“Wow, you do kind of sound like an idiot.”
One thing I like to do on vaca is read something that has nothing to do with markets. So I picked up a copy of my favorite sports broadcaster’s (Joe Buck) Lucky Bastard – My Life, My Dad, and The Things I’m Not Allowed To Say On TV.
In addition to my priceless experience doing mainstream media TV, there’s a lot about Buck’s story that resonated with me. One of the most obvious things is routinely being called, amongst other things, an idiot.
Buck’s opening volley is that “if you bought the book just to confirm that I’m an idiot, I have bad news for you: You will have to wait a few pages. Hang in there, you can do it.” Gotta love that!
Back to the Global Macro Grind…
If you subscribe to my morning macro views just to confirm that I’m eventually going to look like a bullish (or bearish) idiot, hang in there. You can do it too.
Generally speaking, I think it would be a fair criticism that there’s a serious level of idiocy in putting myself out there with an explicit “market view”, every day. But I’m over 9 years into this gig now, and I’m cool with it.
So who are the Bullish Idiots who have bought every damn dip in the Nasdaq for the last 6 months? Don’t they understand that Trump is going to implode? Do they not get that the “stock market is overvalued”?
Post yesterday’s +0.9% ramp, the Nasdaq is only -1.0% from her all-time closing high of 5914.
What’s worse than being the lucky bastard who is just dumb enough to be buying on red when the “smart money” keeps bidding up protection, AFTER minor corrections?
I don’t know. But shorting growth when it’s accelerating sounds pretty stupid to me.
After last week’s US stock market corrections, this is what the options market priced in:
- An implied volatility premium (vs. 30-day realized volatility) of +103% for the Nasdaq
- An implied volatility premium (vs. 30-day realized volatility) of +108% for the SP500
- An implied volatility premium (vs. 30-day realized volatility) of +109% for Tech (XLK)
This morning (after the best up day for stocks in April), those implied volatility premiums pulled back to:
- Nasdaq 98%
- SP500 95%
- Tech 108%
As I’ve explained in prior macro rants, one way to measure and map market sentiment is by contextualizing the rate of change in options/volatility positioning pre and post market moves.
No, this isn’t a one-factor model that can save you from doing any fundamental and/or quantitative research. This is simply one relevant factor you should be considering, across durations, in your multi-factor #process.
If you go back to August of 2016, the SP500 traded at an implied volatility DISCOUNT. Since that was implying that the market didn’t expect a correction, that’s when it was smarter to bet on one (SP500 was down from late AUG to early NOV).
What’s recently (last 3 months) flashed a massive net long position AND an implied volatility discount?
- Copper (JJC)
- Oil & Gas Stocks (XOP)
- Metals & Mining Stocks (XME)
And, again, I’m not using those as single-factor-short-it-with-impunity-now signals. Shorting something like Metals & Mining Stocks (XME) also comes alongside a big Q2 Macro Theme of Reflation’s Rollover and a Quad1 GIP Model Asset Allocation.
In sharp contrast to the Nasdaq in 2017, those have been non-idiot shorts.
And to be well-rounded, there are some things that have been deflating on a trending basis (multiple quarters = 6 months) that look like hell but no longer have complacent options/volatility expectations:
- Corn (CORN) down -1.14% yesterday and -0.5% in the last 6 months
- Soybeans (SOYB) down -0.4% yesterday and -1.7% in the last 6 months
- Wheat (WEAT) down another -1.5% yesterday and -4.5% in the last 6 months
AFTER the pervasive price deflation, Corn, Soy, and Wheat have +44%, +122%, and +83% 30-day implied volatility premiums. So they haven’t looked as tasty to me on the short side as Metals have.
Tasty? Yes. I readily admit that I love being called a Bearish Idiot more than I enjoy helping you find money-making macro exposures on the long side.
There’s always a trending bear and bull market developing somewhere. You just need to grind through rates of change in growth, inflation, profits, positioning, options, etc. data, across durations, to find them.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.21-2.41% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 5811-5914 (bullish)
XOP 36.05-38.09 (bearish)
Nikkei 187 (bearish)
DAX 12002-12300 (bullish)
VIX 11.01-15.96 (neutral)
USD 99.75-101.20 (bullish)
EUR/USD 1.05-1.07 (bearish)
YEN 108.01-111.02 (bullish)
GBP/USD $1.23-1.26 (bullish)
Oil (WTI) 50.71-54.11 (bullish)
Nat Gas 3.08-3.34 (bullish)
Gold 1 (bullish)
Copper 2.52-2.62 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer