“The view from space is like having a globe on your desk – it’s a broadening experience”
– Buzz Aldrin
Yesterday was Macro Themes (ping if you’d like replay access to the 160+ slides of new data/content) and if you didn’t see the slide deck, I don’t know what you could possibly be looking at that is more important.
It’s hard to state how much you learn from the people around you, but my evenings after Macro Themes are my notebook days. I’m writing down everything that I’m seeing for the first time and hypothesizing where I can apply derivatives. Needless to say, there is much more to come.
With this Macro Themes in particular, I couldn’t help but think about how humans think of experience.
Do you remember the days in elementary school, middle school or high school where the smallest inconvenience would make you act like the sky was falling? I do.
On my 5th birthday I vividly remember that I didn’t get a lollipop. Long story short, that tragedy led to me to jump from high places in order to hurt myself and garner sympathy. My thinking was, if I was hurt, I would somehow get the lollipop… I definitely ruined that birthday
Why is it that we react this way over a lollipop? Well, when you are 5, not getting the lollipop was legitimately the worst thing that happened to me up until that point in my life. I couldn’t comprehend or truly understand what true hardship would feel like.
Use my last Early Look as an example. I wouldn’t be able to understand what backpacking Iceland meant (let alone understand what a mountain is and that you can walk to the top of them) if I hadn't gone through those weather conditions.
Eventually, as you continually have your “worst moment of your life,” you broaden your perceptions and create new standards.
Back to the Global Macro Grind…
We are currently starring down four #Quad4s in a row in the US, while the rest of the world is also looking at a major Quad 4 outlook. What does that mean in terms of a market crash? How much further can we go? How bad can the global landscape become? I have no clue. I’m just a crash baby, which ultimately means I can’t comprehend what will come out of this mess, due to my lack of lived-through experience.
I’m just one of many that is Generation Z (1) or Millennials (1). Think… Gen Z during 2009 was between 3 and 12 years old (if you were like me, you were just getting over that lollipop). Millennials would have been between 13 and 28 years old.
~94% of Bitcoin holders are Gen Z or Millennials (with 76% being Millennials). We also just established that Gen Z has yet to see a market crash and ~50% of Millennials have also yet to see a market crash. #Crashbabies.
We are fortunately in a very small group that is watching this current crash unfold knowingly. Think about all the people that are crash babies and don’t know that we still have three more Quad 4s to go through…
While it will be impossible for me to understand what exactly will happen, we can use 5 yr CDS to put some of this into perspective. Every week the Financials sector will post CDS for 29 US companies, 23 European banks, 16 Asian banks, and 42 sovereign countries.
For today, let's just use the Chart of the Day which is looking at France’s historical 5 yr CDS. It is creating cycle highs (32.534), is up 9 bps (+40%) MoM, and up 6 bps (+25%) WoW. This cycle started on 1/28/2022, since then French equities (Cac 40) is down -18%.
Now let’s look historically, on 3/11/20 5yr CDS was at the same level it is today and peaked on 3/18/20. The Cac would fall during that time period a further -18.6%.
- On 1/11/10 5yr CDS was at the same level it is today and peaked on 11/25/11. The Cac fell -29% during that period
- On 10/10/08 5yr CDS was at the same level it is today and peaked on 3/6/09. The Cac fell -20% during that period
Your average loss from here is down another -22.5% after currently being down -18%. Imagine your net worth dropping another 23% from here? Also, who is saying that this time couldn’t be even worse…
Today, of the 114 CDS spreads we track daily, 65 of them are at cycle highs (or 57%).
But most of this is talking about the overall cycle, which we have 160 slides of in the Macro Themes deck. This deck goes into much more than just France and CDS. It also tackles how bad this cycle could be compared to others. 10/10 recommend to a friend. Let’s get into today’s data grind.
- 11 of 11 sectors down yesterday on volume that was down -12% 1M, although we have had pretty light volume this week
- High yield OAS is up +73 bps WoW
- IVOL Discount Callouts: Cannabis $YOLO, Small Cap Energy $PSCE
- IVOL Premium Callouts: Russell $IWM, Netherlands $EWN, Sweden $EWD, China $FXI, South Korea $EWY, Taiwan $EWT, Singapore $EWS, New Zealand $ENZL, India $INDA, Industrials ($IYT, $ITA, $JETS), Online Retail $IBUY, Semi Conductors $PSI, eSport $ESPO, Internet $PNQI, Cloud Computing $SKYY, Social Media $SOCL, Robotics $ROBO, Biotech $XBI, Healthcare Providers $IHF, Financials ($IAI, $KCE, $KIE, $KRE), Small cap health care $PSCH, Rare Earth Metals $REMX, Canadian Dollar $FXC, 20+ yr Govt $TLT, 10+ yr Corp $IGLB, High Yield muni $HYD, Convertibles $CWB
- The ratio of Premiums to Discounts has been this way all week
- The current yield curve is at -43 bps and the forward curve is at -41 bps
- Vix (31.28), Russell Vol (37) and Nazvol (37) are all in the F bucket
- Mexico raises interest rates by 75 bps to 9.25% as expected. 11th hike since June 2021. Inflation is at 8.8% YoY, the target is 3%.
- India raises interest rates by 50 bps to 5.9%. The 4th consecutive hike. Inflation is at 7% YoY, the highest levels since 2013.
- China Caixin Manufacturing PMI decelerates to 48.1 3rd sequential deceleration, lowest since May. Output fell for the first time in four months, new orders shrank the most since April
- Eurozone Inflation Accelerates to 10% YoY. First time hitting double digits ever (ATH). Energy (40.8% vs 38.6%), non-energy industrial goods (5.6% vs 5.1%)
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 3.44-4.02% (bullish)
UST 2yr Yield 3.90-4.38% (bullish)
High Yield (HYG) 70.02-73.30 (bearish)
SPX 3 (bearish)
NASDAQ 10,504-11,159 (bearish)
RUT 1 (bearish)
Tech (XLK) 118-126 (bearish)
Utilities (XLU) 66.01-71.36 (bearish)
Energy (XLE) 67.00-75.79 (bearish) `
Shanghai Comp 3005-3146 (bearish)
Nikkei 25,808-27,002 (bearish)
DAX 11,803-12,418 (bearish)
VIX 26.71-35.03 (bullish)
USD 110.28-115.18 (bullish)
Have a great day out there,
Ryan Ricci
Macro analyst
