“With my sighted eye I see what’s before me, and with my unsighted eye I see what’s hidden.”
-Alice Walker
That’s a great stoic quote from The Stillness Is The Key. If you’re having a panic attack about the BOJ (Bank of Japan) panicking overnight, dial it back. Take deep breaths. “Slow Down, Think Deeply.”
“In the intro sequence to the beloved children’s show Mister Roger’s Neighborhood, the first interior shot does not show the host. Instead in the beat before Fred Rogers appears on the screen singing his cheerful song… we see a yellow blinking traffic light.”
“For more than 30 years and 1,000 episodes, this subtle piece of symbolism opened the show. If as a hint, it went over the heads of most people watching… but just about every frame of the show seemed to say: Slow down. Be considerate. Be aware.” (pg 45)
Back to the Global Macro Grind…
In a prior part of my career, I’d have to answer to some of the early morning panic. That’s the deal when you work for someone else. Especially with the Macro Unaware bosses, there’s a LOT of emotional, short-term, reaction to big click-bait and market headlines.
This BOJ news wasn’t click-bait. It’s real. But you don’t need to panic about it.
What happened? Essentially the BOJ’s Kuroda decided to have a Catchup Day with Global Cost of Capital. He moved his goal-posts on the 10yr Japanese Government Bond Yield from 0.25% to 0.50%.
Immediately, the 10yr JGB Yield shot up towards 0.46% on that. Then he explained that he was going to buy another 9 TRILLION (in Yen) worth of JGBs (Japanese Gov Bonds) by March of 2023. Then the 10yr Yield pulled back towards 0.39%.
Slow down. Be aware. What did this short-term Policy Shock do?
- It rallied the Yen above $133.15 resistance vs. USD so we’ll see if that holds
- It nuked the Nikkei, which closed down -2.5%, breaking @Hedgeye TREND Signal Support of 27,223
- It drove Global Sovereign Bond Yields higher (Australian 10s = +20bps, Germany 10s = +8bps, etc.)
It also took US Treasury Yields higher, obviously:
A) UST 2yr Yield = +10bps in a day to 4.28% keeping it Bullish @Hedgeye TREND (bearish for the bonds)
B) UST 10yr Yield = +8bps to 3.66% which takes it back above @Hedgeye TREND of 3.60%
We’ll see if part B) of that move in US Treasuries holds. The UST 30yr Yield = 3.71% and TREND Signal Level = 3.69%. What’s interesting is that both 10s and 30s are nearing the TOP end of their respective Risk Ranges, so this could easily reverse again in day.
Why would it reverse?
A) It doesn’t have to, but that’s where things generally reverse from (i.e. the TOP ends of Risk Ranges)
B) If it does, it’s The Gravity of the #Quad4 US economic slowdown, eh
With your sighted eye you see nominal rates higher. But you also see:
A) Gold +1.1% higher… and
B) Silver +3.3% higher
Our Platinum (PPLT) Core Asset Allocation is up another +1.5% despite Bond Yields up too. So what’s going on here? Maybe your unsighted eye sees UST Yields going down (again) on the long-end of the curve, from here, as the short-end remains pinned high.
That would be good for Gold, Silver, Platinum (and their Miners). It would also signal an ongoing Global Credit Event.
Credit Events are generally not for the Macro Tourist’s sighted eyes until well AFTER it’s too late. To me, this one is easy to see. Japan said “market functionality” is the problem when marking rates below the Global market.
So they undid some of that. And Global Credit Risk go up.
In other news, US stocks re-entered #Quad4 Crash Mode yesterday with the mainline SP500 (SPY) down for the 4th day in a row (and down for the 12th day in 16, taking its #Quad4 Crash to -20.4% from its #Quad2 Cycle Peak).
Obviously our Core Index Shorts (we’re not short SPY because we’re long parts of it like Healthcare, Staples, etc.) have crashed much more than SPY with the Russell 2000 (IWM) and NASDAQ crashing -28.8% and -34.3%, respectively.
And our Credit Shorts (HYG and JNK) continue to get us paid as this Regime Shift (higher) in the Cost of Capital continues to play out as the US economy slows at a faster pace. Just wait until all the PE and VC firms have to take their marks (hint: way bigger than BOJ’s!).
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.40-3.73% (neutral)
UST 10yr Yield 3.38-3.68% (neutral)
UST 2yr Yield 4.15-4.45% (bullish)
High Yield (HYG) 73.40-75.63 (bearish)
SPX 3 (bearish)
NASDAQ 10,421-11,114 (bearish)
RUT 1 (bearish)
Tech (XLK) 122-131 (bearish)
Consumer Staples (XLP) 73.75-76.98 (bullish)
Healthcare (XLV) 134-141 (bullish)
Defense (ITA) 108-112 (bullish)
Shanghai Comp 3040-3219 (bearish)
Nikkei 26,112-27,801 (bearish)
VIX 20.85-25.73 (bullish)
USD 103.41-107.46 (bullish)
EUR/USD 1.025-1.069 (bearish)
USD/YEN 132.08-138.65 (bearish)
GBP/USD 1.185-1.243 (bearish)
CAD/USD 0.727-0.740 (bearish)
Oil (WTI) 69.46-78.21 (bearish)
Nat Gas 5.33-6.83 (bearish)
Gold 1 (bullish)
Silver 22.25-24.42 (bullish)
AAPL 129-141 (bearish)
TSLA 142-178 (bearish)
Bitcoin 16,254-18,008 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
