“A fool thinks himself to be wise, but a wise man knows himself to be a fool.”
-William Shakespeare
After reviewing the 115 slides from our Q2 Macro Themes presentation, I have decided that it’s all priced in. It’s time to go full-send yolo and get long all of my #Quad4 Shorts. Gotta get me some Techs that trade in the sweet spot valuation range of 10-50x revs.
Back to the Global Macro Grind…
It’s April Fool’s day and I realize I don’t know anything about the future. That’s why I beat the living daylights out of myself to risk manage that reality.
One of my all-time favs in both The Macro Show queue and Institutional Client meetings is the one I just alluded to. “KM, nice call, but how do you know it’s not already priced in?”
A) I don’t
B) Neither do you
I have to be a little more professional than that if I have 30-50 Institutional CIOs, PMs, and Senior Analysts on a Zoom, but that’s still the answer.
Imagine I knew WHEN it was ALL priced in?
That would be great. On April the 17th at this multiple on SPX, everything will be priced in at 4500 SPX. Super easy to remember the round number “price targets”, eh?
Remember the time we went bullish on The Inflation Cycle in June of 2020?
A) Oil was at $15
B) I was 45 years old
Yep, by June of 2021 Oil was up +330% and I was 46 years old. Was the peak of the Inflation Cycle Priced in?
When you really think about “what’s priced in?”, it’s an easy question to ask and a really dumb one to think you have the answer to. That’s why we grind. Every day Mrs. Macro Market gives us new information to help us risk manage what’s going to happen next.
That said, where reported headline US INFLATION (CPI) goes next is one of the few easy answers in Macro right now:
A) A little higher… then
B) Lower
In yesterday’s Q2 Macro Themes deck, The Steinbomber dissected the Disinflation (lower) part of that critical conclusion surgically. Wait, who is The Bomber? That’s a super easy answer: Josh Steiner.
You know there’s a big difference between “deflation” and “disinflation”, right?
A) Deflation = Prices Falling (year-over-year)
B) Disinflation = #InflationSlowing
Yep, that’s why #Quad4 is the ROC (rate of change) opposite of #Quad2. That’s why our core Asset Allocations are the opposite of what they were at this time last year (remember that? I was Short TLT and Gold and Long Yolo Meme Stocks!).
Remember the April 2021 Fools at the Fed at this time last year? They were calling INFLATION “transitory.” Bahaha
A) In April of last year I was giving you Early Looks on Lumber inflating to $1700
B) On this day in April of 2022, Lumber has deflated to $859 = down -50% year-over-year
While a -50% year-over-year deflation is rare, it happens to asset prices more than it does the CPI. As you can see in today’s Chart of The Day, since 1948 there have been just 4 bouts of deflation, and at least 14 periods of notable DISINFLATION.
Essentially that’s why we do ROC (rate of change) instead of “levels.”
If you get the Rate of Change right, you get The Quads right. If you get The Quads right, you get your big Asset Allocations, Factor Exposures, and Sector Styles right.
I pity the Macro fool who still doesn’t get that.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 2.17-2.48% (bullish)
UST 2yr Yield 1.92-2.43% (bullish)
High Yield (HYG) 80.27-82.96 (bearish)
SPX 4 (bearish)
NASDAQ 13,491-14,629 (bearish)
RUT 1 (bearish)
Tech (XLK) 147-164 (bearish)
Gold Miners (GDX) 36.89-39.25 (bullish)
Utilities (XLU) 70.87-75.52 (bullish)
VIX 18.81-27.92 (bullish)
USD 97.82-99.39 (bullish)
EUR/USD 1.091-1.115 (bearish)
Oil (WTI) 99.08-116.69 (bullish)
Gold 1 (bullish)
Silver 24..31-25.99 (bullish)
Bitcoin 39,033-47,525 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
