“Come in, she said, I’ll give you shelter from the storm.”
- Bob Dylan
That’s the opening volley that Mark Spitznagel used in his most recent risk management book that I reviewed over vacay. He called it Safe Havens. I liked The Dao of Capital (his 1st book) better.
Especially in a year like this one (where Stocks, Bonds, and now Commodities all go straight down), everyone wants “safe havens.” All the while, it’s actually shocked me to see so many people “feel” like they need to pick bottoms.
My safe haven has been hodling Cash, Wine, Real Estate, and Hedgeye Equity. But I didn’t think about any of those things that way. I thought of all of them the way I’ve always thought about Asset Allocation. Own assets with Bearish Volatility.
Back to the Macro Grind…
What is Bearish Volatility? A: when my intermediate-term TREND signal on the volatility of an Asset is bearish.
What has Bullish Volatility (and continues to signal Bearish @Hedgeye TREND in price)?
A) FX: Every Foreign Currency ex-USD
B) STOCKS: Most major Global Equity markets ex-China
C) BONDS: Most Sovereign Bond Markets ex-Japan
D) All of Crypto
E) All of Commodities
But now that Copper is in the midst of a -33% crash (in price) from the Commodity Cycle Peak (March 2022), everyone knows that Commodities have joined Stocks, Bonds, and Crypto Tales…
So, “everyone is bearish”, and that’s gotta be bullish, right?
I could be wrong (I wasn’t yesterday), but I don’t think that’s bullish or that the “bottom is in.” Why? A: all of that (points ABCDE) is going to perpetuate the current breakout in Earnings Volatility!
‘Oh, but KM, Microsoft said #EarningsSlowing is just because of FX.”
Lol.
That’s like the joke someone told me about ‘what Jamie said means the bank earnings slowdown is priced in.’ I shorted more JPM, XLF, and a bunch of US Regional Bank shorts on the green open yesterday when Cramer was pumping GS.
It’s still very early in Earnings Season, but here’s the real-time update on what’s been reported:
A) 39 of the SP500’s companies have reported an aggregate year-over-year EPS DECLINE of -14.5%
B) 15 of the 61 Financials in the SP500 have reported a year-over-year EPS DECLINE of -30.2%
“Great quarter guys.”
Lol x2.
Since I was stuck in traffic yesterday until 9AM, I had the opportunity to listen to a bloviating (and bullish) Joe Kernen ask Cramer for his hot take on “why stocks were up” (Friday and pre-open Monday).
He said “Wells Fargo and Citi – phenomenal quarters!” (or some pablum like that).
Lol x3.
Back to reality on “beating expectations” AFTER stocks and/or their Sector Styles have already crashed, I get that. But seriously, JPM reported -42% year-over-year earnings in Q1 before the Yield Curve inverted!
And you can get on any Earnings Call from here and choose to believe biased management teams that are trying to tell you a story about FX or Russia or whatever…
But that, like your “feelings” about picking bottoms, is on your stinky fingers, not mine. I believe 1 thing: #Quad4.
As a reminder, from our recent Q3 Macro Themes deck (slide 65):
A) During the “Soft Landing” Recession of 1 Earnings crashed -29%
B) During the “Soft Landing” Recession of 2001 Earnings crashed -48%
‘Oh, but KM, 2001 was back when we had a bunch of profitless internet and comms companies…”
Yep, now we have Crypto, SPACs, and levered Storytelling Companies like TSLA selling you stock (and some cars). AND we’re coming off the ALL-TIME high in the ROC (rate of change) of SP500 Earnings = +87% year-over-year growth in Q2 of 2021.
What happens if/when we have a hard landing with the Fed tightening into a #Quad4 Earnings Recession?
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 2.82-3.11% (bullish)
UST 2yr Yield 2.87-3.25% (bullish)
High Yield (HYG) 72.95-75.70 (bearish)
SPX 3 (bearish)
NASDAQ 11,007-11,624 (bearish)
RUT 1 (bearish)
Tech (XLK) 126-134 (bearish) `
Shanghai Comp 3 (bullish)
DAX 12,403-13,093 (bearish)
VIX 24.03-30.91 (bullish)
USD 105.71-108.68 (bullish)
Oil (WTI) 92.33-104.99 (bearish)
Nat Gas 5.31-7.56 (bearish)
Gold 1 (bearish)
Copper 3.11-3.58 (bearish)
MSFT 246-262 (bearish)
Bitcoin 18,721-22,904 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
