"It is a rough road that leads to the heights of greatness."
-Seneca
I've never met a successful investor who doesn't put in the work and grind it out. Sure, some people may get lucky. The Mother of All Bubbles certainly reinforced that, but simply putting your chips on the table, letting them ride, and making some money when things go parabolic is not grinding.
Achieving success over time comes from putting in consistent effort—getting up and grinding, day after day, week after week, and year after year. Alongside this effort, there's often a passion for the work because money itself is usually a poor motivator, although it can be a positive side benefit. To be successful in investing, or any field, one needs methodical and deliberate study.
This is not a new concept. In fact, in 1985, Benjamin Bloom, a Professor of Education at the University of Chicago, published a landmark book on this topic called "Developing Talent in Young People." The goal of the book was to examine the critical factors that lead to success. Surprisingly, or perhaps not, Bloom's work found no early indicators that could predict a virtuoso's success.
In fact, what he found was that:
"All superb performers he investigated had practiced intensively, had studied with devoted teachers, and had been supported enthusiastically by their families throughout their developing years."
In other words, elite performance is achieved through hard work and dedication, not innate talent.
Further studies over the years have built upon Bloom's work. One key point that has been emphasized is both the quantity and quality of practice. Deliberate study is critical to achieving a high level of success. As Malcolm Gladwell wrote:
"Success has to do with deliberate practice. Practice must be focused, determined, and in an environment where there's feedback. It's not necessarily the amount of time you spend practicing that counts; it's what you put into the practice."
Indeed.
Back to the Global Macro Grind...
So, what has our deliberate study of economic data taught us over the last week?
One thing that has become obvious is that the U.S. labor market remains very tight. This is despite the fact that just over a week ago, many pundits were concerned about JOLTS data (job openings) declining by -4% from June to July, reaching its lowest level since March 2021. While it might not be an acceleration, almost all the data within the report remained well above pre-pandemic levels and healthy by most measures. In fact, the ratio of job openings to unemployed workers is still at a lofty 1.5.
Since then, more recent labor data has actually improved:
- Weekly Jobless Claims hit +216K, the lowest level since February 2023;
- Non-Farm Payrolls increased from +157K in July to +187K in August, and it would have been roughly +50K higher if not for the Hollywood strike and Yellow bankruptcy; and
- ISM Services for August showed an acceleration in employment, rising from 50.7 to 54.7, characterized as both growing and accelerating.
While many labor market indicators are off their cycle highs, we have certainly seen an acceleration in August. This is significant because if we recall Chairman Powell's speech at Jackson Hole, he mentioned:
"The rebalancing of the labor market has continued over the past year but remains incomplete."
Since his speech, the data has shown us that the rebalancing of the labor market is even less complete.
Similarly, inflation has only accelerated since his speech. The best proxy for this, and perhaps the most direct driver of future CPI reports, is oil. Since August 25th in Jackson Hole, oil prices have risen almost +10% in that 2+ week period. PCE Prices, reported after his speech, also accelerated month-over-month. (Incidentally, this rise in oil prices coincided with the dollar strengthening, which may have confused those not closely following daily correlations. At the moment, the correlation between the dollar on a 15-day basis is +0.79.)
So, if there is one takeaway from our deliberate study of the data since Chairman Powell's speech, it is that the data suggests the risk of further inflation acceleration has only increased. As a result, one would expect the Fed to become incrementally more hawkish. We will receive the next inflation report with CPI on Friday of next week. If the trend of accelerating inflation data continues, it will be a rough road ahead for those expecting an imminent interest rate cut.
Another key takeaway from our deliberate study of global economic data in the last week is the turmoil in Europe. From Services PMIs to construction PMIs, Retail Sales, and sentiment surveys—literally every economic data point in Europe has either decelerated or remained in contraction. The benefit of this for those of you who are bullish on the dollar, like us, is that the economic data in Europe may push the ECB toward a more dovish stance at a time when the Fed is moving in the opposite direction.
Interestingly, just two months ago, Bloomberg had this headline: "Dollar’s Busted Bull Run Has Bears Calling End of an Era." As it turns out, Mark Twain's famous saying applies here:
"The reports of my death have been greatly exaggerated."
The same can be said for the U.S. dollar.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 4.07-4.37% (bullish)
UST 2yr Yield 4.84-5.06% (bullish)
High Yield (HYG) 73.99-75.03 (bearish)
SPX 4 (bearish)
NASDAQ 13,465-14,033 (bearish)
RUT 1 (bearish)
Energy (XLE) 88.16-92.59 (bullish)
Shanghai Comp 3053-3184 (bearish)
Nikkei 31,908-33,494 (bullish)
BSE Sensex (India) 64,603-66,139 (bullish)
DAX 15,575-15,986 (bearish)
VIX 13.09-17.11 (neutral)
USD 103.53-105.71 (bullish)
EUR/USD 1.067-1.088 (bearish)
Oil (WTI) 81.80-89.57 (bullish)
Oil (Brent) 85.61-92.56 (bullish)
Nat Gas 2.42-2.86 (neutral)
Gold 1 (bullish)
Copper 3.70-3.87 (bearish)
Silver 23.25-25.30 (bullish)
AAPL 173-189 (bearish)
NVDA 451-493 (bullish)
Bitcoin 24,991-26,523 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
