“Most people do not listen with the intent to understand; they listen with the intent to reply”
– Stephen Covey
If you weren’t able to watch the Real Conversation between Keith and Jim Rickards, here it is. One of the topics Jim mentions is about the Fed. He says one of the easiest jobs he has is front running the Fed because all you have to do is listen, and they tell you exactly what they are going to do.
So, what he's saying is all I have to do is listen to what Powell has been saying for the past 6 months and I won’t have to wake up in fear of the next CNBC headline? Yes.
Everything Powell said this week was exactly what we have been telling our subscribers for months.
Here is what he said:
- "It will take time for the full effects of monetary restraint to be realized, especially on inflation"
- “The committee decided to raises interest rates by 50 bps… and we still have some ways to go”
- “We are taking forceful steps to moderate demand so that it comes into better alignment with supply”
- “Reducing inflation is likely to require a sustained period of below trend growth”
- “We will stay the course until the job is done”
- “It’s not so important to think how fast we go, its far more important to think what is the level, then at a certain point the question will be how long do we want to remain restrictive”
- “Our Focus is not on rate cuts or prematurely loosening policy”
- “We’re going into next year with higher inflation than we thought”
The messaging here couldn’t be clearer if you just listen: Higher for longer, kill demand. And then you listen the questions that were asked. Really, I should say question because they were all the same. People don’t get it; they want to outsmart the guy. (Look at SBF and see how outsmarting people has worked in our recent history.)
Here is the link to the Fed meeting if you want to listen.
Back to the Global Macro Grind…
Here are your upside to downside chart using yesterday's risk ranges and yesterday's closing price. The big callouts are that yesterday was not a day to do nothing. It was a day to build your longs and cover your shorts as we remain in the chop bucket of volatility and the VIX still with downside potential of 24%. Based on the risk ranges, $XLP and $ITA were giving the most upside potential on the long side. While tech was closing at the low end of the range.
Your worst performing ETFs on the day were: Bitcoin Miners $RIGZ (-6.52%), Palladium $PALL (-6.25%), Dividend Performers $IPDP (-6.03%), Bitcoin Miners $WGMI (-5.86%), Crypto Industry $FDIG, Gold Miners $GDMN (-5.33%).
Here is what you are waking up to: Europe down ~1%, China flat, Taiwan and other emerging Asia countries down 1%, Nat gas -5.3%, Crude oil -2%, Bitcoin -2%. High Yield OAS +15 bps DoD, Poland CDS up the most in Europe (honorable mentions to Peru $EPU, Philippines $EPHE, and Indonesia $IDX).
Next, I really wanted to talk about the global economic data we received this week because it is screaming global recession.
- China house prices $CHIR (Nov) -2.33% YoY vs -2.4% YoY
- China $FXI Retail Sales -5.9% YoY vs -0.5% YoY
- Indonesia $IDX Exports +5.6% YoY vs +11.9% YoY, although more interesting is the underlying
- Crude oil (-28.51%), oil products (-1.74%), and gas (-17.06%) which points to the demand destruction within the industry
- Indonesia Imports -1.89% YoY vs +17.44% YoY, estimates were for +7% YoY…
- UK $EWU Claimant Count Change (measures the change in the number of unemployed people) +30.5K vs -6.4K, highest since February 2021
- UK Retail Sales -5.9% YoY vs -5.9% YoY, UK Manufacturing PMI 44.7 vs 46.5
- Eurozone Manufacturing PMI 47.8 vs 47.1. Being cited is a small acceleration in new orders, lower delivery times, and lower inflation. Not bullish.
- South Africa $EZA Mining Production -10.4% YoY vs -5.1% YoY with the government citing persistent and extensive load-shedding
Here is a table of global 2-10 spreads which decelerated the most in Europe. Germany $EWG -11 bps DoD to -30 bps (lowest since 1992), Italy $EWI -9 bps to 1.12 bps, Netherlands $EWN -14 bps to -0.9 bps (all time low), Switzerland $EWL -8 bps DoD to 0.18 bps (cycle low), Austria $EWO -12 bps to 0.18 bps, Finland $EFNL -18 bps to 0.14 bps (lowest since 2008).
Even with this set up and an increasingly hawkish BoE and ECB, DAX went to the low end of the range making yesterday not the day to open shorts. But a day to cover some of what you had.
Little side note before I get to my last section: yesterday’s volume was up and unlike the down moves we saw about a week ago, the dollar was also up.
- IVOL discount callouts: Switzerland $EWL, Brazil $EWZ, China $FXI, Hong Kong $EWH, South Korea $EWY, Japan $EWJ, Malaysia $EWM, Singapore $EWS, Australia $EWA, Saudi Arabia $KSA, Turkey $TUR, South Africa $EZA, Gold Miners $GDX, Timber $WOOD #laythewood, Copper Miners $COPX, Online Retail $IBUY, Semiconductors $PSI, Internet $PNQI, Social Media $SOCL, Robotics $ROBO, Gold $GLD, Silver $SLV, Rare Earth Metal $REMX, Dollar $UUP, Franc $FXF, Ausi Dollar $FXA, Canadian Dollar $FXC, Yen $FXY, Govt Bonds ($TLT, $IEF), Corp 10+yr bond $IGLB, EM Sovereign $PCY
- IVOL premium callouts: Greece $GREK
Now that you have everything that will help you execute on the day, I’ve been doing some thinking, which is dangerous. But, I have been thinking about this comment from Powell “We are taking forceful steps to moderate demand so that it comes into better alignment with supply.”
So, if you look at the Chart of the Day, it is crude oil inventories going back to 2011 with each line being the inventory during a specific year. The red line is the crude oil inventories for 2022. You can see we are at the lowest inventories since 2014. But even more interesting is that these are inventories that are being held up by the largest drawdown of Special Petroleum Reserves (SPR) ever.
So, if Powell wants to moderate supply, supply is at historically low levels, so his job is to lower demand even below this. Also meaning, he needs to normalize (get these supplies) back to unhistoric levels. Basically, really bearish. Anyway, I hope I get to draw on the board some time to explain this.
Have a great weekend everybody and happy holidays.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.39-3.72% (bearish)
UST 10yr Yield 3.38-3.66% (bearish)
UST 2yr Yield 4.17-4.45% (bullish)
High Yield (HYG) 73.56-75.71 (bearish)
SPX 3 (bearish)
NASDAQ 10,601-11,245 (bearish)
RUT 1 (bearish)
Tech (XLK) 125-135 (bearish)
Shanghai Comp 3115-3220 (neutral)
Nikkei 27,437-28,216 (bullish)
DAX 13,837-14,426 (bearish)
VIX 20.50-25.94 (bullish)
USD 103.69-107.70 (bullish)
EUR/USD 1.022-1.068 (bearish)
Oil (WTI) 69.48-78.92 (bearish)
Nat Gas 5.20-7.20 (neutral)
Gold 1 (bullish)
Silver 21.95-24.40 (bullish)
AAPL 134-145 (bearish)
AMZN 84-93 (bearish)
TSLA 147-180 (bearish)
Bitcoin 16,308-18,021 (bearish)
