Variant Perception
@VrntPerception
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Operating at the intersection of market history & data science, we believe man + machine beats man or machine alone.
London - NYC - Charlotte
Joined May 2009
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The VP TLDR Guide
We have written a series of whitepapers over the years covering our proprietary models and thematic research, which we frequently cite in our posts.
To better understand our approach, see the below summary of VP's 10 most important whitepapers + concepts🧵
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Chapter 11 bankruptcy filings at highest level since 2010
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People have asked us what we look for in market tops. Here is a very useful, comprehensive list.
Enjoy and share if you like it.
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If you're wondering why this bear market doesn't feel like other bear markets
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An oldie from 2017:
"People have asked us what we look for in market tops. Here is a very useful, comprehensive list.
Enjoy and share if you like it."
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The best time to buy an umbrella is when it's sunny
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A healthy market rally would not have cyclical sectors lagging as much as they are today. Caveat emptor
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Ecopetrol is the most hated (least crowded) large cap stock out of 14k stocks that we are tracking!
@irbezek
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Our diffusion index of all US CPI components rising >0.2% MoM appears to have bottomed, suggesting inflation breadth is picking up.
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One thing almost no one is talking about.
Oil in EM currencies is near all-time highs. It was a big drag on growth in 2008. It will be now.
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The furious commodities rally has barely dented its long-term undervaluation vs US equities
Get the full picture:
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EM equities have a long way to go before becoming a crowded trade
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Investors have unwound all the previous energy inflows since the October bottom... starting to run out of sellers
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Equities with a low crowding score that are aligned with the longer-term capital cycle are the best structural investment opportunities.
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THE NEXT COMMODITY SUPERCYCLE
Special Report:
We are on the cusp of a new commodity supercycle
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Higher yields take time to work their way through the economy and it is not uncommon for a 2-year lag. The proxy Fed Funds rate (which incorporates QT) has often led net interest payments as a % of corporate profits by 2 years. This is a long delay, but the effect does manifest.
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Our fundamental gold buy signal suggests it's the start of a new gold bull market
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Never bet the ranch on one chart, but the dollar may run in to a bit of trouble over the next few months
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The short-covering in tech looks mostly done. Investors have now bought back all the tech they sold since the August 2022 peak.
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Recessions usually end with CEOs much more optimistic compared to consumers
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The diffusion of continuing claims by state remains elevated.
Headline initial claims remain low, but the continuing claims data suggest workers who lose their jobs are NOT finding new jobs quickly
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Historical data shows a clear trend:
As profit margins drop, unemployment rates tend to rise with a one-year lag.
We're in that critical phase, although more extreme 'labor hoarding' will dampen the relationship, at least initially
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We are not calling for a recession, but this is the most dramatic Fed repricing since 2008
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Oil and inflation usually trade together, but there's a notable divergence right now
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The median VP inflation leading indicator continues to fall sharply (includes both DM & EM countries)
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Inverted yield curves offer a very long lead on the VIX
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Better earnings prospects usually mean more job openings, but that is not the case today. Job openings are now down 18% YoY. This contraction is taking place even as EPS estimates are being revised up.
Historically, EPS estimate growth and job openings are highly correlated.
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Energy equities and health care debt offering better relative value
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Energy looks to be the only sector with room to surprise on the upside
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Number of US States with positive leading indicators. One to keep an eye on. 👁
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An oldie from 2017:
"People have asked us what we look for in market tops. Here is a very useful, comprehensive list.
Enjoy and share if you like it."
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Oil prices are back to 2018 levels, yet rig counts are still below the lows seen during the depths of the 2016 oil price crash
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Big drawdowns in temp employment and job openings are usually seen at the start of
#recession
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Massive money creation in DM hasn't spilled over into EM as yet
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US medical insurance premiums are up sharply - this will be a headwind for consumption next year
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We are witnessing the most extreme global yield curve deviation from 10y average since the early 90s.
