“All profound things and emotions of things are preceded and attended by Silence…”
-Herman Melville
So… you want/need a “soft” landing? Or would you prefer it hard? How about no landing? That’s where we are on the almighty Sine Curve this morning. The silence of both the Sine and Yield Curve is deafening.
In The Stillness Is The Key, Ryan Holiday explores silence in a way that many panic and performance stricken Hedge Funds (who covered at Tuesday’s lower-highs) aren’t allowed to embrace while trying to drive daily and weekly P&L.
In 1928 musical composer John Cage told an audience that by “observing silence you will finally be able to hear what other people think… wherever we are what we hear is mostly noise” (pg 58). That’s Mandelbrot 101 when it comes to the Fractal Nature of it all.
Back to the Global Macro Grind…
When Holiday asks you to “Cultivate Silence”, what precisely does that mean? For me, that’s easy to define. After The Macro Show I walk over to my standing-desk on the “Hedgeye Floor” (which is full of talking people), and I execute in silence for 60-90 minutes.
For 60-90 minutes I rarely speak to anyone. I don’t read emails or articles. I have CNBC on #mute (for visual contra-stream behavioral observations). And I just measure and map (numbers) and #execute.
If you were to turn up the volume and engage in all of the noise, it’s usually quite trivial to get to “hearing what other people are saying” and/or hoping to think. The latest blaring Macro Tourist Bull Horns have been all about: “SOFT LANDING.”
First, in Cycle & Market Time, what is a “landing”?
A) Where you want/need numbers to stop going down in order to reconcile the “valuation” you’re buying something at?
B) Where The ROC (rate of change) of the economy actually is?
Alex, I’ll take B) for the rest of my Full Cycle Investing life.
Now let’s use a real-time data series that was reported yesterday as an example: US Industrial Production:
A) = 3rd ranked FEATURE in our live and ticking US GDP Nowcast model (out of 30 features it’s the 3rd heaviest weight)
B) It #slowed to +1.6% year-over-year growth yesterday – that was a #Quad4 in Q4 December number
Ok, cool. What does a Macro Tourist do with that? A: nothing. They don’t have predictive models and/or numbers when they say stuff. They just think about saying something back within the context of the narrative they need to see play out.
Back to the #BetterWay, i.e. the mathematical way to measure and map any economic data series (the Hedgeye way):
A) US Industrial Production Growth #slowed to +1.6% y/y in DEC, down from +5.0% in NOV 2022 and +6.9% in FEB 2022
B) That means that the COMPS (or Base Effects) get TOUGHER for the next 2 months into 2022’s IP Cyclical Peak
If you’re a math person, you know what that means. It means that the probability remains high and rising that the US Industrial Economy SLOWS at a FASTER RATE until that FEB number is reported in March.
And, since our current US GDP Nowcast is for Real GDP (Quarter over Quarter SAAR) to tank towards -2.87% in Q1 of 2023, you’re still going to be looking for the “landing” on that US GDP Sine Curve when that Q1 GDP release happens in April.
In other words, there is no landing, yet.
I could (and maybe should) stop there but that’s just The Cycle and how to think about it like a non-spewing-Tourist. There’s also my #VASP (Volatility Adjusted Signaling Process) and Flow of The Machine to consider all the while.
Why? The hourly, daily, and weekly motion of it all is what Mandelbrot recognized as “Brownian Motion” or The Noise.
Here are 7 things to think about in silence this morning:
- GS’s “Most Short Basket” led yesterday’s -1.6% SPX decline at -3.1% on the day (means bear market squeeze #over)
- 0DTE (zero days to expiration) SPY Call Option Buying vanished from the Top 10 Board of Most Active Options
- US Equity Vol (VIX) Monthly Options expired and front-month VIX exploded to the upside like balls held under water do
- DFS down -6% on The Earnings Cycle, AA -4%, FUL -4%, ALL -3%, VNO -3% (after cutting the DIV), etc.
- Oil failed @Hedgeye TREND resistance of $81.96 WTI and remains in #Quad4 Crash Mode (-36% from The Cycle peak)
- UST 10yr Yield broke below the DEC lows and remains Bearish @Hedgeye TREND signaling LOWER-LOWS this AM
- Yield Curve (10s minus 2s) is hitting new lows for this week at a bone-chilling -71 basis points signaling DEEP Recession
Why just 7 things? My time allocated to writing to you is up. I need some silence of my own. There are MANY things in my multi-factor, multi-duration models. And they’re all saying the same thing in Silence:
The Cycle is slowing at it’s fastest pace. The Bond market gets it. The stock market eventually catches up (because the companies remind “soft landing” bulls that there’s a big difference between +1-5% GDP Growth and visiting Dr. Zero).
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 3.49-3.83% (bearish)
UST 10yr Yield 3.40-3.81% (bearish)
UST 2yr Yield 4.01-4.43% (bullish)
High Yield (HYG) 73.24-76.90 (bearish)
SPX 3 (bearish)
NASDAQ 10,207-11,187 (bearish)
RUT 1 (bearish)
Tech (XLK) 120-131 (bearish)
Healthcare (XLV) 131-136 (bullish)
Defense (ITA) 108-114 (bullish)
Utilities (XLU) 69.16-72.61 (bullish) `
Shanghai Comp 3130-3264 (bullish)
VIX 18.03-24.33 (bullish)
USD 101.71-105.86 (bullish)
CAD/USD 0.737-0.751 (bearish)
Oil (WTI) 71.66-81.62 (bearish)
Nat Gas 3.23-3.99 (bearish)
Gold 1 (bullish)
Silver 23.16-24.51 (bullish)
TSLA 105-134 (bearish)
Bitcoin 14,998-21,867 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
