Deflating Reflation…

“Every limitation has its value, but a limitation that requires persistent effort entails a cost of too much energy. When, however, the limitation is a natural one (as, for example, the limitation by which water flows only downhill), it necessarily leads to success, for then it means a saving of energy. The energy that otherwise would be consumed in a vain struggle with the object is applied wholly to the benefit of the matter in hand, and success is assured.” ~ THE I CHING, CHINA, CIRCA EIGHTH CENTURY B.C.

In this week’s article, we go through the latest Global Fund Manager Survey and see where all the crowded trades are… We then discuss the evidence for an extended breather in the popular reflation trade. And end with a look at a bearish setup in oil and a long in the dollar, plus more…

Let’s dive in. 

***click charts to enlarge*** 

  1. The latest BofAML Global Fund Manager Survey is out. Here are the highlights.

  1. And the charts of the month… 

  1. Here’s my personal favorite. Global commodities vs bond allocation are at all-time highs. Just above the previous highs made on February 11’. Let’s discuss why this is important. 

  1. The next few charts are from @MrBlonde_macro who’s become one of my favorite new follows on the Twitter. 

This one shows that the year-over-year gains in industrial commodities are likely nearing their limits. 

  1. This stretched trend and crowded positioning in commodities and reflationary assets are running into the realities of peak growth, — not to mention the growing concerns around the Delta variant. 

This chart from @MrBlonde_macro shows the cumulative returns of Cyclicals vs Defensive in various growth regimes, using the ISM as a proxy. Currently, the ISM is above 50 and falling which puts us in the second worse regime for cyclicals on a relative basis (shown by the grey line below). 

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Disclaimer: All statements are solely opinions and are for educational purposes only.

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