“The only thing we have to fear is fear itself.”
-Franklin D. Roosevelt
Daryl Jones has been studying markets for more than two decades. He has profited in the booms and the busts.
He advises investors that manage trillions of dollars and is known in those elite circles as, The Oracle of Alberta.
This Yale and Columbia University educated investor is very concerned.
His models suggest a crash is coming. The signs are already emerging. No one is listening.
Is your family prepared?
Millions could be lost. Many people will lose their jobs and life savings.
But like in most crashes, there will be opportunities if you do your homework.
Daryl’s research shows that there is one asset class that will not only survive the crash . . . but will thrive. New millionaires will be made.
By now you probably get the joke. Fear sells and there are many investment newsletters that absolutely print money on scaring people into buying their research with advertisements that imply the end is near.
Conversely, much of Wall Street and mainstream financial media is always bullish. The glass is never half empty . . . until it is too late. There are reasons for that, or rather conflicts of interest, which include banking fees and advertising revenue.
Given this dynamic, it is no surprise that less than 5% of companies are rated a sell by Wall Street. Meanwhile, roughly half of our Best Ideas are shorts.
But being a perma-bull doesn’t help an investor any more than being a perma-bear does.
In investing, a flexible mindset is critical. As John Maynard Keynes famously said:
“When the facts change, I change my mind. What do you do, sir?”
Back to the Global Macro Grind…
At the moment, we remain bearish. This was stated explicitly in the title of Keith’s Early Look on Wednesday, “Sell SPY, HYG, etc.” No mincing of words there.
Since that note on Wednesday, we have had two hawkish inflation reports:
- September Headline PPI accelerated to +2.2% Y/Y, which was the highest PPI report since April 2023; and
- September Headline CPI accelerated to +3.7% Y/Y to the highest level in four months.
Certainly, inflation has come down meaningfully from the peak of 2022. Nonetheless, it remains high by any historical standard. We highlight this below in the Chart of the Day. It shows that absent the recent runup, CPI is basically at the highest level since the early 1990s.
Inflation on a compounding basis has become punitive to the average American. Consider the Headline CPI reports for the last three Septembers:
- September 2021 at 5.3% Y/Y
- September 2022 at 8.2%
- September 2023 at 3.7%
Consumer prices are up almost 20% over that period! Credit card balances are now north of a TRILLION dollars. More than half of those balances are being rolled over each month for the first time ever!
Meanwhile, according to recent data from the Federal Reserve, the average interest rate on credit cards is at an all-time high of 22.8%.
Average Americans are getting squeezed! As a case in point, the recent Consumer Confidence Report had Expectations declining to 73.7 in September. This is a level that historically signals a recession within a year.
The inflation reports from the last couple of days had some puts and takes, but going forward we expect more upside volatility. As my colleague Drago wrote in an internal note to the Macro Team:
“The general characterization of the September print and future prognosis remains “sticky-high” as the thrust of mechanically driven disinflation is lost with base effects flattening out through 1Q24 and energy’s reflation emerging to likely undo the pickup in shelter disinflation expected in 1Q24, thereby exacerbating the upside volatility skew in the headline number.”
#HigherForLonger it is on both inflation and financial pressure on the American consumer.
Inflation and debt servicing will continue to be a major headwind to the 68% of GDP that is consumption. At the moment, the government is offsetting softness in areas of GDP by increasing their own spending. There is evidence this is accelerating.
In the last thirty days, the U.S. Federal Government has added some ~$600BN to its balance sheet. On an annualized basis, this is ~$7.2 trillion. In the short term, deficit spending will juice GDP. In the long run, it will create inflation and slow growth.
As a result, we continue to be positioned for a #Quad3 stagflation environment. At the moment, these are our top Macro ETFs By Size Rank:
- FDRXX, TBIL, TFLO, UUP, CTA, BTAL, PFIX, URNM, NLR, URA, SMIN, DWSH, IAK, INDY, INDA, XLE, EWJV, PSCE, IVOL, XOP, USO
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.66-5.01% (bullish)
UST 10yr Yield 4.53-4.85% (bullish)
UST 2yr Yield 4.96-5.18% (bullish)
High Yield (HYG) 72.01-73.49 (bearish)
SPX 4 (bearish)
NASDAQ 13,015-13,699 (bearish)
RUT 1 (bearish)
Tech (XLK) 161-172 (bearish)
Energy (XLE) 84.39-90.35 (bullish)
Utilities (XLU) 55.19-59.85 (bearish)
VIX 16.01-20.31 (bullish)
USD 105.29-107.06 (bullish)
EUR/USD 1.043-1.064 (bearish)
Oil (WTI) 82.31-90.25 (bullish)
Nat Gas 2.90-3.62 (bullish)
Gold 1 (bullish)
Copper 3.50-3.70 (bearish)
AAPL 170-182 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
