“Two things are infinite: the universe and human stupidity; and I’m not sure about the universe!”
-Albert Einstein
Welcome to month-end, quarter-end and the end to the easiest comps in modernity.
The universe may or may not be infinite or singular, but it has a sneaking, empirical tendency towards elegance.
If human stupidity is infinite, I imagine it’s entangled with equal parts naive optimism.
As we officially welcome 2H21, let us HODL a quantum of unfettered idealism and embrace the opportunity to debunk Albert.
The Arena @Hedgeye is open and alive.
It’s in The Arena that we welcome the huddled quantitative masses. The bottom half of the economic K and those residing on the top slant of blue collar ambition. A digital refuge for those aspiring to autonomy and self-actualization, a greenhouse for meritocratic idea exchange, a data comb for analytical hornets triggered by the prospect of swarming on flimsy qualitative narratives. A dynamic macro tapestry master-crafted in the image of the collective mission to innervate atrophied data-dependent neurons while suplex’ing what lazy heuristics and a lifetime of trained cerebral slothfulness and soundbite culture hath wrought.
… or something like that.
Alternatively, … let’s all just aspire to a fresh pair of jorts for the summer as we hope to one day be in the fortunate position of having to create a 2nd bucket list!
In other (potential bucket list) news, you can now earn 4% on Coinbase just for holding $USDC.
Back to the Global Macro Grind ….
To start, let’s quickly bask the RoC radiance of the chart below.
Now, I’m not privileged to be part of this esteemed group but I think serious academic types technically characterize that as “Dude!”.
Yesterday’s Case-Shiller and FHFA data for April were both good for (another) all-time rate-of-change high.
A few things here:
- Case-Shiller is calculated as a 3-month moving average and released on an almost two month lag. Yesterday’s print effectively represented a window into fundamental conditions prevailing in March. The series is the paragon of rearview reports, but it still garner’s attention.
- ATL supply conditions in the resale market will continue to support HPI strength over the coming month(s).
- Owner’s Equivalent Rent (OER) in the CPI calculation will continue to play catch up to the trend in purchase HPI over the next year. Given it’s outsized weighting (OER = ~24%, Shelter Overall = ~33% weighting), it will be central define the trajectory of Headline CPI.
- This morning’s weekly Mortgage Purchase Application data showed a further leak lower with Purchase Volume down -4.8% W/W and -17.3% Y/Y. June is tracking down -16.2% Y/Y and -21.2% off the Jan peak and at 255 on the Index we are at the lowest level since early May of last year.
- We’ll also get PHS (signed contract activity) for May later this morning. It will likely show further deceleration – which will then show up in Existing Home Sales next month. A meaningful part of the decel is supply related, but at some point homeostatic regulation will become more pronounced … that is, deteriorating affordability will feedback negatively, reminding everyone that the most organic cure for higher prices …. is higher prices.
Elsewhere across the macro-scape yesterday, the Conference Board rounded out the 3 for 3 hat trick for Consumer Confidence in June.
In reviewing the modest backslide in Consumer Confidence last month (see: Consumer Confidence | Here's What I Suggest), we offered the following …
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The fact the consumers have moderately downgraded their forward outlook does not mean the Services Consumption juggernaut that is already in motion will somehow slam into reverse and not play out over the coming months. It will. I could trot out any number of other indicators that households are set to spend and that any Sentiment survey based lip service to the notion that current and future conditions are deteriorating requires employing a kind of “watch what I do, not what I say” filter….. One sometimes useful way to contextualize something is to think about it not happening. In other words, imagine if growth and inflation were not accelerating and/or at superficially extreme levels following the largest negative macro shock in modernity. That would probably be more of a problem for a domestic, DM and global economy flirting with stagnation and fighting disinflationary trends for the last couple decades. In other, other words, let’s wait until maybe the June/July data are fully populated and then see where sentiment is trending. See what they do for a while longer, then see what they say. |
One month on from that gentle patience mongering, we find all the name brand confidence series posting incremental improvement along their ongoing retrace to pre-pandemic highs.
