“Don’t be so open-minded that your brain falls out.”
- G.K. Chesterton
I like that quote. Don’t be so open-minded that you forget to position yourself for deep #Quad4 in Q2. We’re still in Q1, don’t forget.
Tony Robbins used that quote effectively in a book I’m in the middle of reading called Life Force. Yes, it’s a health/lifestyle book. He writes about making yourself “the CEO of your own health.” I like that too.
“Experts should be our coaches, but not our commanders. When it comes to your family, faith, and finances, only you can make the critical decisions. Because, in the end, you must live with the results that your decisions create.” (pg 19)
Back to the Global Macro Grind…
“So”… have you heard about inflation and/or Putin? How about the difference between Disinflation and Deflation? Have you heard about The Quads? Oh, I know you have. But, really, how many of you really understand their calculus?
Josh Steiner, Christian Drake, and I spend a LOT of time talking to Institutional clients about the ROC of The Inflation Cycle these days. While I made a well-timed #Quad4 Deflation call on JAN 30th of 2020. That’s not the “call” we’re making today.
Disinflation is as disinflation does in our proprietary GIP (Growth, Inflation, Policy) Nowcast:
- We have the headline Inflation Cycle peaking in Q1 of 2022 at 7.73%
- We have an initial Disinflation of Peak Cycle Inflation to 7.24% in Q2 of 2022
- We have headline CPI #slowing towards 6.48% and 5.45% in Q3 and Q4, respectively
No, I am not going to write you a white paper on “why.” I am just going to do what I always do with my family’s hard earned capital, and I am going to execute on those ROC (rate of change) slowing nowcasts with my #VASP (Volatility Adjusted Signaling Process) leading me.
The simplest reason on the beloved “why” is math:
A) As you can see in the Chart of The Day, the 1yr base effect goes from 1.90% to 4.85% from Q1 to Q2
B) In case you didn’t know that that’s the steepest quarterly ascent in Inflation’s base effect, now you know
C) The higher inflation readings go in FEB and MAR, the faster inflation slows at this time next year
“But, but… Putin… and supply chain disruptions… and the 1970s…”
I hear you brothers and sisters, but guess what? The aforementioned Inflation Nowcasts embedded $120 Oil and Nickel to the moon. Today, Oil is already -20% lower and breaking what we call immediate-term @Hedgeye TRADE support of $100.98/barrel.
What if I put @Hedgeye TREND support for WTI ($89.34/barrel) in the model instead of $120 or $130?
A) Our Nowcasts for Inflation will fall, faster, especially in Q3 and Q4… and
B) If the Fed tightens 7x into that with GDP #slowing sequentially from 7% during #Quad2 in Q4 of 2021 towards 0%... then
C) You’re going to keep seeing some serious DEFLATION in Equity and Credit market prices
Oh, no you didn’t… you didn’t use the D-word in the F-Bucket of Equity market volatility, did you?
Of course I did. While we have Disinflation in the “Softs” (Soy -3%, Sugar -3%, Coffee -2%) again this morning, we have outright crashes and deflations of Global Equity market prices including those in the USA:
- Hong Kong’s Hang Seng was down another -5.7% overnight, crashing -24.4% in the last month alone
- Russia’s Ruble and stock market #crashed and the latter closed
- Russell 2000 and NASDAQ #crashes from their #Quad2 Cycle Peaks in NOV 2021 = -20.5% and -21.6%, respectively
Long before Russia/Ukraine, what were the #Quad4 Country Factor Exposures we were trying to help you risk manage?
A) Hong Kong (for all of last year)
B) Russia late last year
C) USA this year
I know. It wasn’t the white walkers or white papers that gottem. It was the gravity. And, after getting tagged being long Duration (Treasuries) yesterday, I suspect I’ll have a better than bad day as the only note on Disinflation hits Institutional investor inboxes.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.69-2.15% (bullish)
UST 2yr Yield 1.38-1.88% (bullish)
High Yield (HYG) 79.10-82.06 (bearish)
SPX 4105-4285 (bearish)
NASDAQ 12,401-13,301 (bearish)
RUT 1 (bearish)
Tech (XLK) 138-151 (bearish)
Energy (XLE) 70.83-78.75 (bullish)
Utilities (XLU) 68.10-72.33 (bullish)
Shanghai Comp 3033-3352 (bearish)
Nikkei 24,240-25,996 (bearish)
DAX 12,610-14,105 (bearish)
VIX 28.32-37.97 (bullish)
USD 97.17-99.78 (bullish)
Oil (WTI) 96.94-123.20 (bullish)
Gold 1911-2047 (bullish)
Copper 4.35-4.80 (neutral)
Bitcoin 36,205-43,990 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
