“To anyone who has,
More will be given and he will grow rich;
From anyone who has not,
Even what he has will be taken away.”
-Matthew 13:12
Most of you who read the Early Look are rich in many more human-ways than how much money you make. Many of you pay it forward. Because many of you know about the many more people “who have not.”
The aforementioned quote comes from the introduction of Jim Rickards new book about broken Supply Chains and Structural Inflation. It’s called Sold Out and I had a Real Conversation with Jim about it last week on @HedgeyeTV.
While Macro Tourists are having their monthly panic attack about the CPI this morning, take a few deep breaths and remind yourself that all that matters right now is risk managing the Full Investing Cycle.
Back to the Global Macro Grind…
In the context of historical cycles, this morning’s uniquely American CPI FOMO would be better characterized as a mania. Everyone and their cat and dog has an opinion on a number that peaked in June. Few chart chasers have a plan for what comes after it.
Hint: it’s called a #Quad4 Household and Corporate Profit Recession.
Our league leading US INFLATION Nowcast for #Quad4 in Q4 of 2022 = 7.52%. Unlike most of the CNBC circus clowns trying to “nail the number” today, we nailed it on the way up (when it mattered), don’t forget. Coming into the last print we were at 7.61%.
From here (in Q123), we have it going down less-fast than those hoping for a “lower than expected” number today need.
If we’re “wrong” on the number (let’s say it’s 7.21% or 7.59%), what in either America or Fed Policy is going to change? A: nothing. Or at least that’s what the Bond Market thinks heading into the mania’s main event:
A) US Treasury Bond Volatility (MOVE Index) ramped back UP to 142 yesterday
B) UST 2yr Yield ramped up another +5 basis points to 4.38% and remains Bullish TREND @Hedgeye
If the Fed Expectations (i.e. the short-end of the Yield Curve, or 2yr yields) were to change, I would change my positioning. We’d have to see 4.03% (i.e. TREND Signal Support) break for that to happen. There’s little to no chance of that happening on this CPI print.
And I get it, you or your colleagues might have feelings about this CPI print that are different than mine…
But A) we don’t do Full Investing Cycles with feelings and B) consider the actual feelings that real humans have about this CPI. As soon as you get the CPI report, go stand outside a Target and ask a Mom with 3 kids if she’s going to BUY MORE (or BUY STAHKS) today…
Obviously when you put Wall Street manias in context of what is real-life, you’ll be less manic.
Ye Olde Wall will definitely cite “falling gas prices” (while they’re overweight Energy Stocks!) as bullish and not talk at all about the price of Eggs inflating another +8.4% yesterday to +25% in the last month (and +216% year-over-year).
For those of you who eat eggs, go to the hospital, or pay rent, are prices plummeting alongside Bankman-Fraud fans today?
On slide 101 of the current Macro Pro Deck, we show The Cycle’s empirical context of KEY CONSUMER COST CENTERS:
- Shelter = 33.6% weight
- Food At Home = +7.6% weight
- Medical = 6.7% weight
Energy is 3.7% fyi. Yeah, I’m sure everyone on moonshot TV and Twitter knew that too.
Like your rent, “Underlying Inflation” is the stuff that sticks. So you can look at that navy or baby blue line on the right side of the chart while you look at the orange one and you’ll still see the same thing relative to the historical prices of things.
‘Oh, but KM… we talked to the inflation guy over at Broker ABC. What do you think about their point on…?’
A: I don’t care.
Inasmuch as not caring about their 50-day Moving Monkey charts back at the APR or AUG 2022 LOWER-QQQ-HIGHS, I really couldn’t care less about their newfound “inflation models” or talking points. I’ve been running our models for 15 years and will use those.
Btw, while the Tourists are in mania mode, pull up that chart I showed you last week of #NazVol (NASDAQ Volatility) bottoming around 25 in both APR and AUG of 2022. It just did again and closed in the F-Bucket of Volatility yesterday at 30.06.
I don’t care what today’s number is. CPI Mania = Bearish.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.34-3.80% (bearish)
UST 10yr Yield 3.38-3.75% (bearish)
UST 2yr Yield 4.21-4.48% (bullish)
High Yield (HYG) 73.71-75.78 (bearish)
SPX 3 (bearish)
NASDAQ 10,721-11,399 (bearish)
RUT 1 (bearish)
Tech (XLK) 126-136 (bearish)
Consumer Staples (XLP) 75.20-77.59 (bullish)
Healthcare (XLV) 136-142 (bullish)
Utilities (XLU) 69.55-72.85 (bullish) `
Shanghai Comp 3122-3234 (neutral)
Nikkei 27,501-28,235 (bullish)
VIX 19.27-26.05 (bullish)
USD 104.13-108.11 (bullish)
Oil (WTI) 67.80-79.43 (bearish)
Nat Gas 5.23-7.40 (neutral)
Gold 1 (bullish)
Silver 21.33-24.25 (bullish)
TSLA 161-189 (bearish)
Bitcoin 16,205-17,483 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
