“How can you beat the market? There are three steps.”
- Jim Rickards
As is often the case, my friend Jim Rickards has a unique ability to simplify the complex. I agree 100% with his answer to his aforementioned question: how do you beat the market?
“Get the forecast right, get the policy reaction function right, and trade ahead of both.”
Risk managing the Full Investing Cycle is a daily and disciplined mathematical exercise in letting The (market) Signals front-run our economic nowcasts (i.e. The Quads), which always front-run The Fed.
Back to the Global Macro Grind…
That’s why we call it our GIP Model where GIP stands for GROWTH, INFLATION, and POLICY. Front-running Fed heads yapping about whether or not inflation is “transitory” was easy. Precisely ZERO Fed Econs called for this when we did.
Our call for US #InflationAccelerating was in June of 2020, don’t forget.
Yep. Almost 1 full year into the Inflation Cycle, everyone on ye Olde Wall who didn’t forecast inflation is an expert on where inflation goes from here. Thanks for coming out.
This morning those Macro Tourists are all “focused on the PCE report”…
Oh goodie… and what will these soothsayers see? They’re obviously going to see what’s been accelerating from the Cycle Lows of Deflation (Q2 of 2020), but more obviously since #Quad2 became more readily apparent in NOV of 2020.
Ah, but will the “PCE Deflator” meet their “expectations”? Whose expectations matter?
While the PCE Price Deflator isn’t the headline CPI (which is a better back-test for front-running moves in both The Quads and longer-term interest rates), it’s still something that the US government (BEA in this case) makes up and we have to deal with.
How do we deal with these augmented views of economic reality? We just measure and map them in ROC (rate of change) terms. The REAL PCE number is actually the number that matters a LOT more this morning than the Deflator.
Yes, the made up Deflator is required to calculate the Real PCE (Real Consumption Expenditure), so it obviously matters too… but of the 30 back-tested features in our proprietary GIP nowcast predictive tracking algos, Real PCE is ranked #1.
Economic features (i.e. economic reports) are reported in Cycle Time. Looking backwards, you always know where the last data point of The Cycle was. To Rickards point, it’s having a repeatable process to look forward that makes for market calls.
Here’s the recent Cycle Time (reported reality) of Real US Personal Consumption Expenditures:
A) The Deflation Cycle bottomed at a -16.5% year-over-year depression in APR of 2020… then
B) Went from -9.6% year-over-year in MAY 2020 to -2.1% year-over-year in FEB of 2021… and
C) Ramped, big time, to +8.5% year-over-year growth #accelerating in MAR of 2021
Think about that for another few seconds. The last Real Consumption # was the FIRST (going all CAPS on you now) POSITIVE year-over-year growth rate since the +2.6% growth rate in FEB of 2020!
All today’s Touristy CNBC “reporting” on the macro matter is going to do is remind us what The Cycle already did in April. Despite our nowcast for #InflationAccelerating, Real Consumption growth entered its 2nd month of The Cycle.
How some of my forecasting competitors call that “mid-cycle” (or US Employment and Inventory coming off the Cycle Lows) is beyond mathematical comprehension at this stage of my career.
How consensus keeps missing buying the damn dips in #Quad2 has been too.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.55-1.71% (bullish)
SPX 4108-4227 (bullish)
RUT 2190-2271 (bullish)
NASDAQ 13,173-13,901 (bullish)
Energy (XLE) 50.78-54.79 (bullish)
Financials (XLF) 36.97-38.46 (bullish)
VIX 15.84-21.57 (bearish)
USD 89.43-90.42 (bearish)
Oil (WTI) 62.09-67.95 (bullish)
Nat Gas 2.91-3.12 (bullish)
Gold 1 (bearish)
Copper 4.43-4.80 (bullish)
Silver 27.10-28.71 (bullish)
Bitcoin 32,408-47,607 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
