“Personality doesn’t scale. Biology scales.”
- Steven Kotler
In case you don’t know who Kotler is, he’s the author of multiple #behavorial books that I have cited over the years and also the Founder of The Flow Research Collective. From Minneflowta hockey hair to the ROCs (rates of change), I love the flow!
The aforementioned quote comes from Kotler’s most recent book, The Art of The Impossible – A Peak Performance Primer. Striving to be the best at what you do isn’t for everyone, or everyone would do it.
“It’s a practical book for impractical people… it’s for those of us with completely irrational standards for our own performance and totally unreasonable expectations for our own lives.” I loved that too.
Back to the Global Macro Grind…
On the INFLATION side of my book, yesterday was a peak performance day. Commodities, as an Asset Class, inflated to new all-time highs as inflation continued to broaden across hard assets that many Institutional Investors still don’t own.
On the real GROWTH side of The MFO, not so much. In fact, in terms of my Large Cap Growth and Tech (XLK) Longs, including a single stock position in Microsoft (MSFT), it was a terrible day.
And today is a new day.
On the two Factor Exposures that matter most (GROWTH and INFLATION) in my #process, my recent positioning for #Quad2 in Q4 in both the USA and Europe should be very easy to understand:
A) INFLATION isn’t “transitory”, it’s a TRENDING Asset Allocation that we’ve been long since June of 2020
B) GROWTH decelerated during #Quad3 in Q3 … and
C) Both my #process and the Bond Market are expecting it to re-accelerate in Q4
On the INFLATION part, front-running my own proprietary Quad model, it wouldn’t be hard to see upwards of +6% headline inflation in Q4 (as long as the US government states OER, Owner’s Equivalent Rent, where market prices are).
In addition to what most Macro Tourists at Bloomberg can finally see (their headlines on “transitory” were aligned with the Fed’s view for most of the way up, until yesterday, when their confirmation biases got inflated by Oil’s breakout to $78):
A) Coal inflated another +5.1% yesterday to +34.8% in a month
B) Palm Oil inflated another +3.1% to +9.1% in a month
Yes, I am cherry picking things that most Old Wall types that only do equities wouldn’t see until it’s too late. Do you know how many people in this world consume 75 million metric tons of Palm Oil per year btw?
If you have friends who completely missed being long Commodities, as an Asset Class, and/or sold their Oil, Gas, and Energy Stocks (XLE, XOP, etc.) back in August because their Moving Monkey “broke” at $62/barrel, it doesn’t really matter this AM.
What always matters is what you do next.
On the Real GROWTH side of the debate, here’s the setup:
A) Real US GROWTH got cut in HALF, in ROC terms, from +12.18% year-over-year in Q2 of 2021 to < 6% in Q3
B) The peak in Delta Variant cases (and Variant Deflation/Duration narratives) came in the back end of Q3
And now, it’s A) October, which means it’s B) Q4 (not Q3)… and even the cover of Barron’s knows about bottlenecks. So… what happens if more companies say what, pardon the pun, Delta Airlines (DAL) said about the other Deltas last night:
A) They had to take down their numbers due to covid’s re-acceleration in August… but now
B) “Ticket sales have stabilized and improved” as of late alongside covid case counts slowing
Is that why Airlines charts look like bond yields now? Yes, if you really need a #GrowthSlowing chart to confirm your Long Treasuries (TLT) and Gold (GLD) positioning (I shorted Gold yesterday because it’s a short in #Quad2 with Real Rates rising):
A) US covid cases #slowed -40% week-over-week 2 weeks ago… and
B) Just slowed another -23% week-over-week in the most recent week
So… let’s just say that this ROC relationship of #slowing covid matters as much as #accelerating covid did… and that the Bond Market is smarter on market-timing than anyone reading this (Bond Yields fell during #Quad3 in Q3, don’t forget).
Or maybe it’s not. Maybe the same people who said the Oil/Energy “charts” were breaking down in August have it right for once and AFTER a -5.2% bull market correction in SPY, the world is about to end again.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.38-1.62% (bullish)
UST 2yr Yield 0.23-0.33% (bullish)
SPX 4 (bullish)
RUT 2185-2277 (bullish)
NASDAQ 14,140-15,274 (bullish)
Tech (XLK) 146.32-158.70 (bullish)
Utilities (XLU) 63.13-65.90 (bearish)
Energy (XLE) 49.18-55.67 (bullish)
Financials (XLF) 36.98-39.22 (bullish)
VIX 15.94-25.17 (bearish)
USD 92.61-94.31 (bearish)
Oil (WTI) 72.21-77.98 (bullish)
Nat Gas 5.06-6.24 (bullish)
Gold 1 (bearish)
Bitcoin 40,712-50,308 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
