“The perceiving eye is weak; the observing eye is strong.”
-Miyamoto Musashi
That’s an excellent #behavorial quote from The Book of Five Rings. Ryan Holiday expands upon it in The Obstacle Is The Way. “Miyamoto won countless fights against feared opponents… in which he was swordless.”
I’m not a 16th century Samurai swordsman but Musashi and Mucker would see eye to eye on Global Macro Strategy. “Musashi understood that the observing eye sees simply what is there. The perceiving eye sees more than what is there.”
“The observing Hedgeye sees events, clear of distractions, exaggerations, and misperceptions.” (pg 32)
Back to the Global Macro Grind…
What is the observing Hedgeye?
While your eyes have many parts (cornea, pupil, lens, etc.) and your minds have many emotions that should be checked at the door at the top of every risk management morning, the Hedgeye has 2 main parts:
A) The #VASP (Volatility Adjusted Signaling Process) across multiple durations (TRADEs, TRENDs, and TAILs)
B) The Quads (and for companies The Pods), which is the 3-4 quarter ROC (rate of change) Nowcast of the future
What is a Macro Tourist?
A) Someone with no #VASP, Quads, or Pods… who
B) Jumps from headline to headline and talking point to talking point
Due to a massive cyclical and secular oversupply of triggering real-time “media” channels, there is a massive population of Macro Tourists. But there is only one Hedgeye.
Think of TWO “bullish” narratives that are only 1 WEEK OLD:
A) “RED WAVE” is coming – gotta buy STAHKS!
B) “China Re-Opening” is coming – gotta buy STAHKS!
Ok. That wasn’t a red wave. Next:
A) China re-opened alright – Chinese COVID cases just #accelerated +88% last week to +125% in the last month!
B) China’s Retail Sales #slowed to a recessionary -0.5% year-over-year in the last month (OCT) vs. +2.5% in SEP
Oh, ok. But Xi had a good meeting with Joe. They aren’t going to nuke Taiwan this weekend. Next:
A) How about Hedgeye’s latest Global #Quad Nowcast = next 3 QUARTERS = Global #Quad4 Recession
B) How about Hedgeye’s #VASP on something like Oil = WTI down another -1.5% this morning
Oh, but the IEA said Oil Supply just hits lowest level since 2004. Next:
A) Oil doesn’t just trade on supply – demand matters (it crashes in #Quad4)
B) Why did Hedgeye’s #VASP on Palm Oil, Wheat, and Corn just break bad to Bearish @Hedgeye TREND?
Ok, that’s because of something Russia. Oh, it’s not demand? Ok. Next:
A) How about the Yield Curve? What is that signaling in my #VASP and Quads this morning?
B) At a bone chilling -55 on UST 10s/2s Spread (i.e. a new Cycle Low), that’s signaling #Quad4 US Recession
Really? I thought some Tourist who is long FTX and Crypto perceived the Yield Curve as irrelevant? Ok. Next:
A) The UST Yield Curve was only this INVERTED 1 other time in US history
B) That was when both the #VASP and Quads would have been signaling the US Recession of 1
Damn. And what types of headlines might a Tourist perceive as bearish as Hedgeye’s #VASP Signals on AMZN and AAPL are:
A) AMZN to cut at least 10,000 jobs
B) AAPL cutting prices on Mac computers if corporates buy in bulk
“Dammit, Mucker. Stop it. Can we go back to the red wave and re-opening?”
Nope. You can’t take back one of the biggest reasons “why” the Yield Curve is this inverted either. Yesterday’s New York Fed Consumer Inflation Expectations pivoted HIGHER in OCT to +5.9% vs. +5.4%.
The word in the “pivot” narrative is right. The direction of the pivot (higher) is strong. The hope for lower is very weak.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 3.80-4.34% (bullish)
UST 2yr Yield 4.32-4.85% (bullish)
High Yield (HYG) 71.52-74.76 (bearish)
SPX 3 (bearish)
NASDAQ 10,001-11,329 (bearish)
RUT 1 (bearish)
Tech (XLK) 115-135 (bearish)
Healthcare (XLV) 129-136 (bullish) `
Shanghai Comp 2 (bearish)
VIX 22.25-27.87 (bullish)
USD 105.27-113.74 (bullish)
EUR/USD 0.966-1.043 (bearish)
Oil (WTI) 84.01-93.26 (bearish)
Nat Gas 5.52-6.84 (bearish)
Gold 1 (bullish)
AAPL 131-152 (bearish)
AMZN 82-102 (bearish)
Bitcoin 15,333-18,892 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
