“States die in a great variety of ways.”
-Peter Turchin
In meetings and client calls, our Institutional subscribers will often engage us in a conversation about “how it all ends.” They all know that demographics are real (The Fourth Turning Is Here). Most of them know that cycles indeed cycle. And many of them see the current breakdown of US Deficits, Debts, and the #accelerating Cost To Service that US Sovereign Debt.
My answer on “how it all ends” is slowly, then all at once. If you don’t know what that looks like, pull up a chart of Rate Sensitive Utilities (XLU) from yesterday. They crashed another -4.7% on the day after leading Sector Style Losers at -6.9% last week.
If you’d prefer it to end that way, I get it. Slowly is better (for some)… because some big firms need #ExitLiquidity… and I’ll get into that next. But, all the while, remember that anything can happen at any pace from here. As Turchin goes on to remind us in Chapter 7 of End Times (called “State Breakdown”), “some go out in a bang of violence; others unravel quietly and die without a whimper.” (pg 161)
Back to the Global Macro Grind…
If you don’t know what #ExitLiquidity looks like, YouTube the Titanic.
Yesterday was easily the most tilted Titanic day of this entire “year to date” where everyone from Bozo The Clown to your local Old Wall “strategist” went all-in on “Soft” and “No Landing” narratives. You just HAD to chase those July lower-highs for #MOAB, eh?
Uh, no.
Never mind the small mathematical detail that their Perma Bull Marketing narrative of “up YTD” no longer applies to our Core Short Broad Basket of US Stocks: Russell 2000 was -1.6% on the day to -12.1% since AUG 1, and no longer “up year-to-date”…
Here’s what happened yesterday #NastyBreadth:
A) The Magnificently Manipulated 7 Stocks (#MM7) in SPY were UP +1.95% on the day
B) The Equal Weight SPY (RSP) was DOWN -1.1% on the day
C) 78% of Stocks in SPY were DOWN on the day with an average decline of -1.7%
But, no worries, “SPY was flat.”
Yep, thank god for that. After 4 straight down weeks for SPY, #ExitLiquidity needed it!
Since I’m not your local circus act on hedging The Cycle, I’m currently short all 3 of those exposures (and many more!): SPY, RSP, IWM. And now I get my shot to re-load on the short side of QQQ and XLK (been waiting on some manipulation to lower-Cycle-highs for both).
But is it manipulation? Maybe it’s not. Maybe it’s just that they can’t allocate capital anywhere else on the Titanic!
It’s not just our Rate Sensitive US Equity Sector Styles (Utilities, REITS, Staples = XLU, XLRE, XLP) that are collapsing and/or crashing. It’s the whole bloody Bond Market! Did you see how our Core High Yield (HYG) and Junk (JNK) Shorts traded vs. #MM7 in SPY yesterday?
High Yield OAS Spread WIDENED to > “400 over” (Treasuries) and could easily shoot to 500-600 over, all at once…
Wouldn’t that be awesome? Wouldn’t it be cool if the false narrative that they went with on the last “JOLTS” data report started happening all at once too? Do you know what happens to ALL US Stocks if/when the US Labor Data goes bad all at once?
I’m sure some of them do. But looking at the commentary when the UST 10yr Yield was at 4.05% on that last JOLTS report week, I wouldn’t be so sure that everyone is off the Titanic yet…
Unless you are a rookie on the job and/or haven’t studied Cycles heading into a recession, you know that:
A) Late Cycle Labor Data is the latest of cyclical indicators… and
B) WHEN US Weekly Jobless Claims break out, all at once, > 300,000 that’s when it all ends
What ends? Plowing retirement flows and accounts into that part of The 2023 USS Titanic #MM7…
So now let’s watch them beg and hope for a “dovish JOLTS” and for The People to lose their jobs (as long as they don’t lose theirs). Don’t remind them that The People having jobs is the only thing keeping those last flows of oxygen alive.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.49-4.90% (bullish)
UST 10yr Yield 4.39-4.75% (bullish)
UST 2yr Yield 5.01-5.19% (bullish)
High Yield (HYG) 72.74-73.96 (bearish)
SPX 4 (bearish)
NASDAQ 12,990-13,513 (bearish)
RUT 1 (bearish)
Tech (XLK) 160-167 (bearish)
Energy (XLE) 87.82-92.78 (bullish)
Utilities (XLU) 55.15-61.08 (bearish)
DAX 15,012-15,601 (bearish)
VIX 15.33-19.92 (bullish)
USD 105.01-107.23 (bullish)
CAD/USD 0.727-0.742 (bearish)
Oil (WTI) 87.78-93.32 (bullish)
Gold 1 (neutral)
Copper 3.58-3.78 (bearish)
Silver 21.34-23.27 (bearish)
MSFT 308-325 (bearish)
AAPL 168-177 (bearish)
NVDA 405-450 (neutral)
Bitcoin 25,708-28,175 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
