Value Seeker

COPPER VS GOLD While copper has recently outperformed gold, the copper-to-gold ratio still suggests a large undervaluation of the industrial metal relative the precious one. Indeed, returning to the ratio's long-term trend would imply a 40% relative upside for copper. $COPX $GDX $CPER

OIL - TAKING A STEP BACK While as oil is strongly rising, it is always good to take a step back, and look at the long-term picture. Adjusting it for money supply, one could easily see that oil remains cheap relative to history, with its 2008's top now equivalent to $386. In other words, oil would need to rise by 270% to reach this former top, not to mention the 1980's one. While none knows where would oil stop this time, this gives an idea of how asymetric this trade can be. I developed my long-term view on this sector, and how I play it, in the below article. #OOTT $XLE $PBR $TTE

S&P500 - SHILLER P/E CLOSE TO AN ATH While (optimistic) forward earning expectations lead to the calculation of low P/Es by many research departments, the Shiller P/E (CAPE ratio) tells another story. Indeed, using the 10-year average earnings instead of forward ones, to correct the effect of business cycles, the CAPE ratio suggests a real expensiveness of the index. Two visions could then be present: 1) Those thinking that forward earnings are reliable and sustainable, in which case the CAPE ratio may not be the best tool as it does not properly represent the new reality. 2) Those questioning the sustainability of this earning increase, which could have also been cyclical by nature, in which case the Shiller P/E seems give the right information. Independently of earnings expectations (persistent VS cyclical) inflation could be the factor justifying lower valuations, no matter the scenario chosen above. Indeed, as higher inflation justifies higher interest rates, themselves justifying lower valuation multiples, at constant Earnings (the "E" of "P/E"), lower valuations could be justified as a stock price could be seen as the function of its earnings multiplied by its P/E. P = P/E * E So, to justify such valuations, not only would earnings need to stay elevated, but inflation should also remain low. $VOO $IWM $QQQ

COPPER VS GOLD Trading 30% higher since the below note, the copper-to-gold ratio remains at a relatively low level. While reaching the ratio's trend would imply another ~30% upside, reaching +1σ would generate a ~60% relative return. Copper still has the advantage. $COPX $CPER $FCX

@BullTheoryio Copper remains quite affordable. https://t.co/7KBLghvhB0

US DOLLAR The DXY still trades at a 25% premium over its purchasing power parity, where its risk-reward is negative over the medium to long-term. Only the momentum is missing. $USDJPY $USDEUR

COPPER Copper, adjusted for money supply, remains 50% below its most recent peak. $COPX $CPER

US DOLLAR The DXY is trading at 100 after the yesterday's rate decision. Not used to make investment decisions based on short-term news, I prefer making them based on where does an asset stand in its long-term cycle. With a DXY trading at a 26% premium over its purchasing power parity, the mid- to long-term downside risk seems important. Only the negative momentum is currently missing, after months of consolidation above its 15-year-old resistance. Breaking it would send the signal many bear were waiting for, likely sending commodities and EMs higher as a consequence. $DXY $EEM $GDX

OATS Now trading 10% higher than at the time of the below tweet, oats still keep a positive risk-reward. Nonetheless, its risk-reward remains positive, as the commodity is still trading below its long-term trend while its momentum is gaining strength, judging by its rising monthly MACD. $ZO

SUGAR - BREAKOUT & BACKWARDATION Now trading 22% higher than at the time of the below note, sugar has not only broken out, but is also now in backwardation (seen as a bullish signal). This doesn't mean, however, that: • Sugar is a sure win. • If the bull case happens to be right, its price would rise without any pullback. How do I interpret it then? • Sugar offers a fairly good risk-reward (i.e. its upside potential largely compensates for the downside risk). • This justifies a long position in my portfolio, along with other bets whose reward is also asymetric. The end goal is therefore not to find a sure win (none can), but to to build a portfolio of assets with asymmetric payoffs, which should do well as a whole, with the winners overcompensating for the losers. In practice? The more a potential payoff is positive, the higher the weight one asset should have in my portfolio. Here is why I am sharing expected payoffs, which are needed to make informed investment decisions (see below). Getting back to sugar, while the recent rise has made it slightly less attractive than in July, its risk-reward remains positive. This means that, should it rise substantially, it would still be a buy for my portfolio (up to a certain point), but some profits would be taken to allocate funds to more undervalued assets whose risk-reward would have become more attractive than sugar's. $SB1 $CANE $AGRO