“They simply adopted Quantamental. We were born in it, molded by it, indistinguishable from it!”
- Someone at Hedgeye, Probably
Alright shield bros and shield maidens, it’s Friday and once again time to lock risk management arms and buttress the analytic shield wall in dutiful defense of macro hyper-awareness.
Vol is back, entrance to macro vol-halla remains alpha dependent and membership in the Macro Aware-istocracy is earned, not allocated … and dues must be paid, daily!
Memes remain the apex object in the attention economy and the #Dopameme Wars have commenced, like it or not.
One must choose an approach vector and engage … ignorance, willful blindness, or passive observance are no longer sufficient defenses!
So, let’s begin paying today’s Aware-istocary dues in memetic & process-centric fashion by first probing the vaunted f-around-find out coordinate system.
F’ing around is, of course, delightfully recursive as one must engage in some proper finding-out in order to f-around in the first place.
From there we can iterate and progressively calibrate the f’ing-around to optimize the finding-out.
To start, let’s review the daily, baseline risk management triangulation (finding out) exercise.
The below is a distilled version of my personal QB check-down list with respect to filtering and contextualizing incremental data:
- VASP: Where are we withing the risk ranges for big macro or market signals that matter ($USD/10Y TSY/etc)?
- Are we flirting with a breach in TREND across big macro “signal” assets? If so, is there a constellation of corroborating similar sets (are rates/gold breaking TREND while utes/etc go Bullish TREND, etc)?
- Is the VASP signal outright or close to signaling a fundamental inflection that runs counter to our prevailing Quad/Fundamental view?
- What is the latest high-frequency data? Does it confirm or disconfirm the TREND and/or our prevailing fundamental view?
- Where is consensus positioning as reflected in derivatives markets? Any large-scale shifts? Any building or decaying asymmetries?
- What is current market structure?
- Tactically, what is the gamma regime, the probable direction and magnitude of systematic flows and the associated trigger levels? Is risk of trap door/cascading vol-price dynamics rising or falling on the margin?
- Durationally, to what extent is positioning becoming (over)extended in a given direction.
- What is the catalyst calendar and how vulnerable is any positioning asymmetry to a (reflexive) reversal?
- Taken collectively, what are:
- The direct exposures that fit the (prevailing/expected) Quad regime and are Bullish TRADE & TREND ….. (baseline process implementation)
- What is a less obvious adjacent exposure that also satisfies the Quad/VASP criteria? (top quintile of macro aware-istocracy)
- What is an even less obvious derivative exposure to that adjacent exposure that will likely be convex in the event conditions evolve as we expect?
- Is there a derivative exposure that consensus is also bearish on and systematic strats are offsides with respect to as it relates to an evolution in macro conditions we think is probable?
*Remember …and this is a 101 reminder I reiterate frequently … you don’t have to be “right” in an absolute sense. Consensus/mkt positioning just has to move in the direction of that thing being more or less probable for you to get paid.
The above represents an interconnected network of two-way feedback channels such that each informs/influences the other. It’s a flat network structure, but relative importance can be conditionally/situationally dependent and the #VASP signal sits as the central/master node.
From baseline process implementation → veteran, Jedi-tier citizen of the aware-istocracy, that baseline consideration flow should be habitual and internalized to the point of just being reflexive.
Anyway, since I’m primarily charged with f’ing around and finding out/front-running probable inflections on the fundamental side of the Hedgeye process mosaic, let’s slot the high-frequency incrementals into TREND context:
Back to the Global Macro Grind...
3Q23 GDP
The Data: GDP = +4.9% Q/Q – accelerating +50bps to +2.9% Y/Y. Headline Growth accelerated as expected with Services Consumption, Continued Big G Spending and Inventories all supporting 3Q strength.
The Detail:
- C: Services Consumption paced HH spending with July carrying the quarter. Peak Taylor-Barbenhiemer mattered but increased spending across essentials/necessities was also apparent.
- G: Big G still in conspicuous effect, contributing + .80 pts with Defense Spending up a big +8.0% Q/Q and Structure Investment growth up big for a second quarter at +12.4% Y/Y.
