“They each possessed an unshakable confidence in themselves that never wavered.”
- Tim Grover
That’s what their personal trainer had to say about them (Michael Jordan and Kobe Bryant). Don’t confuse confidence with “cockiness” or whatever the person who didn’t achieve what they did sees in their “tone” or body language.
Confidence, to me at least, is being confident that I am more prepared than the person I am playing against. That doesn’t mean I know I will beat them every game. Not at all. It just means what I just wrote.
Just like in The Game you’re in today, “Work ethic. Intelligence. Commitment. Resilience.” It all matters. MJ and Kobe had all of that, of course. “They didn’t know what was coming, but they were always ready – when to speed up, when to slow down – when to respond to criticism, and when to laugh it off.” -Winning, pg 62
Back to the Global Macro Grind…
‘But KM, on the page it says #Quad4, and you keep buying #Quad3?” -subscribers to me for the last 6 weeks
Yep. And now, today, on the same page it says #Quad3 in Q3.
I get it. More so than most professions, people in ours want certainty. That’s not the way the real world works. But wow would The Game be simpler if it was linear and all about simple moving averages and macro narratives.
The fact of the matter is that the world is fractal in nature. It’s non-linear, dynamic, and ever-changing. As the real-world economic data is changing, real-time market prices (and their volatilities) are front-running those changes.
When the big changes happen, you can make or lose a lot of money. That’s why I’m constantly trying to front-run the economic Quad Shifts using something that I know knows a lot more about The Game than I ever will: The Signals.
That’s why I keep buying the damn dips in things like QQQ’s. The Signals were front-running #Quad3, not #Quad4.
What does that mean, #Quad3? Well, let’s start with what it is not. It’s NOT a static “forecast” in a GIP Model table. You see the static page, but you don’t see the numbers and probabilities of The Quads moving like we do in real-time.
Why did it just move to #Quad3 in Q3?
A) Our GDP Nowcast for Q3 continues to slow (year-over-year) from its Cycle Peak of +12.17% in Q2 to +6.65% in Q3
B) Our US Inflation Nowcast for Q3 just #accelerated (again) to +4.89% in Q3 vs. 4.85% in Q2
When inflation is #accelerating (to new Cycle Highs no less) and Real-Growth (nominal growth minus inflation) is slowing, that’s called #Quad3 Stagflation.
No, it’s not called “mid cycle” or “inventories aren’t as low as consensus thinks.” It’s called QUAD THREE. And we don’t have to ramble on qualitatively about anything else other than what the numbers are doing.
Inventories, by the way, are coming off their Cycle Lows and in what we call Micro #Quad2 (i.e. #accelerating). As I reviewed in our recent Mid Quarter Macro Update, inventories accelerating could be the catalyst for #Quad2 in Q4.
As you can see in today’s Chart of The Day (slide 31 of the Macro deck):
A) Manufacturing Inventory/Sales Ratio is on the left side of the page… and
B) Retail Inventory/Sales Ratio is on the right side of the page
Again, I don’t care what people think they think about consensus on that time-series. It’s plainly obvious to anyone who is trying to play The Macro Game at the highest level. And, yes, I am very confident I know what that says in ROC terms.
On something one of my competitors said the other day (i.e. that the US “consumer is fading”):
A) That’s true, from its recent Cycle Peak, and also true during #Quad3 Stagflation in Real Consumption growth terms
B) But not true in US Labor Cycle terms with US Jobless Claims recently making new Cycle Lows
I’m not long Consumer Discretionary (XLY) because of another player’s narrative. I’ve been out of XLY because:
A) Amazon (AMZN) is 22% of the ETF and its top weight… and
B) My Signal on AMZN remains Bearish @Hedgeye TREND (and my analyst says they’re in #Quad3 fundamentally)
As opposed to what “consensus thinks”, those are the Top 3 Things that matter to me on a Consumer Discretionary read-through: What’s the Factor Weight, The Signal, and The Fundamental. They are empirical facts.
Just like #Quad3 in Q3 Full Cycle Investing Returns are:
A) Our Top 3 Signal Strength #Quad3 US Equity Sector Style Longs remain Tech (XLK), REITS (XLRE), and Utes (XLU)
B) Our Top 3 Signal Strength #Quad3 Shorts/Underweights remains Russell (IWM), Banks (KRE), and Staples (XLP)
While I sent you a Cover (the short) Signal in Real-time Alerts (lower) because my process was signaling higher-all-time SPY highs (and I didn’t want to giveaway money eating that market beta)…
Staples (XLP) has been the worst of those 3 Shorts for me so far in Q3 at +3.7% for Q3 QTD. But not only is the market itself (SPY at another all-time closing high yesterday = +4.2% QTD) beating that stagflating P&L position…
But long Tech (XLK) was up another +1.3% yesterday at +6.8% for Q3 to-date (Utes and REITS are +9.2% and +5.6% QTD, respectively) and another all-time closing high.
All-time, under any macro narrative, remains a long cycle time!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.20-1.38% (bearish)
UST 2yr Yield 0.21-0.26% (bullish)
SPX 4411-4512 (bullish)
RUT 2117-2247 (bearish)
NASDAQ 14,493-15,009 (bullish)
REITS (XLRE) 46.17-47.25 (bullish)
Tech (XLK) 152.92-158.27 (bullish)
Utilities (XLU) 67.48-70.12 (bullish)
VIX 13.14-21.90 (bearish)
USD 92.16-93.52 (neutral)
Oil (WTI) 61.72-71.10 (bullish)
Nat Gas 3.76-4.12 (bullish)
Gold 1 (bullish)
Bitcoin 43,390-50,686 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
