“Our desire to reach into the future will always exceed our grasp.”
-Phil Tetlock
“But”… Phil Tetlock wrote in his new #behavioral book that I’m reviewing called Superforecasting… “debunkers go too far when they dismiss all forecasting as a fool’s errand.”
I’m a debunker, skeptic, forecaster, etc. Aren’t we all? If not, as analysts, what are we?
As the old saying goes, should we sell in May and go away? Or should we, like many did in April, stay? With the SP500 closing pretty much flat for April and US equity market positioning as bullish as it has been all year, our bearish forecast for Q2 really matters now.
Back to the Global Macro Grind…
When I use the word “bearish”, I am talking about US, Chinese, European, and Japanese growth. By growth, I mean the rate of change in demand and/or GDP growth.
Being bearish on growth means you’re bullish on Long-term Bonds (TLT), safe-equity yields that look like bonds like Utilities (XLU), and currencies that have no yield (but not a negative yield either) like Gold (GLD).
No, that doesn’t mean I nailed calling all 3 of these positions on every day at every price. Did you? But we absolutely nailed the causal factor (#GrowthSlowing) and will continue to run that ball right up the middle on anyone who disagrees with that forecast.
Last week’s US economic data ended on a bad note (again) with:
- US GDP (Q1) coming in at 0.5% (vs. 1.4% in the quarter prior)
- Chicago PMI slowing (again) to 50.4 in APR vs. 53.6 in MAR
- US Consumer Confidence (Univ. of Michigan report) slowing to 89.0 in APR vs. 91.0 in MAR
And, finally, the almighty US Equity market started reading bad as bad:
- US Dollar dropped another -2.2% to -5.7% YTD as markets are now flat out begging the Fed to ease (again)
- Commodities, Oil, and Gold all ripped higher on that … but so did #Stagflation fears
- Bond Yields pulled back (again) on that, with the UST 10yr Yield dropping -5bps to -44 basis points YTD
Point #2 is the most interesting one to me when it comes to attempting to answer the question in the title of this note. What if both my immediate-term US Dollar SIGNAL and SENTIMENT indicator is right?
- US Dollar signaling immediate-term TRADE oversold at 92-93 on the US Dollar Index
- Crude Oil signaling immediate-term TRADE overbought in the $46-47 range on WTI
- CRB Commodities Index signaling immediate-term TRADE overbought in the 185-187 range
Not to be confused with SENTIMENT on long-term US Treasuries where they ramped the net SHORT position (non-commercial CFTC futures & options contracts) in the 10YR last week to -97,876 contracts (-1.5x on a 1yr zscore):
- SP500 (Index + E-mini) positioning popped to its MOST BULLISH in 2016 at -1,206 contracts = +1.9x (1yr z-score)
- US DOLLAR positioning remained at YTD lows = -2.1x (1yr z-score)
- Gold and Oil positioning remained at YTD highs at +2.1x and +1.9x on 1yr z-scores, respectively
*Note: +/- 2.0x on a 1yr z-score is considered overbought/oversold
In other words, whoever has been “getting longer” because “everyone is bearish”, is now everyone (i.e. they’re positioned bullish on growth, from a net perspective, longer SP500 and shorter the Long Bond). And I like that.
Oh, you like it, eh? That is so bombastic of you Keith. Stop it.
Really? In the 8 years that I’ve been at the helm of my inbox @Hedgeye, I haven’t had more people pestering and poking at me that I’m “way too bearish”, “overstayed my welcome”, “myopic”, “getting fat” (true)…
And, after absorbing all of that like a hungry dog in the rain, the SP500 has actually been DOWN for 4 of the last 6 weeks and if I look at it post March month-end markup to April 2nd to May 2nd, here’s the score:
- SP500 -0.4% month-over-month
- Nasdaq -2.8% month-over-month
Did I get big things wrong in March? Absolutely. Did you? If you didn’t, you really had things wrong from JAN/FEB! I think that both my firm and credibility would have looked really wrong if we capitulated to the “charts” and went bullish on growth in April.
While there were days in April that I wanted to cross-check some people in the small of their back, I’m happy I took the Mature-Mucker road less-travelled and opted for a real vacation (April 13-23). A younger me would have had many many you-ge fights.
As a 41 year old man, I quite like the idea of becoming more of a lover than a fighter. God willing, I just love waking up early every day, trying to get intermediate-to-longer-term Macro Themes on growth and inflation right. In May, I’m not going away.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.70-1.87%
SPX 2054-2090
NASDAQ 4
VIX 14.05-17.91
USD 92.83-94.92
Oil (WTI) 41.64-46.57
Gold 1250--1299
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
