“When you’re sliding into first and you’re feeling something burst…”
- Parenthood, 1989
So, it’s 3:30 am and my dog is throwing up on the rug by the door, my daughter is up with a fever/ear infection and my 3 year old is wide awake & singing the “diarrhea” song from Parenthood
Oh and I tweaked my back doing … nothing!
So this is coming at you live from laying-flat-on-the-floor.
I suppose it also means I’ll disappoint the now ubiquitous ‘life hack’ twitter coaches by failing to take a short ‘focusing’ walk, journaling for 15 minutes, enduring a 5 minute cold pool plunge, doing a short breathing exercise, creating & briefly reflecting on a daily affirmation and engaging in mediation or a dedicated period of purposeful mindfulness to cultivate my own personal quantum of Zen all before 6am in order to optimize my headspace & productivity for the day!
Anyway, it’s been less than 30 days so I’m pretty sure I can still return 2023 and get a refund!
Back to the Global Macro Grind ….
One needn’t pull from a vast reserve of cerebral alacrity or subscribe to any of those deep state conspiracies like “needing sleep” to crosswalk the above to a viable market metaphor.
The shorts have puked, the fever pitch in Bankrupt and Meme stock performance was a delightful sideshow and the VIX has again leaked out in quintessential diarrhea formation.
Variations of the same dynamic have, of course, run on a continuous loop for the past year+.
The tail (0DTE/1DTE option, mkt structure dynamics, etc) wags the dog, for a day or a few. Then The Cycle returns to wag both.
The Cycle music continues to play so lets vibe out to the latest Quad 4 (data) drop.
We’ll layer the latest incrementals atop the existing condition set:
Consumer
- The Savings Rate continues to sit at multi-decade lows
- Credit Card Balance Growth is at multi-decade highs as of the latest data.
- The interest rate on that revolving credit accelerated to multi-decade highs as of the latest data.
- Real Income growth has now been negative for a record 21-consecutive months.
- Luxury Goods Consumption = -7.4% Y/Y while Luxury Home Sales = -38% Y/Y. Some additional excess savings is not a material buffer for aggregate household spending when you already have a low marginal propensity to consume, wealth destruction is in overdrive and there is no return on all that capital you own as the balance of the populous retrenches!
- Yesterday’s NY Fed Consumer Survey showed the Share of Households Reporting a Large Purchase fell to a 2-year low while Expected Growth in Spending fell to a 20-month low.
- The latest update to the Census Household Pulse Survey showed the “Difficulty Paying for Usual Household Expenses” series tick back up to cycle highs.
- GS/JPM/CFG/Etc/Etc …. GS earnings down -70% Y/Y, loan loss reserves ↑↑, everyone warning about consumer & credit deterioration.
- Microsoft announced ~11K in Job cuts … adding to the tech layoff carnage which sits at ~26K YTD (as in 3 weeks so far). Apple remains the lone stalwart but Tim Cook absorbing a -40% pay cut is surely a sign of overwhelming strength! ….
- Relatedly, mix (more layoffs among middle/higher wage positions) may be beginning to more discretely impact the disinflationary impulse, dragging the aggregates/averages lower. This, of course, means more marked deterioration in aggregate consumption capacity and another example of Recession > Inflation.
- Fragility At the Fringes, Again: We’ve been saying this for a quarter(s) now but we’re seeing acute fragility at the high beta/unprofitable fringe (i.e. unprofitable Tech layoffs ↑↑, etc) that will propagate up the “quality” hierarchy as conditions deteriorate further and the main thrust of higher rates makes its way to main st/real economic activity. We’ll see this inward propagation continue so long as the Quad 4 remains the prevailing macro trajectory.
- While Peak Inflation → Peak Hawkishness → Peak Rates Vol has provided scope for a collective exhale and countertrend price action that veneer of stability will continue to progressively cede focus share to recessions reality.
* Retail Sales: The consumption cratering got further fresh confirmation across the goods economy this morning with Retails Sales (Headline & Core) printing negative, again … with those sequential misses coming against steep negative revisions to November.
