Respecting Rate Sensitivity

“The labels vary, but the archetypal order is always identifiable – and always the same.”
-Neil Howe

Look at Bond Yields this morning. Something is turning! In my Partner, Neil Howe’s, The Fourth Turning Is Here, he coaches us through both the “Seasons Of Life” and what he calls “Four-Type Generational Cycles”: Prophet, Nomad, Hero, and Artist.

I’m a Nomad. What are you? I need to talk to Neil about this, but I think we really need to add Zombies to some of the former Artists who became American Prophets of the Levered Long On Low Rates Cycle!

Does the Political Boomer Generation (“Prophets”) in this country have issues? Their Top 2 Presidential candidates are terrific, aren’t they? And how about that US Deficit & Debt situation they got us into? Did I mention the recent ramp in Bond Yields?

Back to the Global Macro Grind…

As Neil goes on to write: “Whatever the historical problem, Namenwirth observes that is takes four whole and consecutive generations to traverse the complete problem-solving sequence… He goes on to suggest that for us moderns, this generational succession might therefore delineate our wheel of time.” (pg 102)

How much Cycle Time you got left on that “Soft Landing”?

More importantly, how much longer can the Boomer Generation’s Glorious Federal Reserve tell both inflation expectations and Bond Yields what to do as Inflation Re-Accelerates into a US Recession?

Instead of taking the US Government and/or Old Wall Street’s consensus word for it on these questions, we’ve done what I think is the most comprehensive Independent & Apolitical Research you’ll find today.

LIVE at 11AM ET, we’ll walk through 197 Slides of pure, unadulterated, mathematical content on these 3 Macro Themes:

1. USA #Quad3 Stagflation
2. The Big (G): Deficits & Debt
3. Long Japan/India vs. Short European Recession

If you’re an Institutional or Macro Pro subscriber, and you’d like access to the content (I think I might edit it down to 181 slides by 11AM!) please ping .

‘But, but, KM… you’re being critical of an un-elected lawyer – I get it, but what do I do in my portfolio?’

Well, I get it too. Nomads (GenX) sometimes “see” it a little differently than Prophets (Boomers). And my “tone” isn’t always for everyone (especially if our positioning is at odds!), but I think I have been crystal clear on my Long/Short Positioning:

1. We’re Long US Dollars, Oil, Energy, Inflation Expectations, etc. and NOT Long Duration!
2. We’re Short Rate Sensitivity (Real Estate, Utilities, Staples, etc.) and we took our Gold position to its MIN
3. We’re Long Japan (short its currency) and India. We’re Short All of Europe, including its bloody currency!

If you have friends who stayed with the “60/40” Asset Allocation model which has been a certified train wreck since we made the Cycle Peak Call back in JAN of 2022, they’re going to continue to get an expensive education on Respecting Rate Sensitivity.

If you’ve been on the right side of being Long Inflation since July/August of 2023, well done.

While our 11AM presentation will be more focused on patient and process oriented, longer-term, Full Cycle Investors, that doesn’t mean that the very immediate-term realities of both the Cycle and The Machine don’t matter. They’re critical.

Here were my Top 3 Things (sent to our Institutional Clients by 6AM ET) this morning:

My USD/Oil/Rates Signals don’t lie, people like Powell do…

1. OIL – my #VASP (Volatility Adjusted Signaling Process) continues to signal a series of #BHLs (big higher-lows) and #HHs (higher highs) for both the price of Oil and Bond Yields (i.e. Inflation Expectations) this morning with my WTI Risk Range™ Signal = $90.16-93.98 – this is going to push our US CPI (inflation) Nowcast AWAY from the Fed’s target (rather than closer to it which many declared victory on in June) and back towards 4% - we’ll review this on our Q4 Macro Themes Call LIVE at 11AM ET
2. RATES – both US and Global Bond Yields don’t lie – they’re all ripping higher (again) this morning with the UKT 10yr Yield joining the Global Inflation Rate Spike party +12bps on the session. UST 2s and 10s continue to signal #BHLs and #HHs for The Cycle and we aren’t Long of Duration (thank God). We are very Long of #PayDay (Monday) with our Short-term T-Bill Asset Allocations (TBIL, TFLO)
3. SECTORS – My USD/Oil/Rates Signals gave birth to my US Equity Sector Style Signals = Long Energy (XLE up another +2.5% to +13.5% for Q3 “to-date”) vs. Short Rate Sensitivity including REITS (XLRE), Utes (XLU), and Staples (XLP). Utes and XLP got pounded yesterday, down another -1.9% and -0.8%, respectively leading Sector Losers on the day (for Q3 XLU and XLP are down -8.1% and -7.2%)

Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets

UST 30yr Yield 4.42-4.80% (bullish)
UST 10yr Yield 4.33-4.67% (bullish)
UST 2yr Yield 5.00-5.18% (bullish)
High Yield (HYG) 73.17-74.31 (bearish)        
SPX 4 (bearish)
NASDAQ 12,818-13,591 (bearish)
RUT 1 (bearish)
Tech (XLK) 159-167 (bearish)
Energy (XLE) 88.48-93.01 (bullish)
Utilities (XLU) 59.75-63.10 (bearish)                                              
Shanghai Comp 3065-3142 (bearish)
Nikkei 31,611-33,624 (bullish)
BSE Sensex (India) 65,201-68,150 (bullish)
DAX 15,105-15,593 (bearish)
VIX 15.33-19.99 (bullish)
USD 104.75-106.78 (bullish)
EUR/USD 1.051-1.072 (bearish)
CAD/USD 0.738-0.746 (bullish)
Oil (WTI) 90.16-93.98 (bullish)
Oil (Brent) 91.35-96.03 (bullish)
Gold 1 (neutral)
Copper 3.59-3.79 (bearish)
Silver 22.25-23.68 (bearish)
MSFT 305-325 (bearish)
AAPL 168-177 (bearish)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer