“American political mood shifts according to a cycle that is driven by generational turnover.”
-Neil Howe
Neil and I had the pleasure of presenting together to YPO in Las Vegas earlier this week. If you haven’t had an opportunity to listen to Neil Howe in person, you should. He’s not only encyclopedic, but he’s a great human being and the best demographer in the world.
The aforementioned quote comes from Neil’s new book: The Fourth Turning Is Here. In a chapter he titles “Winter Is Here”, Neil drew from the late historian, Arthur Schlessinger Jr.:
“A true cycle … is self-generating. It cannot be determined, short of catastrophe, by external events… there is a cyclical pattern that is organic in nature – in the tides, in the seasons, in the night and day, in the systole and diastole of the human heart.” (pg 36)
Back to the Global Macro Grind…
Since Schlessinger passed away in 2007, he didn’t get to see Part I of The Fourth Turning: The Great Financial Crisis of 2007-2008. If he was around, unlike many Wall Street strategists, he would have seen the fractal nature of the patterns that were developing.
Newsflash: the Fourth Turning isn’t over, and they continue to develop today.
On this day in 2007, the largest run on a British Bank in 150 years happened. It was called Northern Rock. A CNBC type navel gazing at their beloved SPY chart would have missed the implications of that event. It was part of The Cycle.
I’m old enough to remember the most recent US Regional Bank Crisis of 2023.
That happened partly because of bad Boomer behavior (that’s the political generation that gave birth to ZIRP, Leverage, etc. don’t forget) but specifically because Rates Ramped Faster than most “expected”, the Yield Curve inverted, and the rest is history now.
But what is, as the late Paul Harvey would say, “the rest of the story” from here?
Well, don’t ask me. I have no idea. All I have are these bloody market signals that remind me that the story of living on leverage and borrowed Cycle Time isn’t over, until the slowing part of The Cycle is over.
On that Signaling Score, we have 3 brand spanking new #BHLs (big higher lows) for you this morning:
- Oil
- Rates
- USD
If you’re a US banker or levered borrower, that Hat Trick of #BHLs is #NotGood. Let’s go through them:
- Oil (WTI) continues to signal Bullish on both my TRADE and TREND durations with a #BHL of $84.07
- Rates: both the UST 2yr and 10yr Yields continue to signal #BHL’s for The Cycle at 4.83% and 4.13% respectively
- US Dollar Index continues to signal Bullish on both my TRADE and TREND durations with a #BHL of $103.84
While I think I read more books than most of my competitors, I don’t need to read anything “in the papers” (that’s what Powell says he does at this hour of his “process”) about anything this morning. Those 3 #BHLs matter more than anything anyone can say back.
Why? What do they mean?
- Higher-highs and higher-lows for the #1 input in our US INFLATION Nowcast means no Fed Cuts anytime soon
- Higher-highs and higher-lows for UST Rates, across The Curve, is what it is – more of the same to Rate Sensitivity
- Higher-highs and higher-lows for USD remains widely misunderstood, and we remain Long of USD against the crowd
Change 1 or all 3 of those #VASP (Volatility Adjusted Signaling Process) Signals and I’ll not only change my positioning, but I’ll change what I’m writing and ranting about. In fractal math, these are called Similar Sets. They are causal to one another.
Instead of chasing what the Old Wall Bankers are selling this morning (ARM’s IPO), what do we do with these 3 #BHLs?
- EQUITY: Short Utilities (XLU) at the TOP end of my Risk Ranges (I’ve added that back to the RISK RANGES product today)
- CREDIT: Re-Load on the Short Side of High Yield (HYG) and Junk Bonds (JNK)
- COMMODITIES: keep buying the damn dips in Energy Stocks (XOP, XLE, PSCE), Oil, Gasoline, Uranium, etc.
That’s the immediate-term @Hedgeye TRADE setup. For the intermediate-term TREND, Neil Howe and I agree: winter is coming.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.22-4.46% (bullish)
UST 10yr Yield 4.13-4.39% (bullish)
UST 2yr Yield 4.86-5.05% (bullish)
High Yield (HYG) 74.13-74.98 (bearish)
SPX 4 (bearish)
NASDAQ 13,606-14,114 (bearish)
RUT 1 (bearish)
Energy (XLE) 89.06-93.64 (bullish)
Utilities (XLU) 61.20-64.56 (bearish)
Shanghai Comp 3090-3179 (bearish)
Nikkei 32,375-33,294 (bullish)
BSE Sensex (India) 65,113-67,901 (bullish)
DAX 15,528-15,890 (bearish)
VIX 13.09-16.47 (neutral)
USD 103.84-105.33 (bullish)
EUR/USD 1.062-1.085 (bearish)
USD/YEN 145.94-148.28 (bullish)
Oil (WTI) 84.07-90.01 (bullish)
Oil (Brent) 87.11-93.46 (bullish)
Gold 1 (bullish)
Copper 3.70-3.90 (neutral)
Silver 22.13-24.73 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
