“Can you do this? Do you have to be born this way, or can you learn it?”
- Tim Grover
Can you go from long inflation to #out of it? Can you take and/or lean into a month-end drawdown and capitalize on it? You don’t have to be “born this way.” You have to learn how to play The Game this way.
As Grover says in Relentless: “You don’t have to play basketball like Michael Jordan to have his mindset or mental-toughness… you just need to share his relentless drive for the end result.”
The end result isn’t your “month-end” number. That’s other people’s number. The end of either the GROWTH or INFLATION Cycle is the Full Investing Cycle Investor’s result. Stay with your process.
Back to the Global Macro Grind…
I get it. Plenty of you “feel” the performance pressure of The Game. Been there done that. It’s not like I woke up this morning without knowing the score. I got pounded yesterday.
But there’s a big difference between executing under pressure and being stressed right out.
If you spend your market day trying to figure out and/or blame something or someone else for what is happening, you’re going to miss the next big move.
Questions:
1. Since the #Quad2 in Q4 of 2020 breakout US Equities started, how many times has a panicked and stressed out crowd of consensus sold AFTER declines and chased AFTER rallies to new all-time highs?
A: Too many.
2. Since our Full Cycle call for US INFLATION to #accelerate in JUNE of 2020, how many times did PE Powell and his establishment loving consensus econs call INFLATION “transitory”?
A: Too many
So, isn’t the timing perfect for another US stock market rally to new all-time highs? And for Hedgeye to make an INFLATION Cycle Peak “call” while both consensus and Powell capitulate on inflation?
Question: What would drive that? A: QUAD ONE.
I can use hashtags or go ALL CAPS on you in order to try to make you pay attention to the particular points in Cycle Time that matter. But this is on you. Yesterday, a client told me he missed my #Quad1 email because he gets too many emails.
I get that. But that’s really not my problem! Focus matters. So does filtering out irrelevant Old Wall #Noise.
There’s only 1 firm on Wall Street that is calling for an INFLATION Cycle Peak that also called the bottom in DEFLATION 17 months ago. So whether my end result ends up being right or wrong on this, I want you to #PayAttention.
Question: Who else is paying attention? A: The Bond Market.
To review what actually happens to rates vs. what Macro Tourists think:
A) The Fed doesn’t “raise rates” on the long-end of the curve, The Cycle (and bond market) does
B) The Fed eventually catches up to The Cycle and puts some upward pressure on the short-end
C) If The Cycle is no longer in #Quad2, a late-to-the-inflation-party Fed flattens the curve
In Quad Speak (instead of late and lagging lawyered up Fed speak)… this is precisely what happened:
A) #Quad2 hit its fastest pace of ROC (rate of change) acceleration between Q4 of 2020 and Q2 of 2021
B) UST 10yr Yield went from 0.65% to 1.74% over that Cycle Time and the Yield Curve steepened, big time
C) Financials, Small Caps, etc. crushed it over the course of that Cycle Time … and then the chart chasers chased
Then, #Quad3 in Q3 happened with the Delta Variant #slowing The Cycle and:
A) UST 10yr Yield fell, as it does when Real GROWTH slows and INFLATION is rising (i.e. #Quad3)… and then
B) UST 10yr Yield ramped from 1.2% back towards its Cycle Peak as #Quad2 re-acceleration in Real GROWTH did
Now I think the market is pricing in Goldilocks (i.e. what we’ve always called #Quad1) where the long-end of the curve:
A) Doesn’t make new Cycle Highs because Inflation doesn’t … and
B) It doesn’t break-down like it did in #Quad3 because it’s not Stagflation, it’s Real GROWTH accelerating
Eventually, I think that both short and long-term rates break down for real on a TRENDING basis. That’s what we call #Quad4. No I don’t think the market is pricing that economic scenario in, yet. If and when I do, I’ll make that clear.
For now, it’s #InflationSlowing from its #Quad2 in Q4 Cycle Peak with the prices of both Natural Gas and Nickel being my first two major Commodity breakdowns from Bullish to Bearish @Hedgeye TREND Signals.
I’ll be hosting an Institutional and Macro Pro subscriber Flash Call on all of this tomorrow. Please ping for access.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.41-1.72% (bullish)
UST 2yr Yield 0.44-0.66% (bullish)
SPX 4 (bullish)
NASDAQ 15,428-16,174 (bullish)
RUT 2180-2417 (bullish)
Tech (XLK) 164.94-172.31 (bullish)
Consumer Discretionary (XLY) 203.01-213.74 (bullish)
Financials (XLF) 38.20-40.60 (bearish)
VIX 13.63-29.17 (bearish)
USD 95.24-97.01 (bullish)
Oil (WTI) 65.06-83.61 (neutral)
Nat Gas 4.38-5.14 (bearish)
Gold 1 (bearish)
Copper 4.21-4.48 (neutral)
Bitcoin 53,924-62,562 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