CRYPTO
As promised, a quick update on the crypto-verse through the macro & on-chain lenses
Bigger picture nothing has changed …. Equities are high beta to M2/Brrrr → And Crypto is a high beta ES (with none of the benefits of structural inflows, etc). Crypto, like all profitless high beta spec positioning, is a short during Quad 4 liquidity contractions and nothing has changed the prevailing Quad 4 trajectory.
….. but there are some on-chain data worth highlighting:
- Squeeze: This past week saw the largest short liquidation since July 2021. Shorts got squeezed, re-shorted, then got squeezed again.
- Capitulation: We had legitimate capitulation and leverage washout over the past year. DCG/Genesis remain a risk as does the specter of another large exchange failure.
- HODL: If you didn’t sell all the way down from 69K, you probably aren’t selling. The data suggest HODLer activity remains very much alive ..
- HODLer & Long-Term Holders: Net position change for both groups remains positive.
- % of Supply Held for 1Y of Longer addresses with a non-zero balance = both sitting at ATH
- Smaller Holders: Supply held by Shrimp (< 1BTC) and Crab (1-10 BTC) entities continues to make higher-highs while large/mega whale entity balances have declined.
- Geographic: Broadly Speaking, Asia is accelerating accumulation as is Europe (although beginning to slow) while the U.S. is decelerating (but beginning to inflect)
- Miner capitulation: After one of the largest miner selling events ever in Nov/December, capitulation here has largely played out at this point with miner balances actually rising over the past couple weeks.
- Institutional: Institutional interest may be showing some early life with OTC desk holdings spiking over the past week.
- ETH = back in deflation (burning > issuance) which is pretty remarkable for this part of the cycle. Deflationary supply dynamics (& flow through to price) will def remain interesting as utility expands, L2/L3 adoption increases and if/when bull market conditions return.
- I review all the data/newsflow/risk management levels daily in our Crypto Quant product (which remains an objectively silly ~$15/month)
Summarily, much of the forced & discretionary sell pressure is rearview and HODLer activity remains alive and well. Large-scale regulatory and ‘left-field’ risks remain ever present (as always) but protected Quad 4 and persistent liquidity contraction sit as the primary pressures with hereto HODLers being forced to sell to meet liquidity needs elsewhere as macro conditions deteriorate and sit as a primary remaining supply risk.
And lastly, for the mosaic-philes and global macro tasseographers, we received the following over the last 24hrs:
- Japan Core Machine Tool Orders (canary for Global Industrial Production and Global Trade volumes) = -8.3% M/M and and -3.7% Y/Y = worst since 2020.
- Singapore Exports (canary for Global Trade volumes tech capex) = -20.6% Y/Y = worse in 9 years.
- Empire Manufacturing Survey: Headline & New Orders = worst since GFC = more downside for ISM/domestic PMI.
We’re sliding though the 1st month of the year and soft-landing complacency is likely set to burst, again.
Best to avoid the PnL soiling and proactively risk manage that real and metaphorical “burst”.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.52-3.91% (neutral)
UST 10yr Yield 3.40-3.81% (bearish)
UST 2yr Yield 4.12-4.45% (bullish)
SPX 3 (bearish)
NASDAQ 10,199-11,205 (bearish)
RUT 1 (bearish)
Tech (XLK) 119-132 (bearish)
Shanghai Comp 3126-3254 (bullish)
DAX 14,401-15,395 (bullish)
VIX 18.01-23.94 (bullish)
USD 101.75-105.96 (bullish)
EUR/USD 1.047-1.089 (bearish)
Oil (WTI) 70.73-81.96 (bearish)
Nat Gas 3.30-4.15 (bearish)
Gold 1 (bullish)
MSFT 219-243 (bearish)
AAPL 123-137 (bearish)
TSLA 104-135 (bearish)
Bitcoin 15,002-21,701 (bearish)
Best of luck out there today.
Christian B. Drake
