“Dear younger me, if I knew what I know now.”
- Brother Osborne
Younger Me by Brothers Osborne is one of my fav country tunes these days. I was blaring it in my car on the way up to Mass where I spent an awesome day with my teammates from our Boston office yesterday.
“Youth ain't wasted on the young
These trips around the sun
I needed every one”
A younger me wouldn’t have had the patience to stay with #Quad2 throughout every day of Q2. The Game isn’t easy. Seeing lots of cycles and learning from my mistakes has been a critical part of the learning process.
Back to the Global Macro Grind…
“But, but… when do you pivot out of #Quad2?”
Well, the first part of the answer are 3 words that seem to be in as little supply as patience these days: I don’t know.
The rest of the answer plays out in real-time markets every single day. Like bottoms, both Cycle and market tops are processes, not “valuation” or “probability” talking points.
Looking back, yesterday’s market answer is the only correct answer. The last price always is.
When both the SP500 (SPY) and High Yield (HYG) close at their all-time highs on the same day, there’s no debate that being positioned for any other Quad than #Quad2 would have been dead wrong.
There have been 14 all-time closing highs for SPY during #Quad2 in Q2. Since we made the #Quad2 Full Cycle Investing pivot back in November, I’ve often said that I didn’t know when it would get fully priced in.
I still don’t.
At the Micro Quad level, yesterday’s US LABOR data (Jobless Claims, which is the 3rd ranked feature in our GIP Quad Model) was clean cut #Quad2. So was CAPEX at +22.7% year-over-year growth.
The next big #Quad2 data point will be the JUN Jobs Report. That’s the 7th ranked feature in our model. We rank the features relative to their marginal impact on the GIP Model Nowcasts.
While I don’t know when the Singularity of The Signaling Process will fully price in #Quad2, I do know what my catalysts are. It’s the same thing with stocks…
You have to have a view into the events… and have the humility to accept the market’s reaction to them.
Nike (NKE) is a good real-time example of that. Last week on The Call @Hedgeye, one of our all-star players, Brian McGough outlined his view that NKE was going to have a big beat and POD 1 #acceleration.
They did. And the stock didn’t say it was #Quad4 on the news!
Earning’s Season is going to be epic #Quad2 for The Pods. For those of you who don’t know what The Pods are, they gave birth to The Quads @Hedgeye:
A) POD 1 = the ROC (rate of change) of REVENUES
B) POD 2 = the ROC of Cash Flows (or earnings)
Substitute POD 1 with GDP and POD 2 with INFLATION… and voila, Les Quads.
But epic is as epic does and the best way to not “miss the pivot” into the next Full Cycle Investing set of Asset Allocations, is to de-gross, or sell-SOME on the #Quad2 news as prices hit all-time highs.
So, after buying the most recent dip (last week) aggressively, that’s what I am going to do.
No, that doesn’t mean I’m allocating my hard earned assets to #Quad4 or #Quad3, yet. If I was, I’d have bought big Asset Allocations that work in both of those Quads (like Utilities (XLU) and Gold)…
… And chased both of those head-fake charts 2-3 weeks ago like a Younger Me might have… That would have been a disaster. “Youth ain’t wasted on the young – these trips around the sun, I needed every one.”
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.44-1.59% (bullish)
UST 2yr Yield 0.17-0.32% (bullish)
SPX 4187-4293 (bullish)
RUT 2 (bullish)
NASDAQ 13,993-14,398 (bullish)
Energy (XLE) 52.20-56.75 (bullish)
Financials (XLF) 35.03-37.77 (bullish)
Utilities (XLU) 62.41-64.85 (bearish)
DAX 15,406-15,833 (bullish)
VIX 14.40-19.26 (bearish)
USD 89.66-92.67 (bearish)
Oil (WTI) 70.32-74.09 (bullish)
Nat Gas 3.16-3.48 (bullish)
Gold 1 (bearish)
Bitcoin 29,317-38,342 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
