“I don’t miss it at all. I’m glad I’m out.”
-Larry Bird
I was able to stay long US Equity Beta for half of a trading day. That was uncomfortable. So I’m out.
Seriously? Yes. I have been very serious about #GrowthSlowing for almost a year now. And guess what? It continues to slow.
After I saw yesterday’s recessionary US Industrial Production report for May of -1.4% year-over-year, being long stocks into the Fed going dovish (again), I knew I was getting too cute. So I sold into strength. I don’t like playing from a position of weakness.
Back to the Global Macro Grind…
Don’t go all “holding period” on me now. This has nothing to do with being “short-term” vs. long-term. There isn’t one daily strategy note you read that has been more resolute in calling the long-term cycle (both ways) than Hedgeye Risk Management.
Yes, we help you risk manage the short and intermediate-term within the context of long-term economic, profit, and credit cycles. No, I don’t chase short-term charts. I stay with #TheCycle call. What if you’ve done that for a year now?
- LONG BOND (TLT) is up +15.3% (ex-coupon payments) vs. June 16, 2015
- US EQUITY BETA (SP500) is down -1.2% vs. June 16, 2015
And if you’re truthful about what’s happened from #TheCycle high (Q2 2015) you’ll see that plenty of classic Late Cycle #crashes have occurred in many US Equity Exposures, with the latest being Consumer Credit (see charts of SYF, COF, etc. for details).
In addition to the Global Demand has not “bottomed” data point on US Industrial Production and Producer Prices (PPI for May showed ZIRP pricing power at -0.1% year-over-year), in our research meeting yesterday, our Financials Sector Head, Josh Steiner, explained the latest from one of the largest private label credit card issuers in the world, Synchrony Financial (former GE Capital).
As PMs who are long the stocks can see, the “consumer is good” credit card exposures like Synchrony (SYF) and Capital One (COF) have crashed -28-30% from where you could have owned them (at the peak of the employment cycle) in July of 2015.
Why am I calling this out? (hint: more confirmation that we’re right on #TheCycle)
- US Employment is slowing at an accelerating rate
- US Consumer Credit is deteriorating at an accelerating rate
- US Income and Consumption growth is slowing passive aggressively in kind
And most stocks that have US domestic exposure (don’t blame China and Brexit for these, Janet) to these 3 Late Cycle factors are some of the worst places you could have had your money while Energy stocks have been rallying from 3 year lows.
My daily Real-Time Alerts don’t matter like our call on #TheCycle does. Unlike most people we compete with, I’m just trying to be 100% transparent with my every thought and move, across durations.
“What matters far more to superforecasters than Bayes’ Theorem is Bayes’ core insight of gradually getting closer to the truth by constantly updating in proportion to the weight of the evidence.” (Superforecasters, pg 171)
So yeah, I’m serious. My ½ day holding period was due to both cyclical and consumption data changing. Remember the catalysts I gave you yesterday?
- The Fed (she went dovish and equities turned red on that into the close)
- Brexit (what if they do exit?)
- Mean Reversion and performance chasing
That last one goes both ways. If I think about my immediate vs. intermediate-term (TRADE vs. TREND) risk range for the SP500, A) they are very different and B) trying to “time” a TRADE is looking at a tree instead of the probable forest:
- SP500 immediate-term TRADE risk range = 2055-2095
- SP500 intermediate-term TREND risk range = 1
In other words, while I was listening to Janet muddle and bumble about taking down the dots (again), the SP500 was at 2083 with 12 handles (+0.6%) of immediate-term upside and 144 handles (-6.9%) of intermediate-term downside.
Then I wake up this morning (again, “constantly updating in proportion to the weight of evidence”) to the simple truth that Chinese, Japanese, and European Stock markets continue to crash alongside Global Sovereign Bond Yields.
Do my eyes deceive me? Or is this poppycock case from perma equity bulls that the world hasn’t been slowing from its cycle peak last year simply annoy me at this point? (China -45%, Italy -32%, Japan -26%, Germany -23%, etc. from 2015 highs)
Maybe… just maybe… that’s why Janet Yellen said she’d consider “helicopter money” yesterday. When she said, “there might be a case for fiscal-monetary coordination”, the US stock market said huh?
Only a few weeks ago, Janet Yellen and her Regional Fed Heads were saying they’d “probably raise rates” in June or July… and now we need to consider helicopters? What changed?
My answer to that (and why I’m out on owning US Equity beta) is that nothing changed. The Federal Reserve is finally coming to terms with what we’ve been writing about all along. The #BeliefSystem that central bankers can stop #TheCycle from slowing is breaking down.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.53-1.67%
SPX 2055-2095
NASDAQ 4
Nikkei 151
DAX 9
VIX 16.70-22.65
USD 93.23-95.22
Oil (WTI) 47.01-49.67
Gold 1
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