This poses clear downside risks for S&P 500 EPS (Earnings per Share).
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If you think unemployment is going to stay this low for much longer, the housing market says otherwise
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Small-cap value vs large-cap growth shows the incredible polarity of the US stock market
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US equities are trading more and more like an emerging market
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Swiss watch exports follow our China leading indicator like clockwork, and they're heading lower
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Despite historically low rates, companies' interest coverage ratios have got WORSE. Beneath these tight credit spreads, there is serious trouble brewing
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Bear-market rallies can be bigger than most expect. Through Japan's long bear market in the 1990s there were two rallies of over 30% and two of over 50%
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The inflation dynamics after this recession are very different than to after the last recession
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The level of mortgage rates is hitting worrying levels. Qualifying incomes for a standard 30-year mortgage (20% down payment) have surged and now exceed the median family income. This has not happened since the 1980s.
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WARN notices jumped again in August... diverging with the low level of initial claims
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We view the ongoing inventory cycle normalization as a key theme over the next 6-12 months.
Manufacturing inventories continue to build relative to customer inventories, alleviating the concern that the inventory cycle had not fully worked through downstream industries.
1/3
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The true number of cases is indeed rising in England (so it's not all false positives) - but if as much testing was being done back then as now, today's "second wave" would look far less alarming
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If you are a country and you have managed to REDUCE your total (public+private) debt load since the crisis, then well done, you are part of an elite club
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Tightening lending standards lead delinquency rates
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You don't need Donald Trump to tell you that global trade is going to fall...
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High inflation is not today's or even next year's problem, despite Fed and Treasury largesse
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Consumers are sniffing inflation even if official indices aren't
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From 2000-2015, long-term FX reserve buildup boosted demand for USTs, pushing yields lower.
That trend started reversing in the mid-2010s and is accelerating post-Covid.
While not a day-to-day timing device, this is an unambiguous structural headwind to USTs
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30y bond total returns still at -2 standard deviations, plenty of room to mean-revert higher
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Market bottoms can only be recognised in retrospect. This doesn’t make them a quaint academic pursuit. A bear market bottom gives one confidence a new bull market has started.
This post outlines some of the things we look for around a market bottom.
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We’ve published our entire report on the commodity
#superrcyle
we presented to clients last year.
It’s packed with great charts and insight.
Enjoy!!!
-
The Next Commodity Supercycle
FULL REPORT
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Yet another sign of brewing inflationary pressures
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EM countries ranked by cheap currency and cheap equity markets
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The US has so far avoided a recession with almost 75% of manufacturing industries in decline 💁♀️
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Surging CEO confidence relative to consumers occur at the end of recession and bode well for the economy
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Watch out for higher equity vol as unemployment becomes more pervasive across the US economy
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Money market assets continue to surge... that's a lot of money to come back into risky assets once risk appetite picks up again
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A heavily inverted yield curve doesn't look good for this earnings season
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Only after the 1929 crash has the S&P seen such a fast and steep bear-market rally
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High food PPI has yet to fully feed through into CPI
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EM closed-end funds are now trading at very large discounts to NAV
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Our US bank leading index suggests the rally is just getting started
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Growth vs value may have a few torrid months ahead
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Our leading indicator for Class 8 truck builds is turning down sharply, which doesn't bode well for manufacturing or the economy as a whole
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The US twin deficit is now the worst in the world
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Higher wages are usually followed by lower profit margins
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Is there a recession on the horizon? Truck sales would say no
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The supply response of shale to rising oil prices has so far been sluggish
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Wow, Hong Kong real estate transaction volumes plumbing the lows
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Global trade is rebounding but EM cyclicals haven't got the message
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Headline numbers look good, but US labour market breadth is a little shaky
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There's a massive divergence between landlord asking rents and CPI data
Get the full picture:
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The difficulty for small businesses to fill vacancies has peaked and is rolling over - a classic late-cycle sign
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The underperformance of US high yield vs investment grade is currently looking very stretched
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