Read on Twitter
It’s all the same trade
US $
A top down look with thoughts on implications for Energy
US $
A top down look with thoughts on implications for Energy
Some context – the USD smile theory
The USD holds both domestic and int’l elements driving its relative performance. USD will strengthen when there is int’l risk aversion & when there is relative domestic eco growth
It weakens when int’l growth outpaces domestic growth
The USD holds both domestic and int’l elements driving its relative performance. USD will strengthen when there is int’l risk aversion & when there is relative domestic eco growth
It weakens when int’l growth outpaces domestic growth
In ’20, the USD spiked after COVID narrative sparked massive risk off flows. From the highs, the USD gradually bled lower. In Nov with the vaccine anncmts, USD has been in free fall as the macro narrative has moved hard to expectation of synchronized global growth in ‘21
The precipitous decline in the USD has moved everything
USD (inverted) vs Most Shorted Russell 3000 names
It's all the same trade
USD (inverted) vs Most Shorted Russell 3000 names
It's all the same trade
The precipitous decline in the USD has moved everything
USD (inverted) vs Cyclical/Defensive Relative performance
It's all the same trade
USD (inverted) vs Cyclical/Defensive Relative performance
It's all the same trade
The precipitous decline in the USD has moved everything
USD (inverted) vs Volatility Factor
USD (inverted) vs Volatility Factor
The precipitous decline in the USD has moved everything
USD (inverted) vs 10Y inflation breakevens
It's all the same trade
USD (inverted) vs 10Y inflation breakevens
It's all the same trade
The precipitous decline in the USD has moved everything
USD (inverted) vs Brent since March bottom
It's all the same trade
USD (inverted) vs Brent since March bottom
It's all the same trade
The precipitous decline in the USD has moved everything
USD vs Oil Vol
It's all the same trade
USD vs Oil Vol
It's all the same trade
The precipitous decline in the USD has moved everything
USD (inverted) vs Value/Growth
It's all the same trade
USD (inverted) vs Value/Growth
It's all the same trade
Here’s S&P 500 normalized sector performance YTD through 10/28, the last pre-vaccine day. Energy clear laggard down 54%. Financials, the next best low-quality cyclical sector down 23% YTD at that point
Post vaccine announcements, the macro narrative turns 180 degrees. Global growth will accelerate. Pent-up demand, built from months of lockdowns and restrictions, will be released in ‘21 in the post-vaccine world.
Asia is the factory of the world, anchored by China of course. Growth will go on a tear. Fed will keep US rates at 0% indefinitely. More stimulus coming. Capital will be cheap, growth will be abundant – pivot to the “old economy” assets. Commodities, Industrials, etc…
Vaccine will be inflationary, real yields will stay low, USD will stay weak. US deficit will grow under new administration, USD will stay weak.
All the stars are aligned. Quick - everybody move to the other side of the boat!
All the stars are aligned. Quick - everybody move to the other side of the boat!
Energy and financials up >20% from the vaccine anncmt. Industrials & Communications slightly behind. Cyclical sector love fest
Now how to position? 3 choices:
1) Rip It. See if there’s room on that one side of the boat where everyone is crammed and get exposure to cyclicals 2) Hide. Bet on return world dominated by defense
3) Golden Mean. Growth blip followed by slow normalized growth
1) Rip It. See if there’s room on that one side of the boat where everyone is crammed and get exposure to cyclicals 2) Hide. Bet on return world dominated by defense
3) Golden Mean. Growth blip followed by slow normalized growth
1) Rip It. Global growth has bottomed and is going to rip. This is a long-awaited structural inflection in the global economy. There is a pending global shortage of the things cylical sectors produce. Long Value/Cyclicals & Short Growth/Defense
In energy, buy garbage. You want leverage, hi shorted stocks, 2nd & 3rd tier assets
Upstream & OFS over Refining because their #s are going up, trading cheaper, and you know that benefits of higher commodity px accrue to producers, not spread traders. Oil over nat gas
Upstream & OFS over Refining because their #s are going up, trading cheaper, and you know that benefits of higher commodity px accrue to producers, not spread traders. Oil over nat gas
2) Hide. The inverse of Rip It. Excess capacity everywhere. Too much debt and too little aggregate demand for global economy to exceed trend growth. Eco growth is rare, so pay up for it. Stay away from cyclicals. Pay up for quality. Eschew garbage
3) Golden Mean. You wonder whether ECB will tolerate currency appreciation vs all its G10 peers when the largest economies in the world are in an FX related race to the bottom. You remember they have a pretty big meeting next week
3) Golden Mean. You wonder how much of the strength in crude markets is driven by short-covering financial flows and China restocking during the midst of a global demand downtick
) Golden Mean. You wonder how to capitalize crude strength that isn’t supported by demand-pull empirical evidence, as refining margins are awful internationally and domestically
3) Golden Mean. You wonder about the global demand growth necessary absorb > 1mmbbld increased production coming from OPEC+, Norway, Brazil, Libya, Canada, and US in 1Q21 with OPEC spare capacity still really high
3) Golden Mean. You wonder if the market is backsolving a narrative to fit price action that found Fundamental Long/Short funds losing half of their YTD alpha and has forced de-grossing across multiple asset classes
3) Golden Mean. You’ll play an ephemeral bounce in growth post vaccine. You’ll own a few quality cyclicals with legit growth in a normalized world, especially in Industrials & Materials. You’ll keep Energy on a short leash and trade garbage at your own peril
