The Thematic Trader

Here are five things for leaving your ego at the door which I try to practice as much as possible (and still learning…): 1. Reflect on your own biases and assumptions 2. Practice active listening 3. Be open to feedback 4. Show gratitude and give credit where it is due 5. Recognize that you don't know everything and be open to learning from others

  "EoD" stands for   Everything   on Demand . Put simply... Everything on Demand, or EoD, is the future of getting  everything and anything  you want, at any time, delivered to your doorstep on demand –  often in less than an hour . Now, many of you might think that I'm making a big deal about nothing... But most Americans simply aren't aware of what's coming. They don't have any idea of the billions of dollars being spent by some of the world's largest companies to own the "Everything on Demand" space. The co-CEO of a business called GoPuff summed it up nicely when he said... "When Amazon came out with two-day Prime [delivery], that was the most revolutionary thing. Now, people want [everything] in 20 minutes. In 10 years, people are going to want it in five..." Mark my words – being able to buy anything you want and have it show up at your door in under an hour will change  everything... According to TechCrunch, a recent survey showed...

  The biggest growth market today is the  tectonic shift to sustainable protein. This is the move towards using alternative proteins from nuts and insects.  The cost to manufacture proteins currently is expensive in costs and resources.  New ways will save water, energy and feed. Hemp-based alternative protein is fantastic Hemp is a complete protein, unlike peas, oats, almonds, cashews, or beans. Hemp protein has high fiber content, unlike other highly refined plant proteins. Hemp has lots of Omega-6 and Omega-3 and is a rare plant source of essential fatty acids. He also knew that hemp is a far more sustainable crop than other plants: Hemp uses less water to grow Hemp doesn’t need pesticides or fertilizers to produce healthy plants Hemp naturally regenerates soil, instead of depleting it like soy, nuts, or other plants. Hemp helps filter carbon dioxide out of the air, cleaning the air as it grows

All is flashing in 2023 for a good year The  Breakaway Momentum    indicator compares the number of advancing stocks to the number of declining stocks in the market over a 10-day period. And it’s triggered when the amount of advancing stocks outnumbers declining stocks by about 2-to-1. This is very rare and usually only happens when bear markets are ending and bull markets are starting.   The  Whaley Breadth Thrust  indicator is similar. It compares the number of advancing stocks to the number of declining stocks in the market over a five-day period. And it’s triggered when the amount of advancing stocks outnumbers declining stocks by about 3-to-1. This, too, is very rare and usually only happens when bear markets are ending and bull markets are starting.  The    Triple 70 Thrust  indicator was also triggered. This happens when the percentage of rising stocks in the market exceeds 70% for three consecutive days. This is also a rare ...

Fossil Fuel not dead yet “Old energy” will carry most of the load during the early years of the transition, as it guides “new energy” to the pinnacle of global power production. Producing an electric vehicle (EV), for example, requires about twice as much energy as producing an internal combustion engine vehicle. That’s because EVs are essentially batteries on wheels… and batteries are basically just hunks of metal. Mining and processing all of that metal demands a lot of energy. To unearth enough raw ore to produce a  single  midsize EV battery, for example, mining operators must excavate about 250 tons of terrain. After that, they must transport roughly 50 tons of ore to various facilities around the world that can extract the targeted metals and then refine them to battery-grade standards. With a few exceptions, every step of the process consumes some form of fossil fuel. Most other renewable technologies are even more energy-intensive than EVs. Therefore, far from replacin...

  #10. Gold Miners, Escape from Hyper Correlations Gold miners had a very volatile year as well. Like gold and silver, the gold miners also had a downside overshoot due to severely poor market trading liquidity. All equities (not just gold equities) had a high level of intra-stock correlation due to the Fed tightening financial conditions (higher USD, higher real yields, lower liquidity). The 30-day rolling correlation between gold miners and the S&P 500 reached its highest level in 10 years, meaning broad market pricing flows dictated gold miners' price action, not fundamentals. Since the Fed signaled the aggressive portion of its interest rate hikes is over, there has been an unclenching of hyper-correlation across asset classes as fundamentals reassert themselves. Figure 7b is the Q4 2022 returns for various asset classes. It highlights the now diverging returns of the “better" asset classes (precious metals) that we believed were caught in the liquidity vortex versus f...

