“Energy and entropy are countervailing and interdependent forces that universally act upon all matter in time.”
-Roy Sebag
While the majority of market participants couldn’t explain the relationship between energy and entropy and how to apply it to markets and economies (think accelerations and decelerations!), they could probably tell you something about “AI” right now.
They could tell you LOTS of things about “blockchains” at BTC $68,250 too. Ex all the bs, what does it really mean? A: #MOAB. The Mother of All Bubbles in newly minted “retail investing” lives on!
For the many of you who pay to read this, please do your friends & fam who don’t do thermodynamics a favor and start teaching them about this thing called The Cycle. Sebag’s new book, The Natural Order Of Money, is a good starter on energy vs. entropy.
Back to the Global Macro Grind…
Do you know what hot-liquid-MAGMA metabolization means?
“Unlike TIME, which can be grasped intuitively yet can never be measured by physical instruments, the conservation of energy is a MEASURABLE activity in the form of movement and in the form of heat…
This activity is present in the flame burning wood in a campfire. Metabolization is most visibly observed in animal and human bodies. The simple fact that we must eat and sleep reveals that the body is a thermodynamic system…” -Roy Sebag, pg 11
If you need to be fed complete bs about “AI” in order to “believe” that the economy isn’t slowing (by looking at the “YTD Return” of SPY), one day you’ll wake up with one hell of a drawdown. That’s when even the beginners will understand gravity.
Unlike TIME, which can be grasped but not tabulated, we can measure and map both the economic data and market returns.
A) Yesterday, hot-liquid-MAGMA represented +144% of SPY’s daily return
B) Since SPY was -0.64% on the day, you can do the math on what it did ex-MAGMA
If that sounds or “feels like” liquid-hot, it is. In today’s Q2 Mid Quarter Macro Themes presentation (Macro Pro and Institutional Research subscribers can get real-time access to the critical new Cycle data and content – ping ):
A) We’ll contextualize what we’re calling Peak Titanic Tilt…
B) #Tilt = TWO STOCKS = 14% of SPY
Those 2 stocks, of course, are AAPL and MSFT and they represent 40% of “Tech” (XLK).
Did you know that 10 of the top 11 GICS Level 1 US Equity Sector Styles were down yesterday? The 1 of 11 that was “up” was … drumroll… Tech (XLK), up a whopping +0.11% vs. 2 of the big Sector Shorts I told you to press:
A) Energy (XLE) down another -2.5% on the day to -7.1% for Q2-to-date alone
B) Industrials (XLI) down another -1.4% on the day to -3.5% for Q2-to-date alone
A broader basket of US Stocks (Russell 2000) was down another -1.4% on the day, taking it to -13.2% from where “Retail Investors” chased the JAN 2023 month-end bear market lower-highs, and crashing to -28.9% from IWM’s #Quad2 Cycle Peak in NOV of 2021.
And how about that “consumer is in great shape” type of Tourist who dabbles in some MAGMA?
A) US Retail Sales #slowed to new #Quad4 CYCLE LOWS of +1.6% year-over-year in April
B) Measuring and mapping that vs. the JAN 2023 #acceleration to +7.4%, that’s a -580bps drop in 3 months!
For your friends & fam who don’t know what a beep or a #deceleration is (don’t they drive Tesla’s?), 580 beeps (basis points) of #slowing in 3 months is one of the biggest (and fastest) #decels in human history.
Nothing to see here…
While their beloved “AI” (MSFT, NVDA, and now AMZN?) stock picks (that they’re still bag-holding from the NOV 2021 highs) didn’t see anything but rainbows and puppy dogs, both Credit (HYG and JNK) and Commodities markets got hammered on that yesterday too.
And how about that Yield Curve? It just re-inverted to -56bps on 10s minus 2s this morning.
Nothing to see there either. With the Titanic moving towards #PeakTilt, Profitless Tech “investors” were drowning, down -2.4% on the day. The “Recent IPO” Goldman Basket was underwater at -2.4% on the day too.
All the while, Goldman’s note said everything is fine (with Retail Sales #slowing, big time, they took UP their GDP estimates as we took ours down to -2.78% q/q SAAR for Q2 US GDP!) due to this hot-liquid-MAGMA “TINA type behavior.”
I’m a pretty creative Canadian, but even I couldn’t make this #MOAB stuff up like they are at this point of The Cycle.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 3.32-3.57% (bearish)
UST 2yr Yield 3.78-4.18% (bullish)
High Yield (HYG) 73.71-74.80 (bearish)
SPX 4055-4154 (bearish)
NASDAQ 12,002-12,399 (bearish)
RUT 1 (bearish)
Tech (XLK) 148-154 (bearish)
Gold Miners (GDX) 32.53-36.40 (bullish)
Utilities (XLU) 66.17-69.62 (bullish)
Staples (XLP) 76.10-77.45 (bullish)
Shanghai Comp 3 (neutral)
Nikkei 28,767-30,123 (bullish)
VIX 16.11-20.49 (bullish)
USD 100.85-102.90 (neutral)
USD/YEN 133.70-137.24 (bullish)
Oil (WTI) 67.95-73.97 (bearish)
Nat Gas 2.05-2.44 (bearish)
Gold 1 (bullish)
Copper 3.61-3.87 (bearish)
Silver 23.35-26.85 (bullish)
Bitcoin 25,807-29,366 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
