“Self-praise is for losers. Be a winner. Stand for something. Always have class, and be humble.”
- John Madden

The Super Bowl is one of the most widely anticipated sporting events of the year. Last night, the Philadelphia Eagles squared off against the Kansas City Chiefs. Both teams finished the regular season with identical 14 – 3 records. Both teams had a win percentage of 0.824. On paper, the two top teams in the league faced off for its most venerated prize.

It was no surprise given their respective records that the oddsmakers and quants viewed this as one of the closest matchups in history heading into the game. Before kickoff, most betting websites gave the Eagles a slight edge of +1.5 points. But it was basically a dead heat. It turns out the pundits were spot on with their prognostications.

In the end, the Chiefs prevailed in an absolute nail biter winning 38–35 with a field goal with less than 15 seconds left on the clock. Not only was the score as close as it was, many statistical categories were close to a dead heat as well. In the end, the Chiefs prevailed by getting a little more “right.”

There are parallels to trading and investing in a game this close. Most statistical studies of trading suggest that if you have a win ratio of 0.54 or above, you are a world class trader. Think about that for a second. To be near the top of your field, you are still getting approximately 46 out of 100 trades wrong!  With that ratio, your winners also need to outperform your losers by some margin to generate positive performance over time. 

An interesting Journal of Finance study looked at 400,000 day traders over a 15-year period. The study found that “only 4,000 individuals (less than 1% of the population of day traders) were able to consistently profit, net of fees.” This study of course applies to day traders, but similar studies looking at individual brokerage accounts suggest that the vast majority investors and traders underperform over time.

In the end, consistent success ultimately requires discipline, focus, an investment of time, and to John Madden’s point above ... some amount of humbleness. 

Winning By Margins - 02.20.2023 Wall Street wind shift cartoon

Back to the Global Macro Grind . . .

The Super Bowl of economic data this week arrives on Tuesday with CPI. The “oddsmakers” (aka Old Wall economists) have Headline coming in at +0.5% M/M and Core (ex-food and energy) coming in at +0.3% M/M.

We believe it's a bit of fool's errand to try and predict economic data points from a month-to-month basis. However, that doesn’t change the stubborn reality that this particular economic release carries the potential to create some serious pin action!

In scrutinizing global inflation data over the last few weeks, we have seen some marginal acceleration:

  • U.S. gasoline prices are up about 11% from their late December lows;
  • Used car prices were up some +2.5% M/M from December to January;
  • In January’s Michigan Consumer Sentiment survey inflation expectations for the next year accelerated to +4.2% from +3.9%;
  • China, Germany, Spain, Norway and South Korea all experienced marginal accelerations in CPI into January.

There was also some countervailing disinflationary data in January. The key takeaway from Tuesday’s report may well be (whether the number is inline, slightly above, or slightly with consensus) that higher for longer remains the path of inflation.

The reality is we all know that inflation has peaked. That was last year’s war.

Setting aside headline measures of CPI, it is important to keep in context other measures like employment cost index and the Services Ex-Housing inflation series.  We highlighted both of these in our recent Q1 Macro Themes update and have included them again below in our Chart of the Day. The reality is that once we move away from more commodity based measures of inflation, inflationary pressures remain near their highs.

Luckily for those of us that like the pin action of economic data releases, we have a busy week this week even after Tuesday’s CPI release:

  • Wednesday -> Retail Sales (consensus: +1.6% M/M) and Industrial Production (consensus: +0.5% M/M);
  • Thursday -> Initial Jobless Claims (consensus: +200K), Building Permits (consensus: +1.35MM), and Housing Starts (consensus: +1.361MM); and
  • Friday -> Import and Export Prices (both projected to show a M/M decline).

Inasmuch as last week was a boring week of economic data, this week is a bit of a Super Bowl. In terms of positioning, volatility is back again in the proverbial "chop bucket" this morning with the VIX at 21.48.  IVOL premiums have expanded given the selloff last week and only 3 of the 14 major equity subsectors we track currently at an IVOL discount.  So, the set up is mixed.

The best advice heading into this week may well also be from John Madden:

“Coaches have to watch for what they don't want to see and listen to what they don't want to hear.”


Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets

UST 30yr Yield 3.49-3.86% (neutral)
UST 10yr Yield 3.33-3.82% (neutral)
UST 2yr Yield 4.21-4.67% (bullish)
High Yield (HYG) 74.52-77.01 (bearish)            
SPX 3 (bearish)
NASDAQ 11,217-12,201 (bearish)
RUT 1 (bearish)
Tech (XLK) 132-144 (bearish)
Defense (ITA) 113-117 (bullish)
Gold Miners (GDX) 29.00-32.96 (bullish)                                              
Shanghai Comp 3 (bullish)
Nikkei 27,164-27,821 (bearish)
VIX 18.01-21.36 (bullish)
USD 101.20-104.51 (bullish)
Oil (WTI) 72.63-80.90 (bearish)
Nat Gas 2.28-2.78 (bearish)
Gold 1 (bullish)
Copper 3.95-4.22 (bullish)
Silver 21.54-24.21 (bullish)
Bitcoin 20,099-22,995 (bearish)

Keep your head up and stick on the ice,

Daryl G. Jones

Winning By Margins - COD