“Interest rates are to asset prices what gravity is to the apple.”
–Warren Buffett
Days like yesterday make me very grateful to have a go anywhere strategy. In this strategy, we are looking at everything all at once so that when the market doesn’t know what is going on, we are lining up our ducks and taking our shots.
If you haven’t gone through all the Hedgeye Live speakers, I highly recommend your afternoon walks this weekend involve them. There is plenty of actionable material in those talks and it's way better than anything else you will read.
It was this time last year that Danielle DiMartino Booth told us that Powell was serious about raising rates. This year was all about: Is he serious about holding rates flat or will he cut them? Although I will keep that answer for Hedgeye Live attendees, our Mid-Quarter Macro Themes update presentation next Wednesday.
Back to the Global Macro Grind…
Segues are hard.
Earnings season is almost over with 457 S&P 500 companies reported. Surprise, surprise, earnings decelerated, and everything was not priced in…
The largest takeaway for me this earnings season was one month ago with April 14th edition of The Call @ Hedgeye. Josh and Drago broke down JPMorgan’s earnings. Anyone notice that JPM (the largest bank) “leaned into asset sensitivity” and had a massive position based on rising interest rates… Then they came out and warned the market this quarter to expect higher interest rates for longer…
Think about that again, the largest bank took a massive position based on rising interest rates. Now they are saying higher for longer.
Before I go into today’s market set-up let’s quickly look at the hubris of the other side of the trade. Anyone else remember when PacWest was saved one week ago and shares were up 82% in one day? Anyone else remember when PacWest was not saved yesterday then shares were down -23% in one day? Make up your mind, media! LOL
Anyway, that’s the beauty of following the cycle. Find where you are on the Sine curve and embrace the fact that you don’t need to know what the next big bankruptcy might be. Instead you know that the probability of bankruptcy somewhere is probable. Why is it probable? Rates were raised again, rates as of now are not expected to be cut until September (that’s if you believe market expectations), and GDP is expected to slow again next quarter. All of this means that companies struggling last quarter are most likely going to struggle again this quarter. But that is why you subscribe to The Call and our Sector research, to get company specific earnings projections (that is not my specialty) to take even higher probability shots.
But let’s look at everything else that happened yesterday because it wasn’t just Regional Banks that moved (which today is not the day to put your short on, wait for the top end of the range).
Your largest up moves came from: Turkey $TUR (+9%) and China. I can guarantee you I'll be asking Keith about $TUR. Then for China, Keith has been out and taking higher probability bets elsewhere.
Your largest down moves came from Copper $CPER (-3.7%), Cannabis $YOLO (-4.9%), Silver $SLV (-4.8%), Gold Miners $GDX (-4.2%), South Africa $EZA (-4.0%), Silver Miners $SIL (-4.0%), and bitcoin related equities $WGMI (-9%).
Copper is right at the low end of the range, although Chile $ECH, Rare Earth Metals $REMX, and Lithium $LIT are not. Those would be my next questions for Keith. Cannabis is another one. If you want to see a bear market, pull up $MSOS on a 3yr chart. The market gave us another chance to short that one last week (the same day the banks were saved) and it's down -15% since.
And now the volatile space that is Crypto. We currently have Bitcoin, ETH, and BITO at the low end of the range with $TSLA being the odd man out, closer to the top end of the range (yes a car company but it’s the same crowd/flow).
I almost forgot to mention even with all this plumbing down yesterday, the VIX stayed flat. I’m sure "why" that's the case will be a top question this morning, but you can either write a white paper on it or just execute within its Risk Range and the Cycle.
Finally, I didn’t forget about Silver… you should be able to guess where Silver is (top, middle, or bottom) on Keith’s long only daily re rank sent out to both Macro Pro and institutional subs. Silver hit the low end of the range within a bullish trend. Keith sent a Real-Time Alert (from Charleston, S.C.), and it was hitting cycle highs last week. I’m sure if Keith was writing the Early Look, it would be all about this topic, but I’ll just summarize what he would say to us: #execute.
In case this note wasn’t differentiated enough from anything else you'll read this morning, my last questions for Keith would be on Israel $EIS or $IZRL. Then, I'd ask about my favorite and REITs analyst Rob Simone's favorite ETF, lay the $WOOD (a timber & forestry ETF). Maybe someone will read this and talk about that ETF on The Call.
Seriously though, find a company or any news outlet talking about: Interest rates, Turkey, Copper, Chile, Lithium, Rare Earth Metals, Cannabis, Silver, Bitcoin, Bitcoin Equities, Tesla, Timber, VIX, and Israel. I’m not even done yet…
On the larger trend data points to watch, we care much more about growth than inflation. But from a global industrials standpoint Keith and Industrials analyst Jay Van Sciver are teaching us to look at PPI. Is anyone else noticing that PPI has gone negative YoY in China, Brazil, Thailand, Chile, Russia, and Singapore? Anyone else see PPI is also coming down precipitously in Norway?
Why does all this matter? Put a chart of Chile PPI YoY with Copper, Brazil PPI with Brent Oil $BNO, China PPI with Crude Oil $USO, Norway PPI with Dutch Natural Gas then Norway PPI with Norway $NORW, and in the chart of the day I put China PPI with Cotton $BAL.
I think that will suffice for a Friday. Have a good weekend everyone and make sure to watch the Mid-Quarter Update of our 2Q23 Macro Themes on Wednesday.
Ryan Ricci
