“Reflective statements + questions = reflective inquiry.”
- Marcia Reynolds
To a degree, that statement from Coach The Person, Not The Problem simplifies how we think about The Game. That said, overthinking the “why” can leave you short of solving for the most important aspect of Full Cycle Investing: solving for when.
I’m reading this book right now because A) a subscriber sent it to me as a different angle on what I generally coach and B) I always have to improve at coaching. She calls it A Guide to Reflective Inquiry.
“In 1910, Dewey defined the practice of Reflective Inquiry in his classic book, How We Think. As an educational reformer, Dewey wanted to change the practice of dumping information into student’s brains and then testing their memorization skills. He defined methods of inquiry that would prompt students to doubt what they thought they knew so that they were open to expansive learning.” -pg 11
Back to the Global Macro Grind…
What was most important about this recent breakout in both Commodity prices and Bond Yields, the “why” or the when? Since I am not an intellect, I will usually disappoint you on explaining every little bit about why. I signal when.
When do interest rates breakout to the upside? A: #Quad2.
Yes, the INFLATION component of #Quad2 is glaringly obvious to anyone who is long of Commodities, as an Asset Class. I have no idea how someone’s “process” doesn’t see new Cycle Highs in prices as real-time economic signals btw:
A) CRB Index (19 Commodities) hit a new Cycle High of 228 yesterday (yes, pre this morning’s move in Energy prices)
B) Oil (WTI) is inflating another +1.4% this morning, after inflating +10.0% in the last month, to new Cycle Highs
C) Natural Gas has gone vertical, inflating another +6.5% this morning to new Cycle Highs
D) Coal and Cotton have inflated another +19% and +9%, respectively, in the last week alone
Obviously this isn’t “mid cycle” for Commodities and/or INFLATION.
We’ve been long of Commodities since June of 2020 and this is heading to Peak Cycle. There’s a big difference between having the humility to let the gravity of a cycle play itself out and trying to tell The Cycle what to do next!
On the Real GROWTH side of the economic debate, “why” isn’t it still #Quad3 (real growth slowing) in Q3? A: It’s Q4.
And what, Mr. Global Inflation Accelerating (Q4 Macro Theme presented last week) guy, gives you an idea that real GROWTH will re-accelerate in Q4 vs. Q3? A: The ROC (rate of change) of COVID Case Counts #decelerating:
A) Japanese covid cases #decelerated, big time, by -54% week-over-week
B) Chinese covid cases #decelerated, big time, by 45% week-over-week
C) US covid cases #decelerated, big time, by -40% week-over-week
D) European covid cases #decelerated by -11% week-over-week
But “why”? Well, let’s just start with why not? As you can see in slide 44 of our Q4 Global Macro Themes deck, Delta dented macro momentum, big time, in August:
A) Covid #accelerated
B) Consumer Confidence fell
C) Services Consumption slowed
D) Employment slowed
Now think past your nose (let the bond market give you a little sniff too) and tell me what you think happens if THE causal factor in growth slowing reverses…
Most importantly, who wants to be long “defensives” (Utes and Staples), Long-term Treasuries, and Gold on that? A: not me.
If your process is not only driven by real-time market prices, but the volatility of those prices AND the Factor Exposures that The Machine cares most about, this is what you’d have noticed yesterday (in addition to IWM up and TLT down):
A) HIGH DEBT, as a Factor Exposure, was +1.5% on the day = #Quad2 Long
B) HIGH BETA, as a Factor Exposure, was +1.4% on the day = #Quad2 Long
C) HIGH SHORT INTEREST, as a Factor Exposure, was +0.9% on the day = #Quad2 Long
D) Utilities (XLU) -1.2% and Staples (XLP) -0.5% on the day = #Quad2 Shorts
If you do objective data-drive ROC (rate of change) research, you’d have also noticed yesterday that, despite the Delta Variant’s impact on slowing consumption in August, US CAPEX #accelerated!
Oh yeah, baby. The 2-year growth rate of US Capital Goods Expenditures #accelerated to +8.5% growth vs. +8.2% in July. And, of course, no US stock market bear or equally-weighted 60/40 pie chart Asset Allocation person mentioned it.
Why? Do we care why consensus was epically net SHORT Natural Gas or getting all beared up on US growth and inflation right as Hedgeye’s Nowcasts for both were getting more bullish? Nope. We're too busy focusing on the next when to get you in/out.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.35-1.55% (bullish)
UST 2yr Yield 0.23-0.32% (bullish)
SPX 4 (bullish)
RUT 2190-2297 (bullish)
NASDAQ 14,665-15,392 (bullish)
Tech (XLK) 151.60-159.22 (bullish)
Utilities (XLU) 63.01-66.78 (bearish)
Energy (XLE) 47.80-54.11 (bullish)
Financials (XLF) 37.10-39.95 (bullish)
Shanghai Comp 3 (bearish)
VIX 15.01-22.28 (bearish)
USD 92.41-93.59 (bearish)
Oil (WTI) 70.73-76.72 (bullish)
Nat Gas 4.93-6.21 (bullish)
Gold 1 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
