“This Bounty Hunter is my kind of scum, fearless and inventive.” - Jabba the Hutt
Back in the peri-GFC period and amidst the early rise of the ‘alt data’ infatuation I cozied up to a quasi-quantitative indicator with seemingly impeccable concurrent signaling value:
We dubbed it the “Joseph A. Bank Indicator” or, more affectionately, JABI the Hut.
Prior to the GFC, most of the promo offers for the men’s suit and clothing company were of the BOGO variety.
But as the economic and consumption contraction crescendoed, so too did the promotional offerings.
The JABI ultimately peaked at buy 1 suit, get 7 free!
The 2nd derivative then flipped negative with the promotion magnitude mapping the trajectory of the subsequent recovery almost perfectly.
I’ve recounted the JABI origin story before, but I mention it here as a way to intro its prospective successor. One that hits a little closer to home.
Back in 4Q20, my neighbors' car got stolen … out of the garage …. in the middle of the day. “Sneaking” up a 200ft driveway in broad daylight in an age of camera ubiquity and going into the garage with the homeowner’s home is a ballsy move.
It wasn’t just a rogue actor or isolated incident.
Locally, car thefts jumped +266% Y/Y with auto break-ins spiking a staggering +452% Y/Y during that period.
It was a manifestation of the percolating desperation among the bottom slant of America’s burgeoning K distribution getting plugged by overlapping political, economic, socioeconomic and health crises and who, at the time, were on the precipice of an income cliff and diminishing prospects for stimulus and enhanced/extended benefits.
There were 4 break-ins and another stolen car on our block over the past week. The first such incidences since 4Q20.
Back to the Global Macro Grind ….
So, headfake or harbinger as it relates to the proprietary Car Jacking and Criminal Ballsiness (CJCB?) indicator?
Of course, taking a convicted view of an experimental, pseudo-quantitative indicator with an n of 1, is not part of the process.
But consider it in the context of the broader domestic consumer mosaic:
- Multiple Job Holders: Payroll growth has remained strong (and yesterday’s prelim benchmark revision will add another +571K to the revised Private total). But what has shown the most emergent strength is multiple job holders with job holders with multiple full-time jobs at an ATH.
- Excess Savings: As we’ve highlighted, “excess” savings for the bottom income quintile and those with the highest propensity to consume is now negative. We should get the 2Q22 update to the Fed DFA data in the next few weeks.
- Savings Rate: The Personal Savings Rate has fully retraced the pandemic surge and currently sits at 13Y lows.
- Income Expectations/Sentiment: The Conference Board’s Consumer Income Expectations series flipped to net negative for the first time in July. We’ll get the August update next Tuesday (8/30).
- Revolving Credit: Step functioned higher in February, making a series of successive higher, all-time highs in recent months.
- New Credit Account Openings: According to the NY Fed (HERE), 233 million new consumer credit accounts were opened in 2Q22, marking the largest increase since 2008.
- Difficulty Paying for Usual Expenses: The share of household with moderate to severe difficulty paying usual household expenses step functioned higher in June and has made successively higher highs through the latest August update (Census Bureau PULSE Survey (HERE)
- Energy Bill Delinquencies: According to Neada (HERE), 20 million households (roughly 1 in 6 Americans) are behind/delinquent on their energy bill, marking the worst numbers the association has ever seen.
Is it mere happenstance that the crescendo in all these metrics coalesce around the same timeline and run concurrent with the acceleration in negative real income growth?
Or does the balance of probability favor the reality that the cost of living squeeze is real and rising, locally and globally, and is not set for (+) inflection near-term?
So, just more Quad 4 fundamental fodder to justify perma-bearish positioning and narrative, eh!?
No my dear sweet winter child! ….
If you supplicate yourself at the alter of #process alacrity and the #timestamp, you faithfully bore witness (see RTA & Coaching notes yesterday) to dynamically and (quickly) evolving market conditions and went net LONG, for a TRADE A) from the low-end of the Ranges and B) into this Fed event…
In terms of the tactical setup, here are KM’s Top 3 from this morning:
1. FED – The Setup manifested like most bear market bounces do (relatively quickly from an immediate-term #oversold point), with expectations priced rather hawkish (2yr Yield has now round-tripped back to where it was at Peak Cycle Inflation in June, post the fake-news “Dovish Pivot” storytelling)… so, from here, it wouldn’t take much refreshed Old Wall storytelling for the short-end to back off -20bps towards 3.18% 2yr)
2. RATES – Both Treasury Bond Vol (MOVE Index ramping up to 133) and GROWTH Vol (NASDAQ Volatility, VXN, took a run towards my F-Bucket at 30 earlier this week on the AAPL down day) are pricing in incrementally HAWKISH comments at J Hole so he’s either even more hawkish than that (after a recessionary GDP print hits this morning btw) or pulls The Ole Wall Shuffle saying something as Dovish as the economic data has been!
3. VOLATILITY – down rates (short and long-end) in the short-term = Long Core #Quad4 LONGS like Utilities, Staples (XLP), Healthcare (PINK), Gold etc. so there was plenty to do yesterday especially with my #1 Signal Strength US Equity Sector Long (Utes, XLU) approaching the LOW-END of my Risk Range with an implied volatility PREMIUM ballooning to +32% vs. 30-day realized (1mth ago, with rates lower, that was a -31% IVOL DISCOUNT!)
Indeed, as the sagely gray beards remind us …..
A risk manager is never late,
nor is he early.
He longs precisely when we means to!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.04-3.35% (bullish)
UST 10yr Yield 2.70-3.16% (neutral)
UST 2yr Yield 3.18-3.39% (bullish)
High Yield (HYG) 75.28-78.53 (bearish)
SPX 4084-4301 (bearish)
NASDAQ 12,160-12,996 (bearish)
RUT 1 (bearish)
Tech (XLK) 141-151 (bearish)
Utilities (XLU) 74.77-78.51 (bullish)
Healthcare (PINK) 25.31-26.64 (bullish) `
Shanghai Comp 3 (bearish)
Nikkei 28,104-29,315 (bullish)
DAX 13,002-13,901 (bearish)
VIX 19.50-24.91 (bullish)
USD 105.05-109.75 (bullish)
EUR/USD 0.986-1.016 (bearish)
USD/YEN 132.65-138.71 (bullish)
GBP/USD 1.166-1.204 (bearish)
CAD/USD 0.763-0.779 (bearish)
Oil (WTI) 85.65-95.77 (bearish)
Nat Gas 8.50-10.01 (bullish)
Gold 1 (bullish)
Copper 3.51-3.73 (bearish)
Best of luck out there today,
Christian B. Drake
U.S. Macro Analyst