Yes, inflation is still a concern and appetite for select large-ticket discretionary consumption (i.e. durable goods where pandemic dynamics have driven price distortions) has been dampened but that is mostly side-show to the broader activity and consumption renormalization that continues to take fuller shape.
Indeed, purchase plans for homes/autos/major appliances and vacations all rose in June as the labor differential (jobs plentiful less jobs hard to get) expanded to more than 2-decade highs.
Imagine the sanguinity to be harvested and reported as we restlessly await a tangibly close future-state defined by moderating inflation, accelerating employment/income, serial equity benchmark ATH’s, a multiyear increase in labor’s share of income and an accommodating Fed content to revel in the happenstance of Goldilocks 2.0.
Or, perhaps, imagine the converse as the delta variant propagates unchecked into the winter, containment measures re-proliferate globally, the hiring frenzy fizzles and the fed-fiscal sugar high fully reverses across everything but prices.
Or, imagine both, careening whimsically and daily between binary expectations as the AI powered headline generators increasingly optimize their capacity to leverage low-hanging heuristics and the notoriously irrational human emotional cadence.
Confidence be finicky, after all ….
And lastly, …..
I’m not sure how much digital ink I’ve spilled writing ‘demand-supply imbalance’ over the last 6 months but the associated compute is probably enough to dwarf the Bitcoin energy usage/ESG FUD.
The incremental here is pretty straightforward:
- The June price data has effectively shown no RoC relent.
- Multiple Fed Regional Surveys have shown their respective Prices Series (Prices Paid, Prices Received) continue to increase. These are probably topping, collectively, but fresh ATH --> Topping --> Moderating --> Fully Retracing is not a 1-month (or 1 Qtr) process.
- With Natural Gas going vert, Oil prices continue to rise, Shelter CPI on a one-way street higher, the Baltic Dry index and Shipping/Container costs making higher highs and the items highlighted above continuing to support input price inflation, the June data (reported next month) is not going to reflect material moderation and the early read into July (data reported 2 months from now) is Trending similarly.
- Again, what we’re observing/describing are dynamics (still) pervading the Goods economy. Conditions in the Services economy are evolving similarly, but on a lag.
- To the extent Covid conditions stymie re-opening initiatives outside of the U.S. (while domestic activity continues to ramp) = more supply pressure as re-intensifying production constraints and intermediate goods shortages find root in supply bottlenecks domestically, exacerbating imbalances and further pressuring prices.
- Large-scale Infrastructure spending (i.e. increased demand atop already acute production constraints) certainly carries no inflationary risk.
- If you want to understand how the labor market serves as both recipient and shaper of the conditions above, I reviewed the larger top-down dynamics in Monday’s Early Look.
Ultimately, everyone knows that what global macro all boils down to, and what we all really care about is jorts.
There are less people, globally, making jorts. The materials cost and the cost of shipping those jorts continues to increase. As the demand-supply imbalance worsens domestically as everyone buys new jorts for the return to the office, jort inflation is likely to remain sticky-high.
We look forward to the next great growth driver @Hedgeye as we keep everyone apprised of key developments in the space with the impending launch of THE JORT REPORT. Stay tuned!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.45-1.58% (bullish)
UST 2yr Yield 0.21-0.30% (bullish)
SPX 4196-4326 (bullish)
RUT 2 (bullish)
NASDAQ 14,066-14,613 (bullish)
Tech (XLK) 141.95-148.42 (bullish)
Energy (XLE) 51.90-56.06 (bullish)
Financials (XLF) 35.07-37.33 (bullish)
Utilities (XLU) 62.60-65.01 (bearish)
Shanghai Comp 3 (neutral)
Nikkei 28,197-29,468 (bullish)
DAX 15,402-15,803 (bullish)
VIX 13.99-19.02 (bearish)
USD 90.05-92.27 (bearish)
EUR/USD 1.182-1.210 (bullish)
Oil (WTI) 70.87-74.65 (bullish)
Nat Gas 3.32-3.71 (bullish)
Gold 1 (bearish)
Copper 4.09-4.51 (bullish)
Silver 24.77-26.97 (neutral)
Christian B. Drake
Macro Analyst
