“As the old saying goes, a fool and his money are soon parted.”
-Benoit Mandelbrot
But, as The Brot went on to remind us in one of the best books about markets I’ve ever read, “Wall Street is more accustomed to being parter than partee…”
And so we have the “search for new ideas… and it continues to this day. The old models are still taught, refined, retailed, and used but they are no longer viewed with quite the same degree of respect.” (The (mis)Behavior of Markets, pg 76)
God bless Benoit Mandelbrot’s brave soul.
Back to the Global Macro Grind…
I kicked off the 2017 Season on the road. I’m in Washington where we’re building a new Hedgeye office for our growing Policy and Demographic Research Team. There are countless new ideas to work on given this new Trump Administration.
Amongst many other familiar faces, Wilbur Ross was in the house last night! More on that later, but if you have an office in Washington, let us know – we’re looking forward to becoming part of the community of capitalists who live and work here.
Unlike the Old Wall “macro” model that tried to say things like “ISM’s are bottoming” (in the summer of 2015), then literally went bearish on US growth near the bottom of the ISM in AUG 2016… and is now making our former #GrowthSlowing call as US growth continues to accelerate…
We’re going to just call out that competing research for what it is – our competition – and move on with measuring and mapping both the economic data and market signals of the day.
Contextualizing yesterday’s “positive ISM surprise” within its time series of data matters:
- AUG 2016 ISM = 49.4
- OCT 2016 ISM = 51.5
- SEP 2016 ISM = 51.9
- NOV 2016 ISM = 53.2
- DEC 2016 ISM = 54.7
In other words, in addition to ISM, Industrial Production, Durable Goods, etc. rate of change data, there’s now plenty of evidence to suggest that the Industrial & Manufacturing #Recession that the US experienced bottomed in AUG-SEP 2016.
Of course this game is hard. But it’s a lot harder when you’re always trying to make “calls” on bottoms and tops. As I like to say, something like an Industrial #Recession bottoming is a process, not a point.
Sure, looking back, you’ll find the bottom (for the ISM it was actually in DEC 2015 at 48.0) and I’d argue that’s one of the many rate of change, data driven, #GrowthSlowing reasons why US stocks finally crashed into the FEB 2016 lows…
But don’t forget that it’s that same argument (rate of change facts really) that supports #GrowthAccelerating from those bombed out, recessionary lows, where plenty of cyclical corporate profits were in a recession too.
Looking ahead (like markets do), we expect to see more strength in the DEC 2016 data (most of it is reported in JAN). DEC to-date regional Fed Surveys are complimenting what the Fed will call out today in their reported “minutes.”
We see DEC 2016 having the highest probability for Industrial Production growth to go positive after almost 2 years of negative growth. Trump won the manufacturing #Recession states for a reason.
That’s right, I’ve hash-tagged the word recession 3x – because we already had one.
And you know what investors should do during a recession?
- Book gains in #GrowthSlowing securities, because they tend to peak as the recession is bottoming
- Start investing in higher beta, cyclical, and growth exposures so that you can capture the acceleration
No, no, no. I’m not saying that I’m a perma-nailer, making every perfect pivot at each cycle top and bottom. A fool and his “model” for that are soon parted too!
I’m simpy reminding you that being a little late sometimes is a lot better than missing the entire cyclical event. In macro, the best new ideas I’ve ever had are buying my former best short ideas and shorting my former best long ideas.
So I’ll reiterate the Sell Gold and Long-term Treasury Bond call this morning as that’s what market history says you should do as the rate of change in growth accelerates, from however lowly and recessionary that misunderstood bottom became.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.41-2.61%
SPX 2
NASDAQ 5
XOP 41.40-42.73
VIX 10.89-14.33
USD 101.80-103.90
Gold 1121-1169
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
