A New Week 06/21

In our free 5-Day Onboarding Course, we cover the importance of expectations positioning.

You can track these every week, month, or quarter as you wish in order to gauge what the market is rewarding now or will reward in the future.

Today’s S&P has shown signs of a positioning divergence with conflicting expectations through the Commitment of Traders report.

Meaning,

Large money managers are near tapped out on their long exposure to the index, while leveraged money funds diverged into minimal exposure and a highly hedged profile.

This isn’t good or bad, it’s just the nature of the market we have inherited.

But,

It also suggests that a convergence is bound to happen, and historically, this means systematic momentum buyers (like pension funds and mutual funds) can create a “run for the door” event.

This is where billions, if not trillions, of dollars make for the exits all at once.

It’s also where the leveraged money (the hedge funds and prime brokers) begin to buy in what traditional managers are selling.

Because this report only covers futures, it tells you very little about individual stocks, other than behavioral choices around exposure.

These choices would suggest hedge funds and prime books are headed into discounted stocks with a greater margin of safety, rather than seeking exposure to the broader index and its tech-heavy balances.

Investing under the Offside framework will make you a contrarian by nature, but it will also land you in some of the best risk/reward opportunities available today.

You see, now that the managed money is obsessed with concentration and momentum, expectations for smaller high-quality companies are falling into some of the most pessimistic levels this decade.

And,

When expectations get this low, companies have an easier time beating them and commanding a future reprice out of the market.

Take Adobe for example, it’s now beat every quarterly expectation for the past 14 quarters consecutively.

Meanwhile, NVIDIA had a strong quarter and the stock is now down into correction territory.

13-F filings show some of the world’s best investors are buying Adobe (attached to the value and quality factor), while they also sell NVIDIA.

They are all quietly harvesting the premiums being offered in a value + quality stock like Adobe.

But that’s just one name.

We use factors to begin our hunt, and when a company passes our rigorous analysis process, then we consider adding it to our watchlist.

Currently, that list includes:

And plenty of others positioned to become multi-baggers from here.

For just $2 a day, you will have instant access to:

As you can see, I’m trying to give you more than anyone in the space, for a whole lot less.

Question is,

Will you continue to rely on basic retail-level research in social media, and overpaying for Discord channels ran by amateurs?

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Let’s get into the week ahead, and where some of the best opportunities may be shaping up.

I made a big claim saying money managers are nearly tapped out on their long exposure.

The NAAIM index will help me corroborate this claim, as balances are now near the top of their standard deviation of long exposure, which tends to bring those sharp selloff and de-risking events I mentioned.

I suspect the next major de-risking and selling event will come as Anthropic and OpenAI engage in price wars, blurring the path to a net ROI from the trillion-dollar capex wave happening.

That significantly increases uncertainty and risk, to which over 40% of the market is exposed.

Now onto some important events this week:

Flash PMIs

Not as important as the final ISM PMI reports, but definitely a strong insight before the big reports are released.

Markets care about this information more than ever now, as businesses begin to report significant increases in prices paid and diverging activity between industries.

The final ISM PMIs show that any industry involved in the AI supply chain build out is doing great right now (save for prices paid, those are “too high”.)

Everything else in the US economy seems to be struggling badly, as executives quote delayed orders, price uncertainty, and a depressed business environment.

M2 Money Supply

We will get the latest level of US M2 Money Supply this week.

The actual amount of supply doesn’t really matter other than for gauging ratios against asset classes like Gold, Stocks, or Bitcoin.

After all, available money drives the value of everything in the world.

For reference, here’s the ratio of the S&P 500 to the currently available M2 Money Supply.

Back to 1999 highs, and way past any normal credit cycle extremes as seen in the 2007 and 2018 setups.

Now that we’re past the first Warsh FOMC, and language surrounding Fed cuts is starting to get digested, I suspect the M2 rate of change will match that language.

I will be breaking it down in a separate issue, and what the specific rate of change means compared to the historically normal behavior.

PCE & Quarterly GDP

Last time we got inflation data, things didn’t look so good for the Fed and its 2% inflation target.

Expectations for this PCE are unchanged, as the current rate suggests we may see inflation stay and exceed 4% for quite a bit longer.

When it comes to GDP, the last couple of quarterly readings have shown that US GDP has been driven mostly by consumer spending and the AI capex wave.

Imports pose the biggest drag to GDP right now, a direct result of ongoing tariff uncertainty, refunds, and the big Hormuz disruption issues.

Considering retail sales (ex. Gas Stations) fell below expectations, it is now up to the upper K of the economy to carry the consumption aspect of GDP forward.

Where I would begin to watch:

Besides the spending, I am leaning on investment measures regarding infrastructure related to AI.

Whether the Anthropic and OpenAI price wars, as well as Microsoft adopting DeepSeek for lower prices affects this infrastructure spending is up to debate.

Needless to say,

A weaker GDP print along with a hotter PCE is a direct sign of stagflation odds rising.

Portfolios will be built and pitched according to those odds.

Click here to access Offside Premium, and receive these direct deep dives and updates.

I like to think I’m smart, but not smarter than the people who live and breathe everything that happens inside the AI trade. Here’s a Sunday video for you to get caught up with from Goldman Sachs and how the AI trade is evolving:

Until next time,

OFFSIDE RESEARCH

Against the Tape, Ahead of the Curve.