“The natural standard means there’s a primary and objective judgement of nature upon the actions of the real economy.”
-Roy Sebag
Never mind this morning’s made for CNBC “AI” narratives. There remains a massive opportunity to use real-time economic data to change our entire profession (and economy) for the better. For starters, everyone should use The ROC (rate of change).
Every aspiring Economics Major should also read The Natural Order Of Money by Roy Sebag too. Concepts like Calculus and Physics shouldn’t be shunned when measuring and mapping economies. They should be your starting points.
When Sebag defines “The Natural Standard” he explains that “members of the real economy are subject to a standard imposed by nature, which necessitates that they must repeatedly negotiate within nature’s cycles.” (pg 23)
Back to the Global Macro Grind…
While the latest YOLO TSLA Weekly Call Option trading can’t be readily explained by anything but #MOAB (Mother of All Bubbles) behavior, The ROC of The Cycle is readily explained by gravity.
A) On a TRENDING basis (3 months or more), both US Consumption and Industrial Production data continues to slow towards new #Quad4 in Q2 Cycle Lows … and
B) The Yield Curve (10yr minus 2yr) continues to re-invert to new #Quad4 in Q2 Cycle Lows at -97 basis points
In other words, The Cycle continues to cycle.
And, yes, you’ll hear a record number of “AI mentions” on the coming Q2 Earnings Calls. But you’ll also see the ROC numbers #slowing for most companies that didn’t guide to what NVDA thinks they can do.
*Reiterating pending RATE HIKES = BUY NVDA (still a Bullish TREND Signal with upside in my Risk Range to $455!).
If you can’t buy my favorites Sector Style Shorts (The FIRR + Energy), why wouldn’t you buy the 2 stocks that make up Tech (XLK) and/or NVDA? With the Titanic on full tilt, there’s nowhere else for a “YTD” Index chaser to breathe!
Actually, there’s Japan.
Japanese Stocks (Nikkei225) flashed another positive #divergence, +0.6% overnight, vs. my only US Equity Index Short (Russell 2000, which remains in #Quad4 Crash Mode, -23.6% from its #Quad2 Cycle Peak).
That’s ROC economic gravity too. We call Real Growth #Accelerating (with inflation #slowing) in Japan #Quad1:
A) For the 2H of 2023, we have Real Japanese GDP Growth #accelerating from +0.80% towards +1.21%
B) For the 2H of 2023, we have Real US GDP Growth #slowing from +1.62% towards +0.98% year-over-year
Therefore, on the most BASIC of gravitational metrics in our model, Long Japan vs. Short a broad basket of US stocks (IWM) is an easy position to have. If you want to go all Mucker with your Family Office Model, here’s the next layer of positioning:
A) Long India (INDA) where we have Real GDP #accellerating towards +6.40% year-over-year by the end of 2023
B) Short The American FIRR (Financials, Industrials, Retailers, and Real Estate) + Energy (XOP)
Short The FIRR vs. Not Short NVDA? Yep. That’s working.
Per Bloomberg’s consensus “estimates” NVDA will ramp POD 1 (REVENUES) straight through to $100 BILLION by 2030. So why not pay 10x 2030 SALES for the bloody thing (that’s where it’s trading now)? Why not 15-20x…
When you can short some Steel (SLX) stocks at 6x the wrong earnings number, or keep crushing it on the short side of Energy?
I know. No one went “overweight” and/or Long Oil and Energy Stocks at the peak of The Inflation Cycle. Everyone is short that stuff and underweight The FIRR, eh?
In addition to Energy (XLE) leading US Sector Style Losers yesterday at -3.1% on the day to -5.4% for #Quad4 in Q2 to-date:
A) Real Estate (XLRE) was down another -2.0% on the day to -1.2% for #Quad4 in Q2
B) 10 of 11 Sectors were down on the day with Consumer Discretionary (XLY) +0.55%
While our Retailers (XRT is Equal Weight) component of The FIRR just hit new #Quad4 Cycle Lows while the Retailers were reporting US Consumption Slowing reality in May, the XLY is 40% AMZN + TSLA. So they just gotta chase TSLA up here, eh?
No thanks. I’ll stay with the only thing that really matters to me: my positioning. The “natural standard” of my risk management #process isn’t to chase narratives. It’s to position for The Cycle’s ROC actions in the real economy.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.79-3.94% (bearish)
UST 10yr Yield 3.62-3.85% (neutral)
UST 2yr Yield 4.9-4.78% (bullish)
High Yield (HYG) 74.08-75.15 (bearish)
SPX 4 (bearish)
NASDAQ 13,078-13,816 (bullish)
RUT 1 (bearish)
Tech (XLK) 161-176 (bullish)
Industrials (XLI) 99.67-105.78 (bearish)
Financials (XLF) 32.41-33.66 (bearish)
Shanghai Comp 3177-3270 (bearish)
Nikkei 31,784-34,318 (bullish)
VIX 13.46-20.79 (bullish)
USD 101.61-104.61 (bullish)
EUR/USD 1.064-1.096 (bearish)
USD/YEN 139.08-142.75 (bullish)
Oil (WTI) 66.91-72.68 (bearish)
Gold 1 (bullish)
Copper 3.66-3.95 (bearish)
Silver 23.14-24.70 (bullish)
TSLA 220-280 (bearish)
NVDA 372-455 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
