“Za market ist a process.”
- Mises
Some of my haters say I got my #process from Ray Dalio. LOL. I’ve never met the guy. I never met Ludwig von Misses either. But I’ve studied most of his teachings and I’ve tried to incorporate parts of his process into my own.
Mises, Austrian Economics, Fractals, etc. at the Bank of England (BOE), Bank of South Korea, or The Fed? LOLx2. Try again. The implosion you are seeing at the BOE is in both its perceived control and “credibility” this morning.
It’s early, but this may very well be the beginning of the end of The Establishment’s Linear Econs. If you’re going to worship at the alter of Central Bankers, start with having the humility to respect the aforementioned quote. Mises said that in 1954.
Back to the Global Macro Grind…
Gravity doesn’t lie; people do. I was just talking to my son Jack about his Biology test today. Unlike his Dad, he’s American. I’m training him to run the Federal Reserve one day. So I asked him about homeostasis.
Jack: “Dad, it’s the state of internal, physical, and chemical conditions maintained by living systems – it has lots of variables.”
KM: “Well done, bud. That’s all you need to know, for now.”
By the time Jack gets to college, I’m assuming the credibility of the BOE, BOK, Fed, etc. will have imploded, multiple times, with their “forecasts” of “transitory inflations”, soft landing non-recessions, etc.
He’ll have read some of my books. One of the better books that incorporates Austrian Economic assumptions into markets and cycles is the book I’ve been citing this year: The Dao of Capital, by Mark Spitznagel.
“A homeostatic system, by its very nature, is always in flux, self-correcting when it strays too far in one direction or another. Never static, it is animated by a process of continuous discovery, balancing and re-balancing based on the information available through self-monitoring…”
“Just as Austrians already knew about many of the recent “discoveries” of behavioral scientists, we will see that Austrian tradition describes the market process in ways very compatible with modern cybernetics – the study of communication and control within a system.”
I’ll review this during our Q4 Macro Themes presentation today at 11AM ET (ping if you’d like access to the 160+ slides of new data/content) but the 3 foundational and fractal “triangles” to my process are:
A) Behavioral
B) Math
C) History
I’ve tried to coach players through my Go Anywhere Global Macro Risk Management #process for going on 16 years now. In a Sierpinski Triangle, those triangles aren’t rank ordered. They are non-linear and ever-changing.
So what the hell happened yesterday?
A) The BOE panicked
B) The Pound rallied against the US Dollar
C) The US Bond and Stock markets rallied on what some thought was #COWBELL!
What’s happening this morning?
A) The BOE is still panicking
B) The Pound has resumed its #Quad4 Crash against the US Dollar
C) Global Bond and Stock markets have resumed their crashes
Why did the American crowd of Macro Tourists make the wrong short-term moves?
They’ve been doing so for almost 10 months now. There was NO RALLY in Hong Kong last night (new stock market lows). There was no rally in Germany this morning (new lows).
Some people don’t like it when I call it this (because I think they have it), but this was Uniquely American FOMO (newbie Retail “Investor” chasing green on the screen) and Panic/Perf Stricken Hedge Fund Short Covering:
A) Goldman’s Profitless Tech Basket was +4.6% on the day
B) Goldman’s Most Short Basket was +4.6% on the day
C) The SP500 was +2.0% on the day for its 1st up day in 7
And now what? The Gravity of The Cycle resumes alongside the education of my kids.
KM: “Jack, what up with Newton and Apple (AAPL)?”
Jack: “Dad, Newton is that old PDA thing Mom has in the attic.”
KM: “Oh, right. It’s right next to my Yale Linear Economics textbooks.”
Jack: “What are those?”
KM: “Don’t worry. Before you go to school, buy more of those AAPL $145 puts.”
Jack: “Why, what did they say?”
KM: “Gravity. Slowing. The Cycle, eh bud.”
Jack: “Saw that on TikTok. Got it. Thanks Dad.”
The market is a process. The economic cycle is a process. The measuring and mapping process is a process.
Give me and my teammates more time and space. Together, alongside all of you, we’re going to teach the next generation how to be a lot better than the one that is imploding both this market and her economy.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 3.42-4.03% (bullish)
UST 2yr Yield 3.77-4.39% (bullish)
High Yield (HYG) 70.11-73.36 (bearish)
SPX 3 (bearish)
NASDAQ 10,600-11,338 (bearish)
RUT 1 (bearish)
Tech (XLK) 120-127 (bearish)
Utilities (XLU) 68.00-72.03 (bearish)
Energy (XLE) 67.03-75.90 (bearish)
Shanghai Comp 3010-3156 (bearish)
DAX 11,816-12,583 (bearish)
VIX 26.52-33.97 (bullish)
USD 110.12-115.14 (bullish)
GBP/USD 1.051-1.110 (bearish)
Oil (WTI) 75.99-85.65 (bearish)
Gold 1 (bearish)
Copper 3.21-3.43 (bearish)
AAPL 145-154 (bearish)
Bitcoin 18,104-20,290 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