- I: NonResi fell to zero contribution while Resi flipped to modest positive contribution at 0.2pts. Inventories were the primary contributor (+1.3 pts) on the Investment side, much of which will reverse or not repeat
- Notable: Auto Inventories were up 14.6% Q/Q thru the latest August data (up +21.9% M/M in Aug alone) and up 80% Y/Y, mostly representing purposeful inventory build ahead of expected strikes. The September data is likely to show similar strength. But, Auto inventories will give back a lot of that strength in the subsequent month(s) while also dragging on 4Q growth and likely steamrolling the monthly Industrial Production data.
The Distillation: Industrial policy and the IRA/CHIPS/BIL (reindustrialization) Trinity will likely continue to support Gov’t structure investment and NonResi Construction Spending but at a progressively diminishing level. We expect July (& 3Q) to represent another local counter-trend top (mirroring what we saw in Jan) with growth shifting back to deceleration as we traverse a series of monthly Quad 3’s & 4’s.
Durable Goods (Sep)
The Data: Headline = +4.7% M/M, accelerating to +7.8% Y/Y.
The Detail: The strength was almost exclusively Defense/Boeing related with Private Aircraft Orders +92.5% M/M and +100% Y/Y.
The Distillation: Largely a false optic dynamic with respect to the Headline with Durables Ex-Defense & Aircraft (cleaner read on underlying demand) was +0% M/M while decelerating -40 bps to +1.7% Y/Y.
And If we map the data to meme space, the below represents a hyperbolic but mostly accurate contextualization.
Anecdata & Etc …
- ALGN: Consumer Proxy in Healthcare: “Deteriorating trends, including decreased patient visits and increased appointment cancellations, along with fewer orthodontic case starts”
- Apple: Casual +45% price hikes for Apple TV services
- Kaiser Permanente strike: Proposed +21% pay increase over next few years as part of worker strike agreement
- UAW Strike: Proposed 25% pay increase as part of partial worker strike agreement
- Taxes/Insurance/etc: Premium increases in queue …. Property taxes and insurance costs on inflation amplified car & home values (& health insurance) will have to get absorbed
SPECIAL MENTION:
Trouble Paying for Usual Household Expenses (Census Pulse Survey) = spiking to a new series at 41.2.
The last data point conveniently segues us to one of our underlying, bigger picture conceptual frameworks.
I encourage you to work through the slide below but the net of it = the tinderbox of Fourth Turning conditions will persist secularly and, more cyclically, fragility continues to metastasize up the “K” – a progressive deterioration that will continue so long Quad 3/Quad 4 remains the TREND macro trajectory.
F’ing around alone at home can be enjoyable.
Being a battle-ready member of the macro aware-istocracy engaged & united in the evolutionary pursuit of f’ing-around & finding alpha exfoliates the soul!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.83-5.20% (bullish)
UST 10yr Yield 4.70-5.05% (bullish)
UST 2yr Yield 4.97-5.24% (bullish)
High Yield (HYG) 71.37-72.88 (bearish)
SPX 4099-4298 (bearish)
NASDAQ 12,441-13,278 (bearish)
RUT 1 (bearish)
Tech (XLK) 157-166 (bearish)
Energy (XLE) 85.80-93.30 (bullish)
Utilities (XLU) 57.27-60.65 (bearish)
Shanghai Comp 2 (bearish)
Nikkei 30,465-31,848 (bearish)
BSE Sensex (India) 63,100-65,577 (neutral)
DAX 14,594-15,181 (bearish)
VIX 16.91-23.63 (bullish)
USD 105.50-106.99 (bullish)
EUR/USD 1.049-1.065 (bearish)
Oil (WTI) 82.97-89.55 (bullish)
Nat Gas 2.90-3.57 (bullish)
Gold 1 (bullish)
Copper 3.45-3.65 (bearish)
Bitcoin 29,821-36,563 (bullish)
Best of luck out there,
Christian B. Drake