  #9. Silver: Oversold Secular Low Silver closed 2022 higher by $0.65 (or 2.77%) to close at $23.95. Like gold, silver began the year on a firm footing before it was overwhelmed by CTA-type and retail selling (Figure 6a). From the March 2022 peak, over 818 million ounces of silver (or 52%) of combined CFTC 14  and ETF silver were liquidated over six months. This selling wave was the most seen from retail-dominated ETF selling ever, indicating capitulation activity. By the September 2022 lows, CFTC silver positioning had reached a 3%-tile reading over the past 10 years, and silver in ETFs saw a -25% drawdown 15  versus prior maximum drawdown levels of ~-10%. Considering the strong silver supply-demand fundamentals, silver liquidations were likely forced selling. Silver and gold, as precious metals (similar macro variables), unsurprisingly have a very high correlation of 0.84 from 1981 (post the Hunt Brothers craziness) to 2022. In Figure 6b, we highlight the silver-to-gold...

  #8. Gold Bullion, Setting Up to Test the Upside in 2023 From the March 2022 highs, short-term gold prices were mainly dictated by investment trading flows dominated by CTA types. Figure 5a in the lower panel shows the CFTC Net Non-Comm gold positioning change on a rolling six-month rate of change to highlight the trading intensity. In our  November commentary,  we highlighted several factors that indicated that gold had reached a cyclical low. As global oil contracts increasingly use the yuan, gold may return as a settlement medium via RMB-gold convertibility in China's new rival economic and monetary system. The need to build sufficient gold for this facilitation is another possible reason for the massive surge in gold imports from China in 2022 and the early days of 2023. As the de-dollarization process takes hold, gold will likely become much more attractive than the U.S. dollar for any country aligned in this new China-led economic sphere due to RMB-gold convertibil...

  #7. Energy Transition Metals Continue to Outperform Reality Check: Energy Transition Materials versus Other Commodities From a macro and fundamental perspective, we believe the energy transition investment opportunity is promising, but how well have critical minerals performed on a relative basis? We created charts to provide a visual as to their relative performance against standard benchmarks. In Figure 4a, we created an unweighted basket of seven transition energy metals used in an EV battery. We compared this EV metals basket to the Bloomberg Commodity Index (a broad commodity index) and the Bloomberg Industrial Metals Subindex (base metals). Since 2020, the basket of battery metals has been in a steady outperformance trend relative to both the broad commodity and base metals indices. Figure 4a. EV Transition Metals versus Bloomberg Commodity and Industrial Metals Indices  (2020-2022) Source: Bloomberg. Data as of 12/31/2022. Included for illustrative purposes only. Past...

  #6. Lithium: Battery TINA (There Is No Alternative) Lithium is the critical element of lithium-ion batteries, the predominant battery type used in electric vehicles and many consumer electronics. These deep-cycle batteries are designed to give power over sustained periods and have a high power-to-weight ratio, specific energy and energy density — reducing the vehicle's weight. Lithium demand is expected to have extraordinary growth, rising from 0.5 MMT (million metric tonnes) of lithium carbonate equivalent (LCE) 6  in 2021 to ~ 3 MMT by 2030 (22% per annum growth versus ~3% per annum growth for mature metals), with batteries accounting for 95% of demand. Lithium began as an EV story as various governments announced the phase-out or elimination of new internal combustion engine (ICE) vehicles by 2030-35. The EV story quickly morphed into a security of supply story as companies, governments and policymakers began to understand the strategic importance of securing these raw ma...

  #5. Copper: Structural Supply Deficit and Demand Shock Copper is one of the most vital metals powering the global energy transition, especially given that it is essential for electricity generation and transmission. Copper is critical for wind, solar, hydroelectric and thermal renewable energy and electric vehicles, and the amount required as demand for electricity increases is potentially immense. Renewable energy systems require 5-7x the amount of copper versus traditional designs, and electric vehicles (EVs) require 3x the amount of copper compared to gasoline-powered cars. Inventory levels for copper (and all industrial metals) are critically low (see Figure 2). Over a decade of underinvestment followed by COVID-induced restrictions and supply chain issues hampered supply growth leading to structural supply shortages with the tightest supply-demand balance in decades. The surprisingly post-COVID solid global recovery in demand has put copper in a deficit situation, requiring ...

  #4. Uranium: Clean Energy That Offers Secure Power Generation and Enhances National Security Nuclear energy has the highest capacity factor (amount of energy produced) of any fuel energy source (traditional or alternative) with the lowest carbon emissions. 12  Nuclear energy remains the cleanest, most reliable and safest baseload power generation. Nuclear power is essential to complement renewable sources of energy, such as wind and solar, which operate intermittently. Demand for uranium will continue to outstrip supply as countries worldwide move to build new reactors, restart idle reactors and reconsider the closing of legacy reactors. 2022 was a breakthrough year for positive sentiment for nuclear power and an affirmation of the long-term bullish fundamentals for uranium (Figure 1). The fallout from the Russia-Ukraine war has skyrocketed energy prices in the EU, cascading into crises on multiple fronts. But the most important was the realization that national security req...

