“Fleeting emotions tempt us to make decisions that are bad in the long term.”
-Chip & Dan Heath
That’s another important quote from the recent #behavioral book I finished this week – Decisive, by Chip & Dan Heath.
How do you overcome your short-term emotions in markets? Does loss aversion drive your decision making? How does mere exposure to something going against you affect your #process?
The Heath boys suggest that “our decisions are often altered by two subtle short-term emotions: 1. Exposure to what’s familiar to us; and 2. Loss aversion.” (pg 174) Both 1 and 2 sound like a market’s last price to me.
Back to the Global Macro Grind…
Real-time prices are very familiar to us. Unless you’re someone who doesn’t do #timestamps (in Independent Research terms) or have a buy-side P&L, so is loss aversion. Which brings me to the one major macro position that is currently going against me – the US Dollar.
If you pull up a 2 year chart of the US Dollar Index, you’ll note that:
If you only look at a 6-7 month (YTD) chart of the US Dollar Index:
In other words it really hasn’t done anything. That said, it could go up or down a lot from here. If it continues to track both Fed Policy and the rate of change (slope of the line) in US Growth, there’s no reason why it can’t go straight back down to $79.5.
But what if US growth continues to slow, the Fed gets incrementally dovish, and Draghi gets even more dovish? Unfortunately, God didn’t call me this morning with that answer – so I don’t know.
Rather than be wed to any particular macro theme, I’ll let Mr. Macro Market give me hints as to what I should do next. If the Fed does what consensus has been looking for all yr (continues to taper/tighten), and USD heads higher, that would be bearish for Commodities (and bullish for the US consumer). Everyone in America (other than the guys running #YieldChasing MLP schemes) should want that.
In other news that is un-related to my current macro mistake:
What’s most interesting to me about the Industrials (XLI) joining the US Consumer and Housing stocks (XLY and ITB are down 2014 YTD too) is that some of them are classic early-cycle indicators.
“So,” setting aside my own personal US Dollar baggage, what if the bigger picture here is that the entire US economy is heading into an early cycle recession? Wouldn’t that be just peachy?
Don’t forget that we are 62 months into a US economic “expansion.” Both that and the SP500 not having had a 10% correction in 33 months (hasn’t happened since 1990) might just be a tad longer in the tooth than a 2-3 month US Dollar dead cat bounce.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.44-2.54%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.
TODAY’S S&P 500 SET-UP – July 30, 2014
As we look at today's setup for the S&P 500, the range is 18 points or 0.51% downside to 1960 and 0.41% upside to 1978.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
Chart of the Day: Statistics cloud recent speculation that Vegas is benefiting from weak Macau VIP
Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.
Q2 2014 CONSENSUS ESTIMATES
QUESTIONS FOR MANAGEMENT
RECENT MANAGEMENT COMMENTARY
Caribbean/ Latin America