"We hold these truths to be self-evident …"
- Declaration of Independence
It used to be that if you wanted to inject some gravitas, import some credibility or conjure some quick deference in a thought piece, you needed only lead with some stoic Founding Fathers reference.
That literary hack no longer suffices. Institutional distrust and the decentralization zeitgeist remain ascendant and combined with the evolution towards the collective attention span of a puppy, mind and attention share is now captured by effectively seizing the memes of production (h/t @punk6529).
Back to the Global Macro Grind…
Q: Know what else (metaphorical) puppies like?
A: Bullet points …. Self-evident, pseudo-satirical bullet points.
Starting on the price side of Macro. KM hit on CPI yesterday, so I’ll broach the inflation discussion but from a different angle … which is really the same angle with a different veneer … which is fine since nothing cultivates “self-evidence” like all roads really being the same road with the same ultimate destination.
- IF, THEN …. Tuesday’s NFIB showed Jobs Hard to Fill, Quality of Labor, Compensation, Higher Selling Prices and Hiring Plans all making fresh ATH’s. In other words, every metric associated with labor tightness and demand-supply imbalance with flow through to current and prospective prices were the highest ever, again. If already historic demand-supply imbalance are becoming more acute, in the labor market specifically and across macro more generally, then surely that is disinflatory for prices nearer-term. #ProbablyNothing.
- IF, THEN … But the NFIB data are for August and everyone knows Delta dented macro activity in August. Well, the September Empire Mfg Survey (1st September release) would like to see your August cynicism and raise you a quantum of non-transitory. Unfilled Orders summited a fresh ATH while Delivery Times hit a 20 year high. If activity is at productive capacity and unfilled orders continue to pile, then surely that is disinflationary for prices nearer-term #ProbablyNothing
- FOOD, DUDE! … Global Food Prices = highest in 60 years .. It’s not like the inability to eat has a colorful history of cultivating social unrest or anything. #ProbablyNothing
- HIGH ALTITUDE HEROICS …. Nat Gas Prices have gone vertical, Iron/Steel PPI is up in the nosebleed seats, Energy is BULLISH and Container Shipping Prices have literally been up every day for like 500 straight days. Surely those prices, which have definitely not been (fully) passed on to consumers, will fully retrace in quintessential transitory fashion over the next week. #ProbablyNothing
- Yawning Gap … The Spread between PPI and CPI is the highest in over 4 decades. Ostensibly, this implies a few things. Either CPI recouples higher, margins get squeezed or supply/production constraints resolve and we get a meeting-in-the-middle of sorts. Note that none of those scenarios presage an imminent extrication from sticky high prices. Of course, a reliable cure for high prices remains high prices (via negative feedback to demand) but that feedback loop also doesn’t occur over a one month (or one quarter) period … and wholesale price growth hasn’t even peaked yet!
- CAFFEINATED COLA … Pervasive, non-transitory price pressures are set to drive the largest COLA adjustment in like forever (since 1982). As it stands, social security benefits are set to see a +6% increase beginning in 2022.
- AUTO-PILOT (LOWER)….. We’ll get the latest read on Goods Consumption with August Retail Sales this morning. Recall, the forward trajectory for Retail Sales is being defined by two principle factors, one specific and one global. Broadly, Consumption renormalization away from pandemic amplified goods spending in the direction of Services will continue to progress. More specifically, chip shortages have caused a massive decline in new auto inventory which, combined with high prices, have dampened sales volumes. Auto Sales were down -11.5% M/M and -14% Y/Y in August. Remember, Auto Sales represent ~20% of Headline Retail Sales – and comps only steepen from here.
- CRINGE … To oversimplify: Covid cases up = incremental demand down & supply constraints up = prices up (what the delta impacted macro mosaic was signaling in Aug) = stagflationary. Moreover, hiring woes mean supply renormalization gets pushed out further. There are two ways (at least) to think about this … prices will rise but if demand slows due to both delta & high prices then some of the inflationary pressure will abate. But if supply conditions pressure price higher while aggregate income + savings + Fed-Fiscal support demand, then demand will only really be time-shifted and imbalances will persist.
- HURRY UP AND WAIT …. Delta was on (most) conspicuous display in Aug NFP. Softer labor is good to the extent it keeps policy urgency subdued. But it probably also means that larger wage hikes are necessary. Job growth is tied to pandemic evolution and policy is tethered to jobs evolution … but the impacts are likely disproportionate. That is, demand is still strong (or it will decline less, relatively) and to the extent oscillating covid dynamics impact hiring then it will have a disproportionate impact on supply … which means the imbalances that have perpetuated price pressures will remain or become more acute nearer-term.
- THEN WAIT A LITTLE LONGER …. Again, labor remains the fulcrum factor in demand-supply renormalization, both locally and globally. Moving past peak delta along with the expiration of extended/enhanced UI benefits will likely support domestic labor supply and a rebound in net hiring in the coming month(s) (the Empire Mfg data is showing some fledgling signs of that). If that occurs, we’ll see a rebound in Services demand (and supply). Also, to some extent, current supply constraints = tomorrow’s growth. While the delta related speedbump likely just = deferred consumption that will re-emerge in 4Q, multi-decade/ATL’s in inventory-to-sales ratio’s and unfilled orders means current production will remain strong and inventory restocking will be a protracted support (i.e. it will takes years to renormalize auto deal inventories). This dynamic is what anchors the rising probability of a move back to Quad 2 in 4Q.
- Analytical Intermission (RANT) … You can’t be a perma-doom mongerer claiming that the Central Bank perpetuates inequality via asset price inflation (b/c the rich disproportionately own financial assets) while simultaneously being bearish on markets because of central bank manipulation. Conceding that CB intervention drives up asset prices but being bearish on asset prices b/c of pervasive central bank interventionism makes no sense. Please stop it.
Crypto: Admittedly, I’ve been more immersed in crypto than “conventional” macro of late. However, to the extent crypto, DLT and blockchain innovations are set to innervate the financial, social and household economies, arguing that crypto is macro isn’t a particularly large conceptual leap.
So, for the Chart of the Day below, we’ll leave you with a soft tease as it relates to our ongoing foray into on-chain analytics and our continued evolution towards dedicated crypto coverage.
Q: Any guesses on the largest open interest position for ETH as investors look to 2022?
A: $50K
#ProbablyNothing!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.26-1.40% (neutral)
UST 2yr Yield 0.19-0.25% (bullish)
SPX 4 (bullish)
RUT 2 (neutral)
NASDAQ 15,002-15,498 (bullish)
REITS (XLRE) 46.41-49.31 (bullish)
Tech (XLK) 156.03-160.52 (bullish)
Utilities (XLU) 67.55-70.49 (bullish)
Energy (XLE) 47.22-51.10 (bullish)
Shanghai Comp 3 (bearish)
Nikkei 28,991-31,018 (bullish)
DAX 15,500-15,965 (bullish)
VIX 15.06-21.05 (bearish)
USD 92.02-92.90 (bearish)
EUR/USD 1.176-1.191 (bullish)
Oil (WTI) 68.45-73.32 (bullish)
Nat Gas 4.53-5.55 (bullish)
Gold 1 (neutral)
Best of luck out there today,
Christian B. Drake
Macro Analyst
