“Big Changes often come together in rapid succession.”
-Benoit Mandelbrot
Whether it was monstrous back-to-back September 2017 hurricanes or the Cleveland Indians winning their 22nd game in a row last night, I trust that all of us mere mortals have the humility to both accept and embrace the non-linearity of this world.
You have to go back to the 1935 Chicago Cubs to find a 21 game winning streak in Major League Baseball. While events like these are infrequent, they cluster. And when massive momentum clusters, the crowd chases that momentum.
My man, The Brot, taught me this a long time ago about market prices. It’s not just about the price – it’s about the volatility of the price. And if you study both price and volatility deliberately, you’ll realize that volatility clusters too.
Back to the Global Macro Grind…
I walked into a meeting with a hedge fund manager in Greenwich, CT yesterday and I’ve never seen him happier. He had all of his senior partners in the room and all we talked about were things like being data-driven, measuring and mapping risk, etc.
It really is ok to be happy in this business, sometimes.
It’s hard to have a great year. But when you do, you should deliberately study what it was that made you successful. Sometimes it’s just luck. I get that. But a lot of the time, it’s your #process that differentiates you.
Here are 6 Big Changes that are jumping off the #process pages of my notebook this morning:
- UK 10yr Gilt Yield ripping +7 basis points back above @Hedgeye TREND support
- British Pound ramping another +1.2% to a freshly squeezed YTD high of $1.35 vs. USD
- Japanese Yen down -0.8% vs. USD, moving JPY back to bearish TREND and Nikkei bullish TREND
- Greek Stocks down another -1.1% this morning, taking their decline to -5.5% in the last month alone
- Oil & Gas Stocks (XOP) immediate-term #overbought post WTI tapping the top-end of the @Hedgeye Risk Range
- SP500 registering a new low in volatility space with an implied volatility DISCOUNT of -25% vs. 30-day realized
Yeah, there’s a lot to do with all of this.
And there’s a lot more going on away from these callouts. The key to any good Global Macro #Process is considering everything (multiple factors), across durations, all at the same time.
What to make of these 6 changes that came in rapid succession?
A) UK “inflation” just ramped to a cycle high of +2.9% and both the Bank of England (BOE) and the market chased that rabbit, despite the AUG 2016 inflation score being the last easy compare of the British inflation data series.
B) For all of you who think the USD will never go up again, you don’t have to look too far in the rear-view mirror to our BUY THE POUND call at the end of 2016 when Consensus Macro was shorting it at $1.18
C) The FTSE, like the Nikkei, trades inversely to the Pound and Yen, respectively – neither like a strong currency, never mind one that sees volatility vanish and ramp like these 2 currencies have in the last month
D) Greece? Who the heck cares about Greece? A: everyone who was chasing European Equity charts at the top of the European GDP cycle did (into end of June early July); now Greek, Spanish, French, etc. stocks are signaling bearish TREND @Hedgeye
E) Oil’s last price is probably the rabbit that is most interesting for the 50-day Moving Monkey crowd to chase as Oil & Gas (and their related equities) have effectively crashed on both an absolute and relative basis during #Reflation’s Rollover, but I have no research and/or confirming @Hedgeye TREND signals that suggest I should chase that wabbit this morning
F) SP500 and Nasdaq have seen Big Changes in implied volatility expectations. As you can see in today’s Chart of The Day, you could have bought every damn dip in SPY and QQQ when they had implied volatility PREMIUMS of over +100% in Q217. PM’s who got long those exposures are the ones who deserve to be happy right now and book some gains.
I can go 1 through 6 or A through F … or make the list half as long while the callouts are 3x what I’m showing you. There are only so many minutes to write you this note (usually 40-50 minutes each morning). I’m on the clock!
And there are only so few minutes in your day… so for those of you who rely on my teammates and I to do our job while you do yours, I wanted to say thank you this morning.
Every championship team I’ve either played on or coached understands that trust and team-work makes the dream work. That’s one thing that will never change @Hedgeye.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.02-2.23% (bearish)
UK 10yr Gilt Yield 0.98-1.33% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
XOP 29.59-32.11 (bearish)
FTSE 7 (bearish)
VIX 9.60-12.68 (bearish)
YEN 107.80-111.65 (neutral)
GBP/USD 1.30-1.35 (bullish)
Oil (WTI) 46.73-50.32 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
