“Statistics show that planes that attempt to land without the wheels lowered typically suffer no fatalities…”
- Matthew Syed
That’s not to say that landing without wheels isn’t dangerous. It just means you probably won’t die. All-American Hero hat tip to Captain Sully Sullenberger for showing the world he could land US Airways Flight 1549 in the Hudson River in 2009.
From a market and positioning perspective, what plane are you on right now? Who are the pilots?
The aforementioned quote comes from a great #behavioral book I recently discussed on The Macro Show titled Black Box Thinking – Marginal Gains and The Secrets of High Performance.
The chapter about the fatality of United Airlines flight 173 in 1978 is a critical analogue to Federal Reserve Flight 2022 as markets continue to crash into a Global #Quad4 Recession.
UAL Flight 173 crashed because the pilot “couldn’t see the landing gear.” Substitute landing gear for INFLATION. “The crew couldn’t see beneath the plane to determine whether the landing gear was in place so they made some proxy checks.”
Like Peak Cycle Inflation (which peaked a while ago at +9.1% CPI), “everything seemed to indicate that the gear was safely down… but the captain was still worried. He couldn’t be certain. He knew that landing the plane carried serious risks.” (pg 23)
While he was overthinking it, the plane was running out of fuel. Substitute fuel for DEMAND and/or RECESSION. Tragically, the plane crashed. People died. And they died with the landing gear properly in place.
Back to the Global Macro Grind…
What this morning’s Macro Tourist event of the year “tells you” about INFLATION doesn’t really matter at this point. The plane has already crashed.
The SP500 and NASDAQ closed at LOWER Cycle Lows yesterday, crashing -25.4% and -35.1% from their respective Cycle Peaks.
What’s most interesting about today’s super-short-term “event risk” (that’s implied by the VIX closing at 33.57) is consensus positioning into the print. This is the HIGHEST CALL OPTION open interest in the US options market since the May CPI print!
Really? Sure. Why not? It makes sense. With most money managers down more than -25.4% on the year, why not take a little yolo side bet on the book of long ideas that you can no longer afford to bet on?
That’s just the positioning in US stocks where we know there’s both uniquely American FOMO and panic/perf stricken hedgie behavior.
The positioning in FX, Bond, and even Crypto markets is clearly for a Global #Quad4 Recession that will last well into next year:
- UST 2yr Yield has been in a 3 basis point trading range all week and is just sitting there doing nothing this AM at 4.30%
- Treasury Bond Volatility (especially on the long end of the curve) continues to imply a crash in RATE SENSITIVE Assets
- High Yield OAS Spread has WIDENED another +35 basis points this week alone
- US Dollar remains Bullish, across durations, with relatively low volatility all week
- Crypto Crashes continue with Solana (SOL/USD) and Avalanche (AVAX/USD) crashing to new Cycle Lows this morning
I know, I know. Everyone who only does “stocks” probably knows what AMAT is doing this morning (not crashing further after crashing and burning – that’s the thing about crashes, they turn into nothingness), but WIDELY held Solanas and Avalanches?
That’s next level bearish!
Maybe something closer to #HedgeyeNation home is the crash in Utilities (XLU)?
A) Alongside the nasty Similar Set of RATES UP, VIX UP (and into the F-Bucket), our #VASP Signal got you #out of XLU
B) Utes (XLU) got crushed for a -3.3% day yesterday, taking the XLU crash of 2022 to -21.4% from early September!
So, again, and again… and again, I’ll just remind you that whatever the Touristy noise is doing today on inflation, The Cycle is doing what cycles do as they enter a recession – it is cycling.
The Profit (Recession) Cycle updates will begin at a faster pace tomorrow. Best of luck on the yolo lottery tickets for the first 1-3 hours of trading today. We’ll stay on the right #process plane with the right pilots, proactively preparing for the next 1-3 months.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 3.67-3.96% (bullish)
UST 10yr Yield 3.59-4.01% (bullish)
UST 2yr Yield 4.05-4.37% (bullish)
High Yield (HYG) 69.91-72.95 (bearish)
SPX 3 (bearish)
NASDAQ 10,162-11,132 (bearish)
RUT 1 (bearish)
Tech (XLK) 112-125 (bearish)
Utilities (XLU) 60.76-65.83 (bearish)
Energy (XLE) 72.98-85.31 (bullish)
VIX 29.11-34.94 (bullish)
USD 110.16-114.27 (bullish)
GBP/USD 1.076-1.127 (bearish)
Oil (WTI) 79.24-94.80 (bearish)
Copper 3.28-3.52 (bearish)
Bitcoin 18,537-20,320 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
