Newsletter Sampler: 3Fourteen Research

June 02, 2022

NEWSLETTER SAMPLER

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Name: 3Fourteen ResearchFrequency: Weekly research reportsAuthor(s): Warren Pies & Fernando VidalTopics: Data-driven macro research

Overview: 3Fourteen is a data-driven macro research firm. They combine their qualitative macro/real asset knowledge with data science. Clients receive weekly reports, 24/7 access to their key models and indicators via the website/mobile app, and access to their team of researchers.

In addition to their commentary, their models cover the following areas (and more):

  • Asset allocation

  • Sector Rotation

  • S&P Drawdown probability

  • Oil, gold, and bitcoin

  • Proprietary stock selection

Note – these guys have some phenomenal charts and share them frequently on Twitter. You can follow the firm and the co-founders at @3F_Research, @WarrenPies, and @fernavid.

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Recent Highlight: Making a Plan for Better Days – In this recent piece from May 5, 2022, they look back on some of their calls from the past nine months, including:

  • Their 2022 Outlook speculated that the market would suffer through a “drawdown of significant proportion” and “best guess is a spring/summer correction.“

  • They reckoned the market would pressure the Fed to cut its tightening cycle shorter than the consensus was expecting

  • They pegged the “Fed Put” around 3,800-4,000

They also provided a 10-factor checklist (see below) to monitor for signs of a market bottom, which they expect these events to be roughly simultaneous.

Source – 3Fourteen Research*Note – “Current Level” above is as of the publishing date – May 5, 2022

Key Takeaways

  • Fed Put: Russia’s invasion of Ukraine has increased the risk of persistent inflation and, thus, pushed the Fed Put lower.

  • IG Spreads: Looking back over history, the Fed has raised rates only twice when Investment Grade (“IG”) spreads were at or above 140 bps (2015 & 2018). At present, IG spreads are at 134 bps… shockingly close to the Fed’s historic pain point.

  • Energy HY: For the past 10 years, Energy High Yield (“HY”) debt has added on average 32 bps of additional risk premium to overall HY credit spreads. At present, this Energy premium has shrunk to a 5 bps discount. In our view, this is another emergent data quirk in this new era of potential stagflation.

  • The VIX: In the last 30 years, the VIX has hit 40 eight times. In seven of those cases, the selling pressure was near its end.

  • Hiking Into An Inverted Curve: Historically, only five out of the past 40 Fed rate hikes have occurred when the 2-10 year yield curve was inverted. We suspect the Fed will be hiking into an inverted curve before this cycle is over.

  • What to buy when the market bottoms? They recommend scaling into Quality + Energy stocks.

If you’re interested in learning more about 3Fourteen Research, click hereAnd if you want to check out more of their charts, keep scrolling!

Good investing,The Idea Farm Team