“We have been conditioned to think of time as linear.”
- Aidan McCullen
The average amount of time an American adult spends reading is around 7 minutes per day.
If you have linear-econ-thinking, backward-looking, and biased friends who don’t read ROC (rate of change) numbers at all, tell them to look at the two pictures on pages 50-51 of Undisruptable that McCullen called Recalibrating Time.
Pictures often simplify the complex. That’s why I made Bob Rich a Partner @Hedgeye. He’s a beauty. His cartoons are better than I’ll ever be at communicating where we are in The (non-linear) Cycle.
Back to the Global Macro Grind…
Are you out of Commodities, yet? Are you shorting them? Why not? My #VASP says you should be.
“Linear mindsets assume what worked yesterday will work today… and what worked today will work tomorrow.”
- Aidan McCullen
No, the #VASP (Volatility Adjusted Signaling Process) isn’t suggesting you sell/short EVERY commodity. It’s currently saying you should be short the Index (CRB Commodities Index) and both Oil (USO) and Gas (UNG), however.
Giving non-linear credit to what happened yesterday (that may not happen coming out of the Fed meeting tomorrow), realize that my Risk Range™ Signal Strength on shorting Commodities strengthens during Policy Mistake concerns.
What would be a Fed Policy Mistake?
A) Going hawkish on INFLATION right AT THE CYCLE PEAK… and
B) Tightening into a #Quad4 economic slow-down
Been there, done that. We made that market crash call when #Quad4 was about to hit in Q4 of 2018. That was PE Powell’s rookie mistake. And while there’s always a chance he makes the same mistake twice, I’m not currently betting on that.
That doesn’t mean he won’t make a mistake.
All we need are more #Quad4 Cross Asset Class market risk days like yesterday and … drumroll… his boys at Carlyle will remind Powell of his 2018 Christmas mistake…
What does a #Quad4 in Q4 of 2018 look like?
A) Rates down, across the curve
B) High Yield Spreads widening alongside Commodities Deflating
C) Large Cap tech stocks collapsing alongside Small Caps
Ex-Tech crashing, all of that was happening yesterday. So now it’s the Big Boy’s job to fix his “communication tools”… and, voila, we could be right back at another new SPY all-time high come week’s end. Haha
Gotta love The Game and being humble enough to know that, unless you’re illegally plugged into what Powell is going to say next on The Question (Policy Mistake or not)… you have no idea.
Yep, that’s The Game most people in officialdom signed off on. It’s grossly levered. It’s sad. But it is what it is.
In the meantime, the best I can help you do is make the highest probability bets that will work in both the current #Quad1 Disinflation Cycle and anything that manifests into what we call a Narrow #Quad4.
After 6 straight quarters of US #InflationAccelerating:
A) 5 out of 6 quarters were #Quad2 (i.e. the healthy kind of nominal inflation and real GROWTH #accelerating)… and
B) 1 out of 6 quarters was #Quad3 in Q3 of 2021, which we call Stagflation, or real GROWTH #slowing
In 10yr UST Bond Yield terms:
A) That’s why the UST 10yr Yield put in its Cycle Peak during the fastest pace of Real GROWTH (Q2 of 2021)… and
B) Fell as real GROWTH #slowed into the lows of Q3, then re-tested its Cycle Peak, twice, in OCT-NOV 2021
And that, I think, was it. That’s why I bought 7-10yr Bonds (IEF) last week.
If the Fed wants to keep pressuring the short-end (2yr) higher in the face of #InflationSlowing and Real GROWTH really #slowing in Q2 of 2022, that will only make my Commodity SELL Signals build Risk Range™ Signal Strength.
And it’s not just Oil (USO) & Gas (UNG) that broke @Hedgeye TREND Signal support levels in recent weeks. These other things that I call Commodities (because of their historical Volatility attributes) in Crypto are breaking down too.
That implies that this time could be a LOT different for bubble blowing PE Powell. If he makes another Policy Mistake, he’ll blow up a LOT more than his PA. What are there, 150 million Crypto users? Elon better sell a LOT of merch in Doge, fast!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.34-1.55% (neutral)
UST 2yr Yield 0.54-0.74% (bullish)
SPX 4 (bullish)
NASDAQ 15,001-15,931 (bullish)
RUT 2130-2280 (neutral)
Tech (XLK) 167.20-176.94 (bullish)
Consumer Discretionary (XLY) 197-210 (bullish)
Housing (ITB) 77.24-85.00 (bullish)
VIX 15.19-25.37 (bearish)
USD 95.69-96.68 (bullish)
Oil (WTI) 64.12-73.96 (bearish)
Nat Gas 3.38-4.32 (bearish)
Bitcoin 43,704-55,242 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
