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Paulo Macro Profile picture
@PauloMacro
Jul 2 • 10 tweets • 2 min read Twitter logo Read on Twitter
Oil 🧵

Ok - I get that I was long and wrong crude oil in 2H last year. I didn’t anticipate the destocking in physical and paper simultaneously, especially **absent a financial crisis** and especially as the USD peaked in September. It is what it is.
1/10
But just think about where we are now - the positioning. Here is the managed money net long in crude oil futures + options. On Tuesday we saw a decline of approximately 35,000 net long contracts from the prior week.
2/
This level is now in line with the March low and the Jan2016 $30 low when most of US shale went bankrupt. It’s lower than the Jan2019 $45 low post the 4Q18 recession scare/JPow mini-tantrum. 3/
This begs a question though, washed out positioning in contracts might mean something different in $ notional as the oil price changes over time. So here you go - crude oil, positioning by specs, managed money, and respective $ notional. I highlight purple Mgd Money notional.
4/
Can we flush in the short term? I guess. But specs are almost flat here. The last time we saw a net short position by specs in oil was Oct-Nov 2008… it took the most severe, global, deflationary financial crisis and with major institutional failures to precipitate that.
5/
The discussion I have been having with friends on the other side of this view like @UrbanKaoboy is that everything - everything - has been positioning. Who can deny 2023 has been entirely positioning driven?
6/
Even a modestly backwardated curve like today (less steep than 6m ago to be sure) costs money to be short, on top of margin which now comes with a higher rate too. To make money short you are counting on a financial/industry crisis worse than 2015, on par with GFC.
7/
I guess anything is possible…

But what if it doesn’t materialize? I am not saying longs need a “soft landing” or “no landing” to make money. I am saying shorts need a GFC to make real money so that current positioning pays them.
8/
Despite my penchant for a good crisis, I have always made the most money buying one, more than selling into one (and I have leaned into a few).
9/
The odds and risk/reward is turning fast in here. Pays to stay flexible and ask each day “how are people set up.”

And watch for an oil market that no longer drops on bad news…

/Fin

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More from @PauloMacro

Paulo Macro Profile picture
Jun 20
Chorus of sellside calling for correction is incredible here into quarter end. JPM's Nikos “We estimate the potential equity selling by month/quarter-end by balanced mutual funds, US defined benefit pension funds and Norges Bank/GPIF/SNB could be up to $150bn.” 1/4
Meanwhile GS derivs has US in like 99th percentile for asymmetric downside over next month. Amd CTAs, vol control and risk parity all long equities up the wazoo so apparently everyone is an imminent seller. I guess it’s that easy then - the mob is beared up so we’ll just drop? 2/
Look could we correct right here this week - surr. But I find it easy to get too focused on these specific players when much larger crowds are still overallocated to bonds, I mean this was like 3 wks ago and apparently this has been sorted (gonna sell eqty to buy bonds under 4%)?



Read 4 tweets
Paulo Macro Profile picture
Jun 17
Framework 🧵

I have said 2023 is the Year of the Panics. We are currently in the upside equity panic engendered by a “not QE” Fed and fiscal stimulus running into the “next big thing” AI narrative.
1/16
The chase is on as we approach quarter end per the mastercat @INArteCarloDoss
2/
Remember how long duration/underweight equities BAML FMS positioning was 1-2mths ago. People assume because equities are performing well that there will be equity selling to buy bonds now that opex is out of the way.
WRONG. 7 stocks are ripping and guys are overweight bonds. 3/
Read 17 tweets
Paulo Macro Profile picture
Jun 7
Who has been telling you this, for weeks now…
1/4 Image
here
Or here
Read 4 tweets
Paulo Macro Profile picture
May 28
There is an important insight here. The traditional recession has typically resulted from over-investment/overcapacity running into a demand downturn (often precipitated by rising rates which strangle consumers’ ability to repay debts).
1/
The resulting decline in profits leads companies to cut capex and lay off workers. Rising unemployment leads to declining incomes, consumer confidence, and spending. Lower demand boomerangs back on the supply side, precipitating further cuts in capex and workers.
2/
But in the current environment where underinvestment has been extreme for years as managements favored buybacks, “capital mgmt,” max efficiency/zero redundancy and lowest possible working capital levels (and as a corollary, productivity growth is the lowest on record)…
3/
Read 6 tweets
Paulo Macro Profile picture
May 27
I need to nuance this view though. For one, the Cat sees around corners better and faster than I do - we have different time frames and while I expect this large position to clear rather quickly, it may not do so with a huge move lower in 10y yields (3.30-3.60 could suffice).
1/5
Remember my views on the TGA: Yellen just needs a few bill auctions to bridge to June 15th, and given where bill yields are, she can attract a bit of RRP balances without disrupting market liquidity (RRP is really just a form of sequestered bank reserves).
2/
And then she can slow walk TGA to August, which means liquidity can positively surprise expectations. Which also allows the bond long to work because the only reason this short is out there is specs are frontrunning/“making room” for expected issuance like a giant follow-on.
3/
Read 5 tweets
Paulo Macro Profile picture
May 27
Update on oil - I thought I was pretty clear there was a stop-out in Dec for minimal loss (thanks to roll yields). I got some oil longs on the following Monday of this Saturday thread in March. Then it’s time to watch.
1/ Image
Then we watch some more. Oil pops on Opec cuts but fades - not great behavior. So we watch some more.

But that flush needle retest 3wks back (another Pierre stopout?) was a tell, and you have to buy that, so we buy more. 2/
Now it’s May. The chest thumping by oil bears has become insane. Dudes: WTI is $72…exactly where it was in Dec when Russia was dumping 40mmbbls alongside the SPR. Except your short would have cost you roll yield. So you would be negative P&L if you actually traded real $.
3/
Read 10 tweets

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