“In 1893, the most serious depression the nation had yet experienced settled over the land.”
-Doris Kearns Goodwin (The Bully Pulpit)
Today is not 1893.
While they let some of the 2013 US stock market bears out of their caves yesterday (BREAKING NEWS: “SP500 Falls To Start Year Lower For 1st Time Since 2008” –Bloomberg), I suspect the blizzard will send them right back to where they came from.
This is not 2008 either.
Sure, there’s plenty to concern yourself with (like a market that got pinned up at an all-time high at year-end) in terms of this raging bull market being overbought and both sentiment and flows chasing it, but let’s get real here and get on with our risk managed day.
Back to the Global Macro Grind…
Oh, and by the way, in 1893 we didn’t need a bunch of bureaucrats at the Fed to save us from themselves either. The bear depression of the late 19th century was one born out of this thing we call a cycle. Companies back then overbuilt rail capacity and over-extended themselves with bank loan leverage (sound familiar?). This is what happens at cycle tops (like 2007).
Globally (especially in Europe) we aren’t in the area code of a peaking 1893 or 2007 piggy cycle either. In the US we don’t think we’ll be seeing consecutive 4% handles on GDP, but that certainly doesn’t mean fear and panic is going to break-out across the land. With so many still whining about the last war, I say you get yourself a shovel and a smile this morning - move forward.
Back to the business cycle (where companies build inventories, shhh), lets dig through some fresh US economic data:
1. USA’s ISM Manufacturing PMI for DEC was reported yesterday at 57.0 vs 57.3 in NOV
2. The ISM’s New Orders component of the report accelerated to 64.2 DEC vs 63.6 NOV
3. The ISM’s Employment component of the report was steady at 56.9 DEC vs 56.5 NOV
For me, this was a surprisingly strong read-through on the US economy as the data was almost as good as it could get (sequentially) in Q3 of 2013. So to see follow-through in December was a good thing for growth (as an investment style) and bad for bonds.
Employment is a fun one to watch people complain about because:
1. The monthly BLS data is a lagging economic indicator (the one CNBC has dudes guessing on every month)
2. The only coincident to leading indicators (ISM’s, weekly Jobless Claims, etc) are poorly understood
3. NSA rolling 4-wk jobless claims (see Chart of The Day) fit the 10yr US Treasury Yield’s 12 month TREND like a glove
I’ll give you 5:1 odds that if you ask your run-of-the-mill TV pundit what the consequence is of using the NSA # to probability weight the direction of the bond market that they think you are talking about the National Security Agency.
*NSA = non-seasonally adjusted. And the reason why we use the NSA rolling-claims data series on a year-over-year basis is simply because that’s what Josh Steiner (Managing Director of our Financials team) found that Mr. Macro Market cares about.
Who seriously cares that, on very light volume (-14% vs @Hedgeye TREND), it was the 1st market down day “since 2008” when it has no back-test or relevance to the market we have in front of us in 2014? Here are 3 more things to think about:
1. US Initial Jobless Claims of 443,513 (NSA) were down -9.5% y/y yesterday (vs. down -8.2% in the wk prior)
2. US 10yr Treasury Yield held my most immediate-term TRADE line of 2.96% support yesterday; 3.07% = resistance
3. Gold is signaling immediate-term TRADE overbought this morning within a bearish @Hedgeye TREND
So, rather than try to get cute with some Hedgeye panic and depression propaganda yesterday, here’s what I did:
1. Took our Cash positions down from 50% to 40% in the Hedgeye Asset Allocation Model
2. Moved from 5 LONGS, 5 SHORTS on 12/31’s close to 8 LONGS, 4 SHORTS (bought and covered on red)
3. Shorted Gold (GLD) and bought some US Equity Beta (TSLA)
That doesn’t mean I am going to be right. It simply means there’s a process behind every sequence of macro market timing decisions my team and I make. There’s nothing depressing about that.
Our immediate-term Risk Ranges are now as follows (all 12 of my Big Macro Ranges are in our Daily Trading Range product):
UST 10yr Yield 2.97-3.07%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer