“No pressure, no diamonds.”
-Thomas Carlyle
If you’re not willing to position for a probable Quad Shift, what are you really doing trying to play The Game at the highest level? Lay up?
The aforementioned quote came from a great chapter in The Art of The Impossible that Steven Kotler titled Grit. “What Carlyle means is that excellence has a cost. The challenge of sustained high-performance is the grind…”
“Grit is motivation writ large – not just the energy it takes to push through a difficult task but the energy needed to push through years of difficult tasks” (pg 65). Every day in this profession should be a good hard grind.
Back to the Global Macro Grind…
Finding big #divergences between what The Hedgeye #Process is seeing vs. what consensus is positioned for is why we grind through literally every major market signal and economic data-series that is reported, daily.
Whether it was “seeing” the Full Cycle Investing breakout opportunity in Commodities in June of 2020 or the short-selling opportunity in Chinese Equities in Q1 of 2021, I’m comfortable saying that what I see isn’t what a Moving Monkey sees.
Right now, consensus sees “slowing US growth” (from Q3) and a tanking “Atlanta GDP Now” number…
What I see is an economic (i.e. Real GDP) GROWTH #acceleration in Q4. The Bond market, Commodities market, and even the Crypto market sees the probability rising of the same thing. I’d prefer that company to linear Old Wall Econs.
Just to put the 3 big US GDP numbers that matter on the board:
- The #Quad2 in Q2 of 2021 year-over-year GDP growth rate was +12.23%
- For what was #Quad3 in Q3 of 2021 we’re nowcasting a #slowing towards +5.33% year-over-year growth
- And we’re nowcasting a #Quad2 in Q4 re-acceleration towards +5.84% year-over-year real GDP growth
If bottlenecks on the cover of Barron’s loosen at all in Q4 vs. Q3, that provides potential for big upside (via the INVENTORY numbers) vs. our +5.84% inasmuch as re-opening on decelerating Covid case counts (higher CONSUMPTION) does.
‘But KM, what’s the downside – where can you be wrong?’
That’s a question I get asked all of the time. I always answer with The Signals & The Quads. If either the market signals change and/or the data slows, I change. I don’t grind through all of this from 4:30-7AM for kicks and giggles!
I think a better question is where can the Atlanta Fed model be wrong?
Just to frame it the way linear Econs generally do, the Atlanta Fed number that Macro Tourists anchor on isn’t the year-over-year GDP growth number I just referred to. Most stare at the headline US Real GDP quarter-over-quarter SAAR:
- As you can see in the Chart of The Day, that’s the +1.33% forecast of the Atlanta Fed vs. ours at +3.75%
- The way to read that is our +5.33% y/y nowcast for Q3 imputes +3.75% q/q … and the
- +1.33% Atlanta Fed number imputes +4.70% year-over-year
Since it’s not the average of things that matters in macro, the particular thing you should have noticed on that chart is that our headline US GDP Nowcast for Q4 of 2021 has #accelerated to +6.42% q/q. That’s almost a 4-bagger vs. Atlanta Now!
Do I have to be right on a 4-bagger? Of course not. I certainly don’t have to be right on the “why” either. The numbers are going to do what the numbers are doing. Ours went up on last week’s ISM Services #acceleration. Atlanta’s did not.
More importantly, what are the Tourists going to do if/when the Atlanta Fed numbers start going up again from +1.33%? What would “cause” that here in October and then throughout November-December (i.e. Q4 not Q3)? A: case counts.
Why it’s getting no Old Wall media airtime is beyond me, but US Covid case counts dropped another -34% last week vs. -11% in the week prior taking the 1-month decline in case counts to -52%.
We already know what the long-end of the Yield Curve thought about that. This morning we’re getting a breakout in the short-end with UST 2yr Yields busting a move to +0.35%. There’s only one Quad where that happens and that’s #Quad2.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.44-1.63% (bullish)
UST 2yr Yield 0.26-0.36% (bullish)
SPX 4 (bullish)
RUT 2 (bullish)
NASDAQ 14,271-14,840 (bullish)
Utilities (XLU) 63.09-65.62 (bearish)
Energy (XLE) 51.88-57.49 (bullish)
Financials (XLF) 37.40-40.12 (bullish)
Shanghai Comp 3 (bearish)
VIX 16.26-24.14 (bearish)
USD 92.79-94.48 (neutral)
Oil (WTI) 74.39-81.56 (bullish)
Nat Gas 5.17-6.24 (bullish)
Gold 1 (bearish)
Copper 4.08-4.40 (bullish)
Bitcoin 47,620-60,291 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
