“The only place that success becomes before work is in the dictionary.”
-Vince Lombardi
I’m in a football state of mind. I will be heading up to New Haven, CT early tomorrow morning to watch the Harvard – Yale Football game. Or as it is more commonly known: The Game.
Although Yale is considered the birthplace of college football, it is obviously no longer competitive with the top collegiate programs in the country. That said, Yale still does graduate NFL prospects from time-to-time.
Included on the list is our former intern Foye Oluokun of the Jacksonville Jaguars. Foye has led the NFL in tackles the last couple of seasons and is again in the top 5 this year. Although he only worked with us a short time, it was pretty obvious by his grinding and work ethic that a high level of success was in Foye’s future.
Whether it is success on the athletic field, in your personal life, or in business, success does not come without putting in the work. This is equally true in the stock market game. People will try and sell you get quick rich schemes, but there is nothing quick about deliberate study, putting in the hours, and reviewing the tape.
Studies show that traders and investors that review their decisions after the fact, exceed the performance of those that do not on almost every metric. This is why we are big proponents of keeping an investing notebook.
In the notebook, write down your thesis, outline the trade strategy, and incorporate some expected timelines. Then after you execute on the investment, analyze how it went. Given the results, what could you have done better and how can you improve on your next position?
Reviewing game tape is a light lift and is only going to improve your outcomes.
Back to the Global Macro Grind ...
In that vein, I though it would be interesting to review some of the key data that we received this week. The CPI report from Tuesday may seem like a lifetime ago, but alongside that report there was a slew of inflation data to touch on:
- October Headline CPI slowed to +0.0% M/M and Core CPI slowed to +0.2% M/M. Both also slowed on a Y/Y basis;
- October Headline PPI slowed to -0.5% M/M and Core PPI slowed to 0.0% M/M; and
- Finally, October Export Prices slowed to -1.1% M/M and Import Prices slowed to -0.5%.
While we have questions about some of the government assumptions imbedded in these calculations, it is hard to argue against the fact that inflation, on some level, slowed from September into October.
In the short run, these reports got the markets excited on the expectation that rate hikes could become rate cuts sooner than previously expected. Unfortunately, there is another side to the deflation story, which is slowing demand. Prices don’t go down sustainably unless economic demand slows commensurately.
On that point, we also received important data points that highlighted slowing economic demand, though they received less fanfare. Headline Retail Sales for October clocked in at -0.1% M/M and slowed to +2.5% Y/Y.
More interesting here was the Control Group in Retail Sales, which slowed to its lowest level post pandemic at +3.5% Y/Y. We’ve highlighted this in the Chart of the Day. More importantly, on both measures of Retail Sales, volume is basically flat or negative versus last year.
Some of the headlines post the retail sales report characterized this as the “consumer defying expectations” and “holding up better than expected”. Personally, I see it a little differently, but what do I know!
In reality, the U.S. consumer continues to live on borrowed time. According to the New York Fed, household debt levels increased +1.3% in the quarter to 17.3 trillion. Meanwhile, credit card borrowing rose by +4.7% Q/Q to 1.1 trillion. Both are all time highs. (At this point, only the Federal Government is borrowing faster than the U.S. consumer, but I digress.)
We are seeing this strain on the consumer in real time via credit card delinquencies, which have continued to rise throughout 2023. For some lower FICO card issuers, like Synchrony and Discover, the 30-day delinquency rate are closing in on 5%.
Even if the stock market doesn’t seem to see the consumer slowing, yesterday the largest retailer in the world, Walmart, reported it. According to Walmart’s CFO on the conference call, they are . . .:
“. . . seeing a softening in the back half of October that was off trend to the rest of the quarter.”
It’s possible that when we review the tape a couple of quarters of now, the #Quad4 data we are seeing won’t matter. But hopefully you will also be prepared if the opposite is true, and it begins to manifest itself quickly. Keep doing the work.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.56-4.95% (bullish)
UST 10yr Yield 4.40-4.76% (bullish)
UST 2yr Yield 4.80-5.10% (bullish)
High Yield (HYG) 73.39-74.74 (bearish)
SPX 4 (bearish)
NASDAQ 13,397-14,311 (bullish)
RUT 1 (bearish)
Tech (XLK) 172-184 (bullish)
Energy (XLE) 81.99-86.28 (bearish)
VIX 13.56-18.54 (bullish)
USD 103.90-106.58 (bullish)
Oil (WTI) 73.01-80.88 (bearish)
Gold 1 (bullish)
Copper 3.55-3.85 (bearish)
AMZN 139-147 (bullish)
NVDA 455-510 (bullish)
Bitcoin 35,210-38,493 (bullish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
