This note was originally published at 8am on July 23, 2014 for Hedgeye subscribers.
“To go too far is as bad as to fall short.”
-Callie’s fortune cookie
Last night was a beauty at the McCullough dinner table. My newbie was chirping up a storm with pablum all over her face and my two older kids had a few of the best back-to-back fortune cookies ever.
Jack’s fortune reminded me of a critical risk management lesson: “there is nothing permanent, except change.” So I told him that that’s what my man Bill Ackman was probably thinking at his dinner table last night too.
Picking on the slide-deck guru is just fun and games. So please don’t take offense to my entertaining you with this topic this morning. It’s trending more than Putin/Obama. Fully loaded with the +25% short squeeze in HLF yesterday, I think the guy actually cried (sort of).
Back to the Global Macro Grind…
There’s no crying in the asset management business. If you are going to well-up in public, I don’t care how much you are “worth” - I am going to give you a time-spanking and an Early Look time-out.
In other US stock market news yesterday…
- The Russell 2000 bounced on no-volume to lower-bubble-highs yesterday (1175 TREND resistance)
- Total US Equity Market Volume was -16% and -29% vs. its 1 and 3 month averages, respectively
- Front-month stock market fear (VIX) sold off to a higher low of 12.24, holding 11.94 TREND support
In other words, “rallies” continue to ramp to lower-highs on lower and lower volumes (not good) as volatility continues to make a series of higher-lows from the VIX’s most asymmetric point (10). All the while, the long bond rallied intraday yesterday and the 10yr yield is hitting fresh Q314 lows of 2.46% this morning.
With the Russell (IWM) still down YTD (not a good return), we’re going to keep you focused on where the real bull markets are in 2014:
- Emerging Markets
The Treasuries one is easy to understand, provided that you understand that they (the Old Wall) still do not understand the link between inflation and both real wages and consumption growth.
As you can see in our Chart of The Day today, even the US government’s contortionist reading on US Consumer Price Inflation (CPI) delivers you a fresh new YTD low in NEGATIVE real wages (not good).
Now, to be fair, someone who A) hasn’t been long of inflation in 2014 and/or B) believes anything the Fed tells them about inflation will tell you that (if you back out shelter – i.e. rent, which is hitting all-time highs, and represents 30% of cost of living for the average American consumer) “2% inflation feels about right.” #Goldilocks
There were a bunch of 16th century dudes hanging out in officialdom who told Copernicus that Earth was the center of the universe too. But that doesn’t change that nothing is permanent, except change. As time and price changes, real-time risk managers do.
It wasn’t just Chipotle (CMG) taking price above the “goldilocks 2%” inflation rate yesterday:
- Hog prices ripped another +2% to +49.3% YTD
- Cattle prices popped another +2% to +15.9% YTD
- Aluminum prices continued another +1.9% higher to +14.5% YTD
But, those poor CNBC producers naval gazing at Billy probably missed that. Must resuscitate ratings from hitting new lows! I have slide decks too, but I certainly don’t have all the answers to the market universe; Mr. Macro Market does.
And I think that’s one of the main lessons of the last half decade – whether you are a central-planning goddess, hedge fund legend, or just plain wicked smaht… you can try to tell markets, prices, and economies what to do; but they don’t have to listen.
You can try to gussy up the idea as your “best ever.” You can tell all your “smart” friends what you are going to do before you try to do it too. But, eventually, you’re going to jump the shark, go too far, and fall short.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signal in brackets) are now as follows:
UST 10yr Yield 2.44-2.53% (bearish = bullish bonds)
SPX 1962-1985 (bullish)
RUT 1133-1164 (bearish)
Italy MIB Index 20157-21138 (bearish)
VIX 11.94-14.26 (bullish)
USD 80.29-80.93 (bearish)
EUR/USD 1.34-1.36 (neutral)
Pound 1.70-1.72 (bullish)
WTI Oil 100.15-104.03 (bullish)
Natural Gas 3.73-4.01 (bearish)
Gold 1299-1324 (bullish)
Copper 3.17-3.23 (bullish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer