Mike Singleton, CFA
@InvictusMacro
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Senior Analyst at Invictus Research | Check out our FREE Macro Handbook at
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I want to thank all of our followers, and especially our clients, for making our first six months at Invictus so terrific. To commemorate, I'm copying some client testimonials below:
1/x
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Almost certainly the most consequential zone of support/resistance in any asset market right now
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Where in the inflation cycle do you want to be picking up exposure to energy stocks?
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The fact that 99% of investors self-identify as a "contrarian" rather than "trend-followers" is evidence that most people would rather sound smart than make money
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I can't help but notice 2018 levels didn't hold abroad...
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Treasury belly ripping past 2018 resistance $IEF $IEI
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If banks won't lend b/c the risk adjusted return on their loans isn't good➡️the only way to dramatically increase broad money is through fiscal stimulus
But if the r/r isn't good for banks, doesn't that mean it's also bad for the US gov? Meaning the debt added is unproductive?
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If you adjust the claims data for the size of the labor force,
The labor market appears to be secularly tight
Sounds like a good thing, but it's keeping income growth (& therefore serv inflation) in the 5% range
Will be a bad look for Fed if goods rebound just a little
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Corporate credit spreads continue to look okay, but...
Mortgage spreads are totally blowing out
This has considerable implications for growth over the next several quarters, as well as the performance of the major equity indexes, market internals, etc...
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Has anyone else noticed that the best trend-followers frequently appear contrarian to the crowd?
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$SPY flat since June '21
$QQQ flat since July '21
$IWM flat since August '18 (over 5 years!)
Worth thinking about what this means
Also, one of these is not like the others
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"Market timing" has become a taboo phrase within certain value-investing communities
But
"Be fearful when others are greedy and greedy when others are fearful"
is clearly a framework for market timing
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If the consumer is so strong, what's going on with credit card debt?
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Technical analysis and business cycle analysis are incredibly compatible
You just have to learn how they overlap
Ever wonder why "golden cross" technical regimes produce better returns?
See below
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Big miss from the Chicago PMI today (a: 37.2 v e: 47.0)
Historically, it's had an 87% correlation w/ headline ISM Manufacturing PMI
Print today implies 43 on ISM tomorrow... seems way too low to be feasible, but negative surprises abound when the Fed tightens into a slowdown
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US supply chains are looking more-or-less normal
History tells us that should be a rather potent disinflationary force
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If Powell is able to bring >9% inflation to target without a recession, he would be the greatest Fed chair to ever live by a wide margin
And possibly a wizard for defying every economic precedent of the last 70 years
Or...
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One of the few market internals that actually looks bullish...
Small-caps making ST highs in both absolute & relative terms
$IWM $RTY $SPX
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There's two way to think about Shopify:
1) The bubble-tech stock that drew down >80% as soon as the Fed took away the punchbowl
2) The high-quality platform company that has compounded at 43% since its 2015 IPO
Both are true
$SHOP
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EM credit spreads making a new low...
Is that what you'd expect to see in front of an immanent global recession?
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Are commodities in a bear market (>20% drawdown)?
For 19 of the 39 commodities we track, the answer is yes.
Is the market telling us something?🤔
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The manufacturing economy is already in recession
Industrial Production: 6M Annualized Δ%: -0.9%
Manufacturing Production: 6M Annualized Δ%: -1.9%
In month one of historical recessions:
Industrial Production Median: +2.1%
Manufacturing Production Median: +1.8%
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Base metals as a group are struggling... Cobalt down 59%, tin down 50%, aluminum down 38%...
That only happens when industrial demand for raw materials is *declining*
Aka slower growth
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I didn't realize how many investors on FinTwit are actually smarter than Stan Druckenmiller
Amazing
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The best technicians are better at macro than macro guys
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1/ Hi everyone –
This is it – this is the official launch of Invictus Research! We provide hedge fund quality macroeconomic research at a retail price point (starting at <$60/month). No one else provides this kind of value at the price. Check it out.
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What's the ratio of oil/gold telling us about yields?
Worth thinking about...
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Layoffs as a percent of the labor force aren't just low...
They are secularly low...
This is not what a recession looks like... Not even close
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"Earnings are actually holding up pretty well..."
Are they?
Corporate earnings are down 12.4% from their cycle peak... That's consistent with the *beginning* of historical recessions.
That's not say we're in a recession *right now* (we're not), but it's a bad sign...
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New relative high for utilities today...
Don't overthink it, that's classic risk-off
$XLU $SPY
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Freight rates collapsing...
When does that tend to happen?
Only two other times in history we've seen r-o-c declines so dramatic
- COVID
- GFC
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It seems like a lot of investors start with a thesis and then look for evidence
Rather than
Starting with the evidence and then building a thesis
Seems like a great way to entrench your existing biases
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How do analysts who think we've seen "the end of low rates" explain this?
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US freight volumes remain well, well-below '16-'19 trend as measured by the DoT's Freight Transportation Index
More evidence that the post-COVID economic recovery was/is far more tepid than most nominal time-series would have you believe
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Been off of Twitter for a little while…
Because the Invictus team just added a new member!
Mom and baby are doing great - thank you to everyone who reached out!
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@Citrini7
SMCI is a realized right-tail outcome
But selling covered puts is generally a pretty good risk/return, frequently mid-20s unlevered IRRs
Even compared to most high-conviction ideas that "work", that's a great outcome
If you benchmark every investment decision to long SMCI…
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The NAHB Index leads the unemployment rate by 18 months with nearly a 90% correlation...
Right now, a regression implies the unemployment rate is headed >7% by August
Will this prove correct? Or will the relationship break?
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The most important data in the Employment Situation report that gets ignored every month
Momentum in cyclical industries like manufacturing, trucking, homebuilding, temps, etc
Right now, cyclical momentum is turning higher on a 6m annualized basis
This is not what a recession…
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"Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception."
George Soros
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Which way do these resolve?
The reflation highs from 2018 represent an important level for a lot of cyclical risk exposures
$IWM $XLF $XTN $TIP $IEF
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Credit spreads typically trade on the economic growth cycle
Growth up, spreads narrow
Growth down, spreads widen
Right now, growth is slowing... But the credit market remains placid...
What's driving this divergence? Which way will it resolve?
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If inflation is going to re-accelerate...
Why haven't I been able to make any money in inflationary assets for months and months?
Aren't liquid markets supposed to be discounting mechanisms?
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What are the odds the two-year holds the 2018 high?
3-year, 5-year, 7-year, 10-year, etc. falling like dominoes... Two-year is next in line
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Everywhere you look, there's more evidence that the US goods economy is a mess...
Rail freight intermodal traffic ~30% below post-GFC trend...
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It's amazing how many folks now think "interest rates don't matter anymore"
Despite mortgage apps down ~60% from their cycle peak
Despite total home sales down ~40%
Despite recessionary PMI data
It's like their only gauge of economic health is the $QQQ
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Whole yield curve repricing to multi-year highs...
Understanding how this will flow through to the real economy in the next 12-18 months is going to be a *huge* edge
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Is there anyone who's invested for the past 2.5-3 years (and survived) and still thinks "ignoring macro" is a good idea?
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Here's an interesting relationship...
*Very* high correlation between labor market conditions and the velocity of money
Doesn't get a lot of attention despite having significant economic implications (especially for inflation!)
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Price move in copper over the last three months has been more severe than through the COVID deflation and is quickly approaching GFC levels
Like the bond market, copper is telling us to worry about GROWTH, not INFLATION
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More evidence of a goods economy that is ridiculously unhealthy
Trucker rates down 16% from peak
Considerably worse than the Great Financial Crisis...
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A reminder to all my long-term investor friends...
Stocks are historically expensive
93rd percentile relative to the last 100+ years
Independent of economic conditions, likely not a great time to add equity exposure
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If inflation's going to keep accelerating, then why are businesses saying that supply chains are normalizing?
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Is this the most important chart in the world right now?
If not, please submit your nomination
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While everyone's worried about the next CPI print, base metals are SHOUTING deflation, with most of them 30-60% off of their highs
Incidentally, base metals are the commodity category with the closest relationship to the REAL growth cycle
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If this happened again, it would blow people's minds
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Is there any asset more sensitive to liquidity conditions than Bitcoin?
Does Bitcoin's rejection at $30,000 have any significance for liquidity conditions over the coming weeks?
Check out today's Daily Edge
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I've never seen a statistic less helpful and more widely discussed than M2 Money Supply
No relationship with inflation that I can find
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Supply chains are, once again, tightening up
In fact, they're already tighter than their historical average (again) according to FRBNY
Historically, that presages goods inflation
Fed not leaving itself much room for error
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If you don't think stocks trade on the fundamentals, then how do you explain this?
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Hours worked, both in the manufacturing sector and for the economy-at-large, are at cycle-lows...
Historically, that indicates the labor market is softening "under the surface"
What do companies do before laying off workers? They cut hours!
That is what you're seeing now...
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How can you work in active management and dispute the importance of "market timing"?
Isn't that the whole job?
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It is very, very tough to be an emerging market bull through a strong-dollar regime
$EEM $DXY
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So many explanations for inflation are just euphemisms for money printing
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Tough to imagine a bull market without leadership from consumer discretionary
Do we see a bullish momentum divergence here?
Or a future breakdown?
$XLY
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The consequences of the COVID (& post-COVID) fiscal response...
“Inflation is just like alcoholism; In both cases, when you start drinking or when you start printing too much money, the good effects come first, and the bad effects only come later."
- Milton Friedman
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Pretty significant divergence between the performance of the US Dollar and commodities...
Which way does it resolve?
$USD $DXY $CRB
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Anyone buying the dip in
#gold
here?
It's gotten a lot of heat, but so far, it's outperformed stocks and bonds YTD by a fairly wide margin
$XAUUSD
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Intermarket signal continues to be mixed...
Technicians out there, what's your take?
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Momentum in used car prices is rolling back over again
Historically, the Manheim data has led CPI used cars and trucks - but also durable goods more broadly...
Truly, a remarkable deflationary impulse hitting the goods economy
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1/ Couple more points on market breadth...
Can you see what's underperforming?
Risk. Anything that could be perceived as risky.
Don't buy that stuff through deflations
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Being able to change your mind without any residual pride/angst is truly an investing superpower
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"Everyone is bearish!"
Not true. People own a *ton* of stocks
Positioning > sentiment
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An important level for Financials and the market as a whole... Which way does it resolve? $XLF
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Momentum in used car prices breaking back down after a strong run Q4 '22 - Q1 '23...
Thoughts?
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Something to consider before buying energy stocks...
$XLE
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For the bonds bulls,
$95 bn / month in QT is the equivalent of a 10 bp rate hike... Every month!
Until we see persuasive evidence of a recession (and imminent cuts), there is a lot of upward pressure on the the 10-year yield!
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If you're not paying attention to liquidity dynamics right now, you're missing out...
On a related note, if you think a resolution to the debt ceiling will be bullish for equities...
You might want to check out the Daily Edge
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US 10-Year yield is making a new cycle-high
But $ARKK (unprofitable tech) is making a higher-low
Evidence that equity market participants aren't really buying the "higher for longer" narrative...
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Good time to buy stocks for the long-term?
Probably not...
Equity risk premium for S&P 500 going back >100 years
Today's ERP implies real returns <4% pa over the next 10 years
*Very* different from '10-today...
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What happens if we see 7%+ unemployment in mid-2024?
The housing market is telling us it's not just possible, it's *probable*...
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Will it be different this time?
Historically, the economy has fallen into a recession 6.5 months after the last Fed hike...
It's now been nearly 4 months
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Remember when everyone was talking about "excess" savings?
How much is still out there?
Not much, by our work
Check out yesterday's Daily Edge for a full breakdown, but we expect "excess" savings to hit zero in the next month or two
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"Stocks always go up"
But what's your time horizon?
Since 1905, there have been four decade-plus periods when stocks went sideways (in real terms)
In fact, these periods represent 64 of the last 118 years!
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Very tough to be long higher interest rates when this happens...
What is the two-year note pricing in that so many macro analysts are missing?
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In the current productivity environment (0% growth)...
It's very hard to imagine inflation returning to the Fed's policy goal of 2%
Without considerable "slack" in the labor market
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Lots of people saying "growth is running too hot for 2% inflation"
Real GDP growth and inflation have ~zero correlation
So why does this narrative persist?
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Maybe they should change their name back to Facebook? $FB
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