“Great achievement is usually born of great sacrifice and is never the result of selfishness.”
-Napoleon Hill
This is not easy.
But I have something I need to admit this morning. Last night I dressed up as a Hot Dog for Halloween.
My daughter asked me if we could dress up as hot dogs together, so it is a sacrifice I made for the team.
Life is all about sacrifice. Many of those sacrifices relate to time. There is a finite number of hours in the day. Accomplishing one goal often requires sacrificing another goal.
In the stock market game, there are times when the best investment is to sacrifice an existing investment. This might relate to time put into the research of a proposed investment or exiting a position at a loss.
Sacrificing time invested is difficult. In fact, this is what is referred to as the sunk cost fallacy in behavioral finance. The explicit definition is as follows:
"...the phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial."
Sound familiar? Well, it should. This is behavioral bias we all fall prey to at times.
In reality, any decision in life, business, and, especially, markets should be based on the best opportunity moving forward and not money or time invested in the past.
Take a look at the worst 20% of investments in your portfolio at the end of the year. I'm guessing had you cut your losses at -8% or so, your overall performance would've been much higher. But doing so requires accepting you were wrong. Not always easy to do, but probably worth it for long term performance.
Back to the Global Macro Grind ...
The scariest thing on Halloween yesterday wasn't seeing a grown man in a Hot Dog costume. It was actually, at least for those of us who are macro aware, the economic data from Europe.
- Germany Preliminary Q3 GDP -0.8% Y/Y;
- Eurozone Economic Sentiment declining to an almost three year low;
- Germany Preliminary October CPI slowing by -0.7% to 3.8%;
- Eurozone Aggregate Q3 GDP slowing to +0.1% Y/Y; and
- Germany October Retail Sales coming in at -4.3% Y/Y.
I could go on this morning, but you get the point. Almost every major economic indicator in Europe has decelerated in the last 48 hours and many decisively slow.
Conversely in the U.S., the economic data remains strong and inflation is re-accelerating. Case in point is Q3 GDP coming in at an annualized SAAR of +4.9%! Quite the contrast to Europe.
Given this dichotomy, it shouldn't be a surprise if the ECB cuts rate much sooner than the Fed. Or even starts cutting rates while the Fed continues to tighten. Consequently, it also shouldn't be a surprise if the dollar continues to strengthen versus the Euro.
Speaking of the Fed, we have the FOMC policy announcement today at 2:30pm. This summer at Jackson Hole, Chair Powell was adamant that he was data dependent. Specifically, he said:
“At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks.”
Since then, to the point above, the underlying economic data has become more hawkish and the Fed has paused.
Therefore, we likely all know the outcome of today’s FOMC meeting . . . another “hawkish pause”. Data be damned!
The bond market continues to see through this charade and is doing the work of the Fed. In particular, the long end of the curve has added on more than +80bps since late August.
After the Fed today, we get Non-Farm Payrolls on Friday. September’s report was a big upside surprise suggesting the labor market remains tight. Since then, most of the high frequency labor market indicators continue to suggest there have been no real changes in labor conditions.
On the other hand, consensus estimates for October suggest a decline to +189K jobs. This is down some -44% from September’s better than expected report. It wouldn’t surprise us if NFP beats expectations again.
So, what to do with all of this? Well, there really hasn’t been much of a change in our positioning. At the moment, these are the top ranked Macro ETFs by Size in our brand-new Portfolio Solutions product:
- FDRXX, TBIL, TFLO, BUXX, CTA, UUP, AMLP, IVOL, XOP, PSCE, USO, PFIX, DBC, IAK, URA, URNM, FCG, CANE, KBWP, BTAL, DWSH, GLD, RINF, NLR, INDA, SMIN
(To learn more about upgrading to Portfolio Solutions, email .)
As you’ll notice, we have a big allocation to high yielding cash positions. And why not? A north of +5% almost riskless return is hard to sacrifice!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.89-5.15% (bullish)
UST 10yr Yield 4.76-5.01% (bullish)
UST 2yr Yield 4.97-5.21% (bullish)
High Yield (HYG) 71.66-72.82 (bearish)
SPX 4089-4275 (bearish)
NASDAQ 12,493-13,197 (bearish)
RUT 1 (bearish)
Tech (XLK) 158-166 (bearish)
Shanghai Comp 2 (bearish)
DAX 14,590-15,095 (bearish)
VIX 18.01-22.69 (bullish)
USD 105.64-107.21 (bullish)
EUR/USD 1.051-1.064 (bearish)
USD/YEN 149.45-151.80 (bullish)
Oil (WTI) 80.93-89.56 (neutral)
Nat Gas 2.93-3.78 (bullish)
Gold 1 (bullish)
AAPL 165-175 (bearish)
TSLA 185-222 (bearish)
Bitcoin 31,434-35,001 (bullish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
