more….
- For all these “worst annualized performances of XYZ basket since Gilgamesh lorded over Uruk” takes and the maxed bearish sentiment and positioning charts, there’s still zero panic in this market. These streets aren’t awash in blood. Investors are all over twitters talking about their long-term investment horizon, and the fact that their portfolio is down -70% YTD, is inconsequential. Just Mr. Market being a voting machine and whathaveyou…
- Not sure how relevant this chart is or what signal, if any, there is, as I don’t know how they classify “Tech” here. But it confirms my bias, so I’m including it.
- We’re in a new commodity supercycle (h/t Jesse Felder).
- Here’s the latest CoT, Positioning change (delta), and market regimes + overbought/sold levels for various commodities. The graph is taken from the MO Heads Up Display (HUD). I’m surprised at how short Specs are natty.
- And the same for major USD crosses. GBPUSD has the strongest yield oscillator reading (a reading above 50% means yield spread momentum is positive), plus its technical momentum is picking up off the floor. Though DXY momentum is still quite strong and not something you want to fade yet. GBPJPY is breaking out of a larger consolidation, though.
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- It’s good to be checking in on USD regularly, as it is one of the dominant macro drivers throughout global markets at the moment. Our Yield Spread chart and Yield Spread Oscilattor both show supportive fundamentals for a continuation of the bull trend.
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- And for its incredible run, speculative positioning still remains pretty light.
- Mr. Blonde shared a good market update last week. I thought his high/low beta pair trade was interesting. Here’s the link, a chart, and an excerpt.
“As fundamental conditions weaken following the sharp tightening of financial conditions we will see companies with high volatility, cyclical cash flows come under great pressure. This pair trade is long the lowest beta and short the highest beta stocks within each sector across the market.
Mr. Blonde continues to see this as a way to be long volatility without paying the negative carry associated with long volatility (i.e. VIX futures). For institutional investors, most dealers offer a relevant equity swap pair to reflect this view, while retail traders can position via BTAL ETF (AGFIQ US Market Neutral Anti-Beta Fund).”
- BTCUSD is setting up in a major compression regime (aka, a BIG Squeeze).
- Compression regimes are important because they tend to lead to expansionary regimes (Big Trends). This signal works particularly well for the crypto market. We used it back in March 2019 to position for the start of what turned out to be a massive multi-year bull run in bitcoin. It’s directionally agnostic, so we need to wait for the trend to tip its hand. And it’s particularly high fidelity when compression signals sync up across numerous timeframes, which it is now. Here’s Bollinger Bandwidth on a monthly, weekly, and daily basis.
Watch this market closely. A big move is coming…
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- The Dallas Fed recently published a report looking into the need for greater lithium-ion battery capacity (link here). They write “U.S. capacity is expected to grow more than fivefold from 2021 to 2026, according to data and estimates by Benchmark Mineral Intelligence, a data and market intelligence provider. By 2031, U.S. capacity is expected to expand another 86 percent.
- Sigma Lithium Corporation (SGML) is a Brazilian-based lithium producer. Its stock is up 183% this year alone (chart below is a daily). There’s always a bull market somewhere. And sometimes, it doesn’t hurt to just buy things that are going up, especially when everything else is going down.
Article by Alex Barrow, Macro-Ops.
