“Accelerate cycle time.”
Key takeaways
- UST 10yr Yield down as the Old Wall begs for more job losses and rate cuts But INFLATION (for The People) is going to stick
- Below are our updated proprietary INFLATION Nowcasts for the next 3 QUARTERS starting with Q423 = 3.62%
- With our Core Real Estate Short (XLRE) down another -0.8% yesterday and 7 out of 11 SP500 SECTORS DOWN for their “2023 YTD”, what could possibly go wrong with higher for longer on inflation?
The big picture
Those of you who took the time to read Elon Musk and his definition of what he calls “The Algorithm” know that “Accelerate Cycle Time” is the 4th of his 5 commandments.
Yep. In the book, he called them commandments! After the laser-eyed folk are done with the 3rd commandment of “Simplifying & Optimizing” the universe, they just need to make everything go faster! (pg 285)
“But only do this after you have followed the first 3 steps”, he warns. Phew! It’s a good thing I don’t do that with either my hard-earned capital and/or our measuring and mapping of economic gravity. It decelerates slowly, then all at once.
Macro grind
Since calling The Peak of the US economic and market cycle what it was at the end of NOV of 2021 (#MOAB = Mother of All Bubbles = Bitcoin $68k, NASDAQ 16,057, Russell 2442), all we’ve seen is The Cycle slowing on a TRENDING basis.
Yep. There have been some monthly #accelerations within the longer-term cyclical TRENDs (JAN and JUL of 2023 on US Consumption were the 2 biggest monthly accelerations), but, from here, those are now 2 VERY tough comparisons.
That brings us to this morning’s US report on headline INFLATION for OCT 2023:
- As you can see in today’s Chart of The Day (slide 21 in the Macro Deck), INFLATION bottomed in June 2023
- After #decelerating from 9.06% to its Cycle Peak in June of 2022, the “bottom” in June 2023 was against that
- Since June, INFLATION has #accelerated EVERY SINGLE MONTH to 3.70% in September of 2023
And now, for the month of October, we might get a ROC (rate of change) slowdown in this new #Quad3 Stagflation TREND (defined as 3 months or more of acceleration), but we have it sticking around this 3.5% level until Q2 of 2024.
Here are our updated proprietary INFLATION Nowcasts for the next 3 QUARTERS:
- Q4 of 2023 = 3.62%
- Q1 of 2024 = 3.57%
- Q2 of 2024 = 3.64%
*Note: Old Wall Econs have it slowing towards 2.5% by Q3 of 2024
So, while your fav Macro Tourists will spend the entire day opining about what they think they just saw in today’s CPI (INFLATION) report, we’re going to play The Game like Gretzky and go to where the puck is going next.
HIGHER FOR LONGER on INFLATION is the highest probability scenario for you to risk manage.
Yep. While the Old Wall and its media are going to be literally begging for rate cuts while we don’t hit the Fed’s “2% target” (3.3-3.64% does not equal 2%), we have a lot of our hard-earned capital to preserve and protect.
BREAKING: “UBS Strategists See Deeper Rates Cuts”
Yep. I couldn’t make that up if I tried. That’s one of the Top Click-Bait “stories” on the Ole Michael Bloomberg.com’s narrative-driven ad platform this morning. All of these guys want/need COWBELL and RATE CUTS!
And neither my @Hedgeye TREND Levels and/or Risk Range™ Signals suggest they’re gonna gettem:
A) SHORT-END (UST 2yr Yield) Risk Range™ Signal = 4.85-5.11%
B) LONG-END (UST 10yr Yield) Risk Range™ Signal = 4.45-4.87%
A/B Test that in your LEVERED LONG Real Estate Investing model at Blackstone (BX) for another 2-3 quarters. Imagine Powell did this for another 2-3 years?
Let’s say PE Powell bows down to Schwarzman & Rubenstein and CUTs rates AFTER more things like BREIT “break.” What do you think Oil and/or INFLATION is going to do from there? Cowbell (Fed Cuts) got us $147 Oil in 2008, don’t forget.
While Powell didn’t raise rates in NOV (because his boys asked him not to), the Bond Market raised rates for him anyway. It was the INFLATION re-accelerating gravity that got all these guys from AUG-OCT…
For those of you who are old enough to remember that, AUG-OCT of 2023 was the first 3 straight-down-months for the beloved SP500 since Q1 of 2020.
All good. Nothing to see here. With our Core Real Estate Short (XLRE) down another -0.8% yesterday and 7 out of 11 SP500 SECTORS DOWN for their “2023 YTD”, what could possibly go wrong with higher for longer on inflation?
Accelerating the downside in consensus 60/40 and “Target Date” Fund portfolios might just be it…
Our levels
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 4.45-4.87% (bullish)
High Yield (HYG) 71.99-74.40 (bearish)
SPX 4175-4455 (bearish)
NASDAQ 13,007-13,975 (bullish)
RUT 1635-1754 (bearish)
Energy (XLE) 81.20-86.64 (bearish)
VIX 13.60-21.20 (bullish)
USD 104.80-106.71 (bullish)
Oil (WTI) 73.19-82.01 (bearish)
Gold 1932-2013 (bullish)
MSFT 344-374 (bullish)
TSLA 197-230 (bearish)
Bitcoin 34,299-37,927 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
