“In reality, we only think that we know what we want.”
- Dan Ariely
So… SPY joins the NASDAQ’s #Quad4 Crash… and now Goldman wants 75bps… and Cramer wants 100.
Great. Just great. Bps, btw, are basis points. As in that’s how many basis points of rate hikes that no-one-who-knew it was going to be #Quad4 thinks they want as the Fed tightens into one of the fastest economic and profit slowdowns of the modern era.
This type of Old Wall shouting is what Dan Ariely calls Predictably Irrational. It’s people taking what they think is a “systematic and calculated approach to solving a problem”… that often “doesn’t yield the right answer.” (pg 53)
Back to the Global Macro Grind…
Or was the answer to absolutely implode not only The Credit Bubble that all these guys perpetuated, but impair the Credit (and Equity) function of markets so that they can “get inflation down?”
Lol.
These are the Old Wall firms and assclowns on CNBC that called #InflationAcclerating “transitory” at this time last year. These are the people who are “making the big call” for big hikes so that they can “land the plane” soundly?
Lol x 3.
Now there’s always a chance that they’re all in it together, creating a ridiculous short-term expectation of +75-100bps that their beloved Fed can beat (and only do 50bps!).
Short-term, I’ll actually buy/cover on that, for a trade.
But a LOT of these people think my Credit (HYG, JNK, etc.) and Equity Shorts (XLY, XLK, XLF, etc.) “need” +75-100bps of rate hikes into a #Quad4 Avalanche! Really? You want the Yield Curve to INVERT further???
We’re obviously on the right side of The Cycle here so we can wait & watch as the next 4 trading days play out. I won’t do what someone “calls” for. I’ll do what markets (within the lens of my #VASP Signals) are doing.
Don’t forget the fundamental #Quad4 economic (and profit) slowdown setup:
A) The probability of GDP being NEGATIVE (sequentially) for back-to-back quarters keeps going up
B) The probability of SP500 Earnings #slowing towards ZERO PERCENT (then negative) keeps going up
These REAL GROWTH and PROFIT #slowing realities aren’t going away because rate hikes go up. They become riskier because the COST OF CAPITAL (and access to it) is going up. Rates Go Up (from here), Risks Go Up.
Shorter-term (next 4 trading days) we have a bunch of high altitude (no oxygen) parts of the mountain to traverse:
- TUE – Producer Price Inflation (PPI) for May will be reported pre-open
- WED – in the morning VIX options expire; in the afternoon Fed Hikes
- THUR – Blackout Day (post WED approx. 49% of SPX Companies CANNOT buy back their stock)
- FRI – Monthly OPEX (Options Expiration) = approx. $3.2 TRILLION in exposure
Oh, and on WED and FRI you’re going to see more #Quad4 economic data with both REAL US Retail Sales and Industrial Production #slowing reports. But I am sure Goldman and Cramer have been telling you that since January too.
The options expiration dates on VIX (WED pre FOMC decision) and SPX (FRI post FOMC) make this a bit of a mess. Why? There’s this thing called Gamma where ye Olde Wall’s futures & options dealers need to chase.
With the short-term VIX options coming off the board on WED, dealers need to chase (buy volatility)… because they came into the last 2-3 days of trading assuming front-month VIX in the mid-20s instead of the mid-30s!
On that anything-30s VIX (which we call the F-Bucket), I’m sure Goldman and Marko (JPM) have you all prepped too!
#Not. If they did, why did $758 BILLION in notional SPX puts trade yesterday? That was the 2nd most (for a day) in the history of the US listed options market! So, you’re saying consensus (Marko, Telecom Tom Lee, etc.) was off-side for #Quad4 coming into this?
Yep, and they’re saying they want +75bps? Reality is they only think they know what they want.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 2.92-3.45% (bullish)
High Yield (HYG) 72.03-77.41 (bearish)
SPX 3 (bearish)
NASDAQ 10,526-11,729 (bearish)
RUT 1 (bearish)
Tech (XLK) 121-136 (bearish)
VIX 26.44-36.22 (bullish)
USD 102.08-105.13 (bullish)
Oil (WTI) 115.01-123.68 (bullish)
Nat Gas 8.15-9.49 (bullish)
Gold 1 (bullish)
Copper 4.10-4.44 (bearish)
MSFT 233-265 (bearish)
AAPL 128-145 (bearish)
AMZN 99-117 (bearish)
TSLA 621-745 (bearish)
Bitcoin 21,143-29,408 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
