“It’s a rare person who wants to hear what they don’t want to hear.”
- Dick Cavett
Let’s say you went to Cash at VIX 28 in September and/or have been positioned “defensively”, long deflation/duration, etc. during #Quad2 in Q4. After your only real up day in Q4, do you want to read a header that says “buy the damn dip”?
How about “sell the rip” in long-term Treasuries (TLT)?
Like Jack Morris on this day in 1991 (Game 7 of the World Series where he told his manager that he didn’t give a f about his pitch count, on his way to a 10 inning shutout win for the Twins), I don’t tell people what they want to hear.
Back to the Global Macro Grind…
Oh, so you want to hear a scary story about the “yield curve flattening” this morning? Oooh, spooky…
Let’s just start with a refresher on why both the 2 and 10yr Yield have been signaling Bullish @Hedgeye TREND breakouts since that September VIX moment where plenty of players got spooked:
A) UST 2yr Yield ONLY breaks out during #Quad2 economic conditions
B) UST 10yr Yield ONLY breaks out during #Quad2 economic conditions
That’s “why” C) both 2s and 10s have been signaling Bullish @Hedgeye TREND. And now that both ye Olde Wall consensus economists AND the Fed are behind the curve on both GROWTH and INFLATION, there’s some real daily pin action.
But don’t confuse the TRADE (immediate-term moves) with the Full Investing Cycle (Quads) TREND.
This super short-term “flattening” of the curve happened in a hurry yesterday:
A) Because there was major Volatility (see MOVE index = 70) in the short-end of the curve yesterday … and
B) The long-end was trading on the economic reality of a big Down Oil day and SEP #GrowthSlowing data
On A) I don’t have enough time on my Early Look clock to unpack why major Fixed Income managers have to move when The MOVE (treasury bond volatility index) moves like that…
But, let’s say you’re expecting a big #Quad2 US Jobs report (like we are next week) – then you better move!
On B) while the short-end of the curve moves on Fed Rate Hike Expectations (yes, during #Quad2 the market RAISES rates for the Fed, not the other way around), the long-end moves on perceptions of economic GROWTH and INFLATION:
A) Oil down, hard, in conjunction with Commodities correcting from the day prior’s Inflation Cycle High mattered…
B) Durable Goods #slowed in SEP to +15.3% year-over-year growth from +17.6% in AUG = #Quad3 in Q3
Let’s set aside that both Durable Goods and US Capex #accelerated on a 2-year TREND basis (that’s why the 10yr Yield can start going back up again from here towards 1.72%, and the curve should steepen again, short-term)…
And navel gaze for one more moment at “why” bond yields fell and the curve flattened during #Quad3 in Q3…
I’m pretty sure everyone you forward this to knows that SEP is in Q3 and by next week it will be November. In case they don’t, remind them that it’s #Quad2 in Q4 (see OCT Consumer Confidence re-accelerating and Ford’s outlook this AM)…
And that this is where you stop worrying about the latest Macro Tourist narratives about the bond market… and use this as an opportunity to buy the damn dip in everything from Bitcoin to the Financials (XLF) and Small Cap Value (IWN).
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.52-1.72% (bullish)
UST 2yr Yield 0.39-0.57% (bullish)
SPX 4 (bullish)
RUT 2 (bullish)
NASDAQ 14,902-15,368 (bullish)
Tech (XLK) 154.98-161.46 (bullish)
Energy (XLE) 56.28-59.43 (bullish)
Financials (XLF) 38.99-41.05 (bullish)
Shanghai Comp 3 (bearish)
VIX 14.35-17.87 (bearish)
USD 93.07-94.11 (bearish)
GBP/USD 1.366-1.387 (bullish)
USD/CHF 0.914-0.926 (bearish)
Oil (WTI) 81.01-84.95 (bullish)
Nat Gas 5.11-6.11 (bullish)
Gold 1 (bearish)
Copper 4.34-4.86 (bullish)
MSFT 303-326 (bullish)
Bitcoin 58,004-66,132 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
