Thread by @MacroAlf

New trade!

Short Oil (CL1 future)

Entry: 85.1
First target: 72.4 (15%)
Stop loss: 93.6 (10%)

- Real demand & inflation to disappoint against what's discounted
- Long oil crowded as hell
- Decent backwardation given the macro framework

A short thread.

1/6

Real demand and growth are likely to disappoint from here, in my opinion.

Here are earnings lagged by 12m against credit impulse.

For reference, consensus expectations for Q1-Q2 for S&P500 YoY earnings are +5-6% versus same quarters last year.

2/6

Inflationary pressures are likely to fade away too, and much more quickly than what consensus and breakevens are pricing in here (2022 YoY inflation priced at 3-4%, I expect <2%).

3/6

Long oil is crowded

This is because everybody is chasing the ''long cyclicals'' trades, while the macro environment is looking more like mid-2018

Nominal growth is not accelerating anymore, but investors are long banks, industrials and commodities as if it's early cycle

4/6

Although a 10%+ backwardation sends stronger statistical signals re the evolution of spot price, the backwardation in the Dec23-Dec22 oil curve ($6 or 8% of the Dec22 implied price) anticipated a decent correction during a similar macro environment (mid-to-late 2018).

5/6

Long-term, I am constructive on selected commodities.

Short-term, I believe this might be a decent chance to lean short.

Let's see.

6/6

Bonus tweet, I forgot.

Tomorrow I'll publish another article at TheMacroCompass.substack.com where I'll present more trades and the rationale behind.

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