“What stands in the way becomes the way.”
- Marcus Aurelius
That quote simplified the complex about 1850 years ago. That’s the thing about human behavior, the great leaders in human history didn’t whine and complain about it – they understood how to capitalize on it.
Do you struggle with adversity and/or your emotions when the going gets tough? As my Dad taught me at a young age, that’s “when the tough get going.” There’s a good book on living your life this way titled The Obstacle Is The Way, by Ryan Holiday.
Marcus Aurelius goes on to explain, “Our actions may be impeded… but there can be no impeding our intentions or dispositions. Because we can accommodate and adapt.” Are you adapting to market signals as we enter a Global #Quad4 Recession?
Back to the Global Macro Grind…
The best part of The Game is that it changes. Like risk, sometimes it changes slowly… and sometimes it changes all at once. Especially in the modern era, The Game gets really noisy into what we call “event risk” days.
The noise is a function of the size of the crowd. Twitter gives Tourists a megaphone. Fading the noise often becomes the way.
While it seems like a career ago, it was only 1-week ago today that Macro Tourists were all hot and horny for what they thought was going to be a “Goldilocks CPI” report (get your head out of the gutter, bulls have horns).
And real #Quad4 Recession Bears have big claws.
Instead of your mind being manipulated by yesterday’s Peak Cycle Inflation news, try thinking about the obstacles in company P&L’s becoming the way forward. Both FedEx (FDX) and Ford (F) are the most recent case studies.
What did Ford (F) say last night?
- Their P&L (EBIT) for Q3 of 2022 is going to be closer to $1.4-1.7B vs. $3B “expected” by ye Olde Wall
- Their “Supply Costs” are $1B higher than expected (B = Billion)
- Sales continue to slow alongside EBIT (Earnings Before Interest and Taxes)
Like FedEx (FDX), the market was already pricing some of this “news” in. Ford’s stock (which I was personally long of for most of the #Quad2 PROFIT #acceleration last year) had already crashed -40% into the announcement (from its Cycle Peak).
Now let’s do a Widely Held GROWTH stock like Microsoft (MSFT):
- They have not yet guided to 4 straight #Quad4s and a Global Recession
- MSFT is already down -17% from where Tourists were chasing the chart in mid-August
- MSFT’s implied volatility just ramped to a +120% PREMIUM vs. 30-day realized volatility!
To provide The ROC (rate of change) reality of both human behavior and positioning, only 1-month ago today, complacent MSFT bulls owned the stock at $293 with an implied volatility DISCOUNT of -25% vs. 30-day realized. Lol
I’m laughing because of the chasing. Never in my 23 years of being in The Game have I seen so many get sucked into such obvious short-term bear traps. One of the biggest bear traps remains what “management said” in the prior quarter!
It’s still early in Q3 pre-announcement season but currently the implied #Quad4 US Earnings Crash is from +7% year-over-year SP500 Q2 aggregate earnings growth to -14% post the FDX and Ford (F) guides.
No matter what the Fed says tomorrow, they aren’t going to change the gravity of company P&L dynamics heading into Q4.
They claim they wanted to “cool” demand slowly and land the plane ever so softly. If you believe that an unelected central-planning agency can do that, that’s on you. As the going continues to get tougher, we’ll stay with the process.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 3.23-3.55% (bullish)
UST 2yr Yield 3.51-4.05% (bullish)
High Yield (HYG) 73.12-75.61 (bearish)
SPX 3 (bearish)
NASDAQ 11,202-12,130 (bearish)
RUT 1 (bearish)
Tech (XLK) 126-137 (bearish)
Utilities (XLU) 73.46-78.77 (bullish)
VIX 22.43-28.24 (bullish)
USD 108.66-110.59 (bullish)
Oil (WTI) 81.47-89.70 (bearish)
Nat Gas 7.30-8.80 (neutral)
Gold 1 (bearish)
Copper 3.30-3.60 (bearish)
Bitcoin 18,103-20,991 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
