“The price of freedom has a name, and a story.”
-Johhny Joey Jones
One of the more humbling #behavioral and #history books I’ve read this summer was Unbroken Bonds Of Battle. It’s a book authored by a man who lost both of his legs fighting for his country. But that’s far from the point of the book.
It’s clearly a book about uniquely American patriotism and bravery. But it’s also a book about friendships and bonds. MANY of the people who will die for your freedom come from VERY different economic situations than the USA described on Old Wall TV.
“Growing up for me was a time of learning absurdly simple, yet invaluable lessons. Growing up poor. Growing up in the South. Growing up the son of a brick mason and a house cleaner… I learned to appreciate things, as we couldn’t afford many luxuries.”
Back to the Global Macro Grind…
Every day I serve my family and firm by measuring and mapping both economic data and market interpretations of it. There is a growing divide between how this economy is “described” (by the establishment) and The ROC (rate of change) reality.
Never mind “affording luxuries”, MANY (like 50% of American Households) are living pay-check to pay-check and, as you can see in today’s Chart Of The Day, the US Consumer Foreclosure/Bankruptcy/Delinquency Cycle has clearly inflected.
There is NO data suggesting that this prevailing economic TREND somehow arrests because of a “YTD” SPY return.
But there is plenty of data to show that Epic US Equity & Short-Term Options Market Flows can make the 10 Percenters (people with $1-2 MILLION or more) believe whatever they want/need to believe about an American economy that continues to slow.
So let’s report yesterday’s ROC (rate of change) SLOWING US CONSUMPTION DATA first:
- US Services PMI #slowed (again) to 52.3 in JUL vs. 54.4 in JUN
- US QSR & Casual Dining data #slowed (again) – see Howard Penney’s data LIVE on The Call (daily)
- US Redbook Retail Sales #slowed (again) in JUL vs. JUN – Brian McGough updates that on The Call too
If you don’t measure and map the data and/or listen to The Call (our LIVE research meeting every morning from 745AM, hosted by yours truly), that doesn’t mean the data ceases to exist!
#TheBest part about narratives and/or qualitative descriptions of the economy: they require no work/process to believe them.
You hear stuff like “the consumer is in good shape” or Retail Sales #slowing to +1.5% year-over-year (from +7.4% in JAN!) “isn’t that bad.” Isn’t that bad for who? The 10-20% of The People who are still buying more year-over-year, enjoying nice hotels, or whatever?
You know where Johnny Joey Jones lived? A: “we lived in a 1966 single-wide with one 220-volt plugin.”
He didn’t live in the Hamptons or Nantucket. He’s not heading to Miami for a weekend at The Four Seasons. And his family is certainly going to have less REAL INCOME to spend post this recent re-acceleration in real world inflation:
A) CRB Commodities Index (19 Commodities) has reflated +10% since June
B) Oil (WTI) has reflated +18% since June
Enough about gravity in America (for now). How about The People in #Quad4 Germany?
A) Germany’s PMI #slowed to 38.8 in JUL vs. 40.6 in JUN = 6th straight month of deceleration
B) Germany’s “Business Climate” IFO reading #slowed to 87.3 in JUL vs. 88.5 in JUN = 3rd straight month of decel
The German and Eurozone Industrial Recession is at readings not seen since the LOWS of the pandemic in May of 2020!
But the index and Equity performance chaser has to “buy the DAX” (in Germany) because SAP might have some “AI” (not) and keep up with their “YTD” compensation bogey? Yep. For now, that’s the “flows” part of the non-economic story.
Same story in the USA obviously. Here’s the latest on #MOAB US Equity Options Flows from our partners at Tier 1 Alpha:
- SHORT-DATED Volatility just got bid higher ahead of the Fed meeting tomorrow (not new)
- DEALERS have flipped back to a position of “Positive Gamma” with the “Flip” point on the SPX = 4525
- Vol Control Funds will see another $7-9 BILLION enter the market (chasing “low” Vol) here
That last point on Vol (Volatility) Control Funds should create a “supportive environment for US Equities ahead of The Fed” (although Powell being as hawkish as this inflation accelerating move has been can trump that quickly).
But the more important point is that this is where Gamma Exposure & Systematic Flows are intertwined. They have absolutely zero to do with what the US economy is doing… and a LOT to do with Zero Days to Expiration SPY and SPX “pins”, flips, and flows!
The price of economic freedom has a name, and a story. It’s our job to give you the non-fictional and data-driven version of both.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 3.83-4.01% (bullish)
UST 10yr Yield 3.72-4.02% (bullish)
UST 2yr Yield 4.63-4.98% (bullish)
High Yield (HYG) 74.06-75.71 (bearish)
SPX 4 (bearish)
NASDAQ 13,788-14,425 (bullish)
RUT 1 (bearish)
Defense (ITA) 115-118 (bullish)
Healthcare (PINK) 26.01-27.54 (bullish)
DAX 15,837-16,248 (neutral)
VIX 13.15-16.39 (neutral)
USD 99.66-102.25 (neutral)
EUR/USD 1.102-1.122 (bearish)
USD/YEN 137.83-142.69 (bullish)
Oil (WTI) 73.73-78.94 (bullish)
Oil (Brent) 78.11-82.99 (bullish)
Nat Gas 2.47-2.86 (bullish)
Gold 1 (bullish)
Silver 23.80-26.02 (bullish)
Bitcoin 28,853-30,403 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
