“And unlike Lieutenant Kaffee, I actually can handle the truth.”
-Ted Lasso
Who doesn’t like Ted Lasso? He’s a beauty. His character gave me plenty of new coaching ideas. Building a team’s character & culture doesn’t happen via email. It happens with two feet on the floor, grinding, every market day.
The aforementioned quote comes from a solid new #behavioral book by Ryan Renteria: Lead Without Burnout. He has a great chapter called “Candor” where he used Lasso’s quote as his lead-in.
“Business leaders want to drive improved results through clearer and better-informed decision-making. The path to get there is with a culture that promotes continuous learning…” (pg63). Sound familiar?
Back to the Global Macro Grind…
How informed is your decision-making process? Is it rules-based but flexible? Are we learning about the impact of The Machine on things like “valuation”? Are we always learning about where we could be more right or wrong?
While I don’t know how “right” my team is going to be from year-to-year, I do know how we’re going to make decisions within the context of both my #VASP (Volatility Adjusted Signaling Process) and The Cycle.
On The Cycle, the #1 Question we’re getting from Institutional Clients is “is it #Quad2 or #Quad3”? A: especially if you take a Global Macro view (instead of just a USA Only one), it’s both:
A) Our refreshed USA GDP Nowcast is for a #Quad2 in Q2 and #Quad3 in both Q3 and Q4 (of 2024)
B) Our refreshed Global GDP Nowcast is re-accelerating from #Quad1 in 1H24 to #Quad2 in 2H24
Part B) of that is where most of our USA Only Institutional Clients reply with things like “oh, right…”, “good point”, etc. If they’re not measuring and mapping the German and Indian economic data (daily) like we do, how else would they know?
Example: Germany this morning:
A) Reported a “surprise” (to the upside vs. Bloomberg Consensus) Retail Sales #acceleration of +1.8% m/m
B) Bond Yields continued higher-for-longer on that, and German stocks pulled back small
When you’re making informed decisions about US Bond Yields, have you incorporated the recent TREND breakouts in:
A) The German 10yr Bund Yield?
B) The UK 10yr Gilt Yield?
While that would be remedial for my teammates (and many of you) who do Global Macro economic ROC (rate of change) analysis, you might be surprised at how many USA Only investors don’t start with Global Bond Yields, daily.
Does it mean we’re all that and just better than everyone else? A: Nope. It simply means that we have OUR informed decision-making process and it doesn’t deviate based on someone else's qualitative opinion or narrative.
Let’s go back to the USA Only analysis…
The most important inflection that is driving more Stagflation (i.e. #Quad3 over #Quad2 in 2H of 2024) is… wait on it… US INFLATION #accelerating! You can wait on the Fed to tell you whatever they want tomorrow, but that won’t change this:
A) Our US Headline CPI projections for the next 4 quarters are +3.65%, +3.78%, 4.07%, and +4.32%
B) Bloomberg Consensus Headline CPI (y/y) for the next 4 Qs are +3.35%, +3.00%, +2.90%, +2.60%
Yep, if you have kids who want to work on ye Olde Wall one day as a Linear Econ, tell them they just have to hug the consensus yellow-line and always forecast round numbers.
And yes, you read this Chart Of The Day right:
A) Hedgeye’s Nowcast has INFLATION breaking out and away from the Fed’s “target”
B) Bloomberg consensus has INFLATION breaking DOWN towards the Fed’s “target”
To be clear, Fed forecasts and hoped-for “targets” matter (mainly because all of Macro Tourism hangs in the balance of both), but getting the direction (accelerating or decelerating) matters more than anything else in YOUR accounts.
You know who else really cares about getting the direction of INFLATION right? A: humans and companies.
We’ve shown you the K-Shaped US Economy many times, so you get the drill on the 50% of Americans who have no money left by the end of their spending weeks, but how about the companies?
Whether the USA Only analysis gets you to #Quad2 or #Quad3 on any given month from now until Q4, USA’s Earnings Season for Q1 of 2024 has been either #Quad3 Stagflation or #Quad3 Recession:
A) 239 of the SP500’s companies have reported a stagflating year-over-year EPS Growth Rate of only +3.8%
B) 427 of the Russell 2000’s companies have reported a recessionary year-over-year EPS Growth Rate of -17.5%
That’s right. Remember the time (last year) when the Net Income of the Russell 2000 was in a depression (down 30-35% year-over-year)? Economic history does. Now the Russell has #accelerated from depression to recession. #gr-r-eat!
So what’s a > 4% INFLATION rate going to do for humans and companies going forward?
Ah, who cares, eh? Let’s just tell The People that it’s been a “hall of fame year” for inflation and earnings, issue as much US Debt as humanly possible, ramp the US Deficit to the moon into the election… and … wait on it…
Beg for the Fed to whisper sweet-dovish-nothings tomorrow (which would accelerate INFLATION further)!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 4.55-4.72% (bullish)
UST 2yr Yield 4.90-5.05% (bullish)
SPX 4 (bullish)
NASDAQ 15,251-16,098 (neutral)
RUT 1 (bearish)
Tech (XLK) 192-202 (bearish)
Energy (XLE) 93.34-97.75 (bullish)
BSE Sensex (India) 72,511-75,125 (bullish)
DAX 17,650-18,278 (bullish)
VIX 13.98-19.54 (bullish)
USD 105.30-106.24 (bullish)
Oil (WTI) 81.31-85.17 (bullish)
Oil (Brent) 85.50-89.47 (bullish)
Nat Gas 1.70-2.16 (bullish)
Gold 2 (bullish)
Copper 4.33-4.69 (bullish)
Silver (SLV) 26.51-28.94 (bullish)
MSFT 394-413 (bearish)
AAPL 163-175 (bearish)
META 415-474 (bearish)
GOOGL 156-172 (bullish)
Bitcoin 61,144-65,050 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
