“The heart is deceitful above all things, and desperately wicked: who can know it?” -Jeremiah 17:8-10 (KJV)
Everyone loves a “feel good” story.
We are, after all, creatures of emotion.
Greek rhetoricians understood this and gave the art of persuasion the form of a triangle consisting of logos, ethos, and pathos.
There is an inherent instability in listening to and doing what feels good. In the context of the "Everything Bubble," captivating narratives and FOMO saw investors recklessly chase publicly traded memes, growth stocks, and computer coins into drawdowns as great as ~90%.
While today’s quote is not something you’re likely to hear at Burning Man or read on the back of a Toyota Prius, I use it as a strong personal reminder to actively fade feelings-based processes and maximally anchor myself in the objective.
Back to the Global Macro Grind…
At Hedgeye, we’re not in the business of storytelling or persuasion; we are in the business of risk management. Our data-driven, Bayesian process is built to enable the highest form of decision-making under uncertainty, free of emotion and directed solely at the preservation and orderly compounding of capital over time.
The domestic economy remains steadfastly set up for Quad 4.
High, persisting core inflation is driving historic real earnings decay and taking real demand with it as the Federal Reserve, emboldened by a supportive employment backdrop and weary of the psychological, reflexive nature of rising price levels, serves up a second vector of attack with the most aggressive pace of monetary tightening in recent memory.
Recall, while the idea of “Peak Fed” may sound nice or feel good, it should not be misconstrued as a positive catalyst for risk assets as the inverted U.S. yield curve seeks to remind us. That is, we still need to get to “Peak Fed.”
That path certainly does not occur in a vacuum, particularly against a backdrop of broadly slowing real growth and corporate profits.
We remain long data and short narratives.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 2.70-2.93% (bearish)
High Yield (HYG) 76.24-79.12 (bearish)
SPX 4010-4318 (bearish)
NASDAQ 11,883-13,187 (bearish)
RUT 1 (bearish)
Utilities (XLU) 73.04-78.50 (bullish)
Healthcare (PINK) 25.47-26.72 (bullish) `
Shanghai Comp 3 (bearish)
Nikkei 27,856-29,337 (bullish)
DAX 13,308-13,933 (bearish)
VIX 19.00-23.43 (bullish)
USD 104.85-107.27 (bullish)
Oil (WTI) 85.78-94.63 (bearish)
Gold 1 (bullish)
Best of luck out there.
Drago Malesevic
Macro Analyst
