“The physical world could only be modeled by distributions and sets that had fractal dimensions.”
- Ralph Gomory
While PE Powell was talking up his strong and powerful “tools” yesterday, I couldn’t help but look over my left shoulder at one of the most influential textbooks that I’ve ever read… thinking this guy really is a lawyer who has absolutely no idea how to model macro.
For those of you who do modern day math, you’ll know who Ralph Gomory is. He’s the Princeton Ph.D. who effectively created Applied Mathematics and had a successful career as an exec at IBM.
The aforementioned quote is how he introduced Mandelbrot’s 1997 textbook: Fractals and Scaling in Finance – Discontinuity, Concentration, and Risk. Twenty-five years later, both the Fed and it’s Old Wall establishment of linear Econs have neither an idea how to explain what we do every day nor an accurate Nowcast for GROWTH or INFLATION that you should believe.
Back to the Global Macro Grind…
At the same time that Powell was telling reporters that they shouldn’t pay attention to his individual forecasts for the economy (that was actually honest advice) he was as confident about the “Committee’s tools” and US GDP Growth forecasts?
The Fed’s outlook on GROWTH is as far off from Hedgeye’s today as their INFLATION forecast was at this time last year. That means that if both I and Mrs. Market are right on Deep #Quad4 #GrowthSlowing in Q2, the Fed is already making a Policy Mistake.
‘Oh, but KM… he’s a nice guy … and stocks were up yesterday… so the market likes Powell’s plans.’
Yeah, and on St. Patrick’s Day, this 47yr old Canadian-Irishman will remind you why you shouldn’t borrow money from a leprechaun or a forecast from the Fed (because they’re always a little short!).
Lol. Just a little cheese for you on that Irish joke this morning, eh. How about we get back to modeling both markets and economies like Mandelbrot did, fractally. Let’s start with some key ABC questions:
A) Is the US economy already slowing, sequentially, from +7% in Q4 towards 0% in Q1? A: yes.
B) Is Q2 going to be slower, in year-over-year ROC (rate of change) terms, than Q1? A: yes.
C) Are the GROWTH Signals in both Equity and Credit markets already signaling A & B? A: yes.
What is my #VASP (Volatility Adjusted Signaling Process) signaling on ABC?
- Both the UST 10yr and 30yr Yields stopped going up within minutes of the rate hike
- The Yield Curve got properly pancaked and is at new #Quad4 Cycle Lows of +20bps on 10s/2s this AM
- High Yield OAS Spread remains in fractal Bullish @Hedgeye TREND breakout pattern at almost +400 over
- Financials (XLF) failed right @Hedgeye TRADE resistance yesterday alongside the curve flattening
- Gold held @Hedgeye TRADE and TREND Signal Levels of support and is right back in Irish green today
- Silver (SLV) signaled buy in The MFO (Mucker Family Office) yesterday after holding TRADE and TREND supports
- NASDAQ signaled SELL at the top-end of my Risk Range Signal and remains Bearish @Hedgeye TREND
- Consumer Discretionary (XLY) signaled SELL at the top-end of my Risk Range Signal and remains Bearish TREND
- Tesla (TSLA) failed @Hedgeye TREND resistance and failed to raise more debt backed by Auto Leases…
- If SP500 Profits #slow from +30% y/y growth towards 0-5% in Q2, Credit markets will remain Bearish TREND
So… you’re saying there’s a chance?
Quite literally EVERYTHING Powell said yesterday about the US labor market and corporate profit cycle is yesterday’s news, 2 months ago. The #Quad2 US economic cycle peaked in November when both NASDAQ and Bitcoin did.
If GDP slows from 7% to 0% and Corporate Profits slow from 30% towards 0% here’s a Lucky Charms Quiz for Powell:
A) What is the labor market going to look like vs. its Q4 Cycle Peak?
B) Are you even going to be able to get your 2nd “hike” in by the May meeting?
And what did the leprechaun say when his chasing QQQ’s video game (into options expiration) ended? A: Game Clover!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 2.09-2.51% (bullish)
UST 10yr Yield 1.66-2.22% (bullish)
High Yield (HYG) 79.60-82.39 (bearish)
SPX 4113-4384 (bearish)
NASDAQ 12,461-13,589 (bearish)
RUT 1 (bearish)
Tech (XLK) 139-152 (bearish)
Gold Miners (GDX) 35.46-39.54 (bullish)
Utilities (XLU) 68.77-72.13 (bullish)
Shanghai Comp 3050-3290 (bearish)
DAX 12,505-14,597 (bearish)
VIX 25.61-37.33 (bullish)
USD 98.01-99.81 (bullish)
EUR/USD 1.081-1.112 (bearish)
Oil (WTI) 90.12-122.33 (bullish)
Gold 1 (bullish)
TSLA 761-875 (bearish)
Bitcoin 36,929-42,666 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