  #3. An Existential Commodity Supercycle as Competition for Commodities Increases Wars (hot, cold or economic) are commodity-intensive, inflationary and capital-intensive. The West will spend trillions of dollars over the next decade or so to restock, build and secure commodity supplies to 1) rearm their militaries to preserve and defend the current world order; 2) ensure industrial security by reshoring supply chains and production after decades of off-shoring; and 3) build out the infrastructure for the energy transition to cleaner forms. This immediate demand shock from these three broad themes will be highly commodity and capital-intensive but interest-rate-insensitive (inflationary). This sudden and massive demand shock is colliding with a woefully inadequate supply situation due to a decade of underinvestment, sanctions on Russia (the world's largest producer of most commodities) and rising resource nationalism spurred by geopolitical tensions. The level of capital intensity...

  #2. Energy Markets are Realigning as Oil/Energy Trade Flows are Re-Ordered Since the peak of the last secular bull market in commodities in early 2011, chronic underinvestment driven by cyclical factors and attention to ESG concerns (environmental, social and governance) have created structural supply shortages and tighter supply-demand balances than prior investment cycles. And now, spillover from sanctions has taken a bigger bite from the supply. For example, the U.S. has sanctioned countries accounting for 40% of the world's oil reserves (Russia, Iran and Venezuela), resulting in much of this oil trade flow going to China at steep discounts. Furthermore, China continues to make inroads with the GCC (Gulf Cooperation Council, an economic union of six oil producers, notably Saudi Arabia, UAE, Kuwait, etc.) for long-term oil purchases and investment in its upstream sectors (refining, storage, transportation, etc.). The GCC accounts for another 40% of the world's oil reserves....

  #1. De-Globalization and the Great De-Moderation The "Great Moderation" occurred from the early 1990s to 2020 and was marked by low inflation, stable low economic growth and low macro volatility relative to prior decades (and centuries). The forces of the Great Moderation were many and overlapping, such as globalization (off-shoring to low-cost countries), deregulation, technology, debt, demographics, capital over labor, the fall of the Soviet Union leading to pax Americana and an enormous surge in commodity supply from the former Soviet Union, a prior significant non-accessible source. Each of these forces was very powerful, but their powerful convergence over just a few decades was extraordinary. The clean energy transition represents a significant global structural change intended to decrease our dependence on fossil fuels in favor of low-carbon and renewable energy sources. Several of these forces are now reversing or are in full retreat, pressuring inflation and macro ...

  5G The arrival of a new generation of mobile internet technology has brought with it its own fair share of misunderstanding. This includes concerns about its possible impact on health. Many people were worried that high-power radio waves emitted by phones or transmitter masts could lead to health problems, including cancer. However, hundreds of studies carried out around the world by governments and independent research organizations have failed to turn up any evidence that this is true. It's also a common misconception that 5G is a singular piece of technology or standard that was implemented, and now we are just waiting to see the results, which will mainly be faster internet on our phones. In fact, 5G is an evolving standard. Most of the infrastructure in place today relies on a slower form of 5G which effectively "piggy-backs" on the existing 4G LTE infrastructure. True, “stand-alone” 5G is gradually being rolled out, which will enable it to reach its full potential...

  Web3 Web3, as it is most widely used today, refers to another idea for the "next level" evolution of the internet, but one which is tied to concepts involving decentralization, blockchain technology, and cryptocurrencies. This is confusing because another group of ideas exists, which is labeled "web 3.0", proposed by Tim Berners-Lee – the man often referred to as the father of the World Wide Web. As with the term "metaverse," both web3 and web 3.0 refer to what the internet may evolve into. And although the ideas are somewhat related and not necessarily mutually exclusive, they each describe different things! Confused? Don’t worry, so is everyone else! Specifically, though, web3 looks forward to an internet where power and ownership aren't centralized in large corporations that ultimately own the servers where data is stored, and software programs are executed. For example, many believe that large social network companies like Facebook and Twitter ho...

  Metaverse The first place many people would have heard the term “metaverse” would have been the 1992 dystopian sci-fi novel Snow Crash by Neal Stephenson. And when the concept went mainstream in 2021 following Facebook’s change of name to Meta, numerous articles linked it to ideas found in the virtual reality (VR)-focused novel-turned-movie Ready Player One. But in fact, the concept as it relates to technology today isn’t necessarily exclusively about VR. And hopefully doesn’t have to be dystopian! The fact is that no one yet knows exactly what the metaverse will look like, as it doesn't exist in its final form yet. Perhaps the best way of thinking about it is that it encapsulates a collection of somewhat ambiguous ideas about what the internet will evolve into next. Whatever it is, it’s likely to be more immersive, so VR, as well as related technologies like augmented reality (AR), could well play a role in it. However, many proto-metaverses and metaverse-related applications, s...