“Great coaches lie awake at night thinking about how to make you better.”
- Ronnie Lott
That’s what a 4x Super Bowl Champion and 10x Pro Bowler said about the similarities between the two best coaches he’s ever had, Bill Walsh and Bill Campbell.
I get that. I woke up at 2:18 this morning – couldn’t sleep.
Why? That generally doesn’t happen to me. But, after being dead wrong on rates for 3 days, it’s definitely in my head. Is the Fed about to make a policy mistake or am I making one on rates?
I definitely have a heightened sense of responsibility right now. Lots of people follow our #process. And I don’t want to f this up. When The Trillion Dollar Coach, Bill Campbell, was asked about “what keeps him up at night?”:
He said, “it’s the people – the top priority of any coach should be the well being of their people.” (pg 41)
Back to the Global Macro Grind…
The good news is that, unless my Carlyle buddy Powell f’s this up today, I won’t see Day 4 of #DeadWrong. The UST 10yr Yield is down -7 basis points in the last 24 hours. I’ll sleep better if the CPI decels tomorrow.
In the meantime, almost everything that had our Macro Team calling for #InflationAccelerating and a #Quad2 in Q4 breakout in US Interest Rates, is already decelerating.
Yep, two of the biggest 2021 beast-mode breakouts in our INFLATION Nowcast:
A) USED CAR PRICES (Manheim Index)
B) US HOME PRICES
Have arrested their ROC (rate of change) inflations and are #decelerating to lower-highs alongside EVERY single Commodity that we measure and map, daily.
And what’s the catalyst for ALL of these things to go from disinflation to outright #Quad4 DEFLATION?
A) A Fed Policy Mistake
B) The Cycle
So, that’s the update. If the Fed wants to do what the ECB (European Central Bank) said there’s no hope on this side of central planning hell of happening (rate hikes)…
Then buy Developed Market European stocks instead of US stocks.
The macro market already agrees with that idea. After being UP +0.9% last week, France’s stock market is up another +1.3% this morning. It’s Top 2 alongside Switzerland (EWL) in terms of European Risk Range™ Signal Strength.
Unlike the USA which has the following Conditional Probabilities of hitting #Quad4:
A) 52.6% in Q1 of 2022 (vs. #Quad1 in 2nd place at 30.8%)
B) 93.8% in Q2 of 2022
Our modal Quad outcomes for most major European countries is for disinflationary #Quad1 in Q1. Despite that bullish conditional (and relative) probability, the ECB’s Lagarde just said she’s “unwavering” in not raising rates.
And the guys doing “God’s work” at Goldman are calling for 4 hikes?
Haha. I recommend prayer to all of those fancy new “Factor Baskets” that the boys and girls on the Goldman desk are building for their hedge fund clients. By the 4th hike Goldman Prime Brokerage might be bankrupt!
So, I guess, if I’m wrong… my mistake will turn into everyone else’s mistake and the Fed will blow the bubbles that are already popping to kingdom come. By everyone, I mean everyone this time (read: everyone who’s long “Crypto” too).
If they aren’t yet numb or dumb enough to blow up Crypto and High Yield bubbles in unison, the 10yr Yield has immediate-term downside to 1.44% (that’s down -30 basis points in a straight line from here)…
And there’s still a chance that the free-money-forever pool of liquidity re-ramps SPY to yet another all-time high. That’s what happens in Narrow #Quad4. In a deepening #Quad4 (which we’re expecting in Q2), not so much.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.44-1.84% (bullish)
UST 2yr Yield 0.68-0.94% (bullish)
SPX 4 (bullish)
NASDAQ 14,648-16,106 (neutral)
RUT 2149-2301 (bearish)
Housing (ITB) 74.33-85.07 (bullish)
REITS (XLRE) 48.21-52.75 (bullish)
Shanghai Comp 3 (bearish)
DAX 15,668-16,292 (bullish)
VIX 15.52-21.50 (bearish)
USD 95.54-96.53 (bullish)
Oil (WTI) 74.69-80.14 (bullish)
Nat Gas 3.53-4.18 (bearish)
Gold 1 (bullish)
Copper 4.30-4.49 (neutral)
Bitcoin 40,002-48,103 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
