“Knowledge is anything that increases your ability to predict the outcome.”
-Daryl Morey
For those of you who are still short the Houston Rockets on “valuation”, my condolences. Tillman Fertitta provided an epic end climax to that squeeze, paying $2.2 BILLION for the NBA team this year. Having been on the right side of a professional sports team sale this year, I can assure you that the sellers weren’t complaining about the price and/or outcome.
For those of you who don’t know who Daryl Morey is, he’s another one of these crazy Gen-X guys like me who believes that there is information in readily available data that provides an edge in predicting outcomes. Morey isn’t Old Ball (they actually call him Morey-ball). He’s the 45 year old GM of the Rockets and the co-founder of the MIT Sloan Sports Analytics Conference.
In Michael Lewis’ The Undoing Project, he quotes Morey’s views on getting to the right answers using probabilities instead of theories: “Knowledge is literally prediction… everything you do you’re trying to predict the right thing. Most people just do it subconsciously” (page 31).
Back to the Global Macro Grind…
Yesterday’s final US GDP report for Q2 of 2017 validated our prediction that US GDP will continue to #accelerate (in rate of change terms) throughout 2017. If there’s one thing The 2017 US Growth Bears have had wrong this year, that is it.
For Q2 of 2017 US GDP was:
A) +2.2% on a year-over-year basis
B) +3.1% on a quarter-over-quarter basis
Since the Old Wall only reads the headline (quarter-over-quarter) number, they’ll be talking a lot more about a 3% handle on US GDP than they have for years. In years, that was a 2-year high for the headline.
The way the math works is that what comes in faster in one quarter takes away from the momentum in the pending quarter. Despite our predictive tracking algorithm ticking up earlier this week on a strong US Durable Goods report:
A) This morning, it ticks down 3 basis points post the Q2 GDP report to 3.50% quarter-over-quarter and…
B) As you can see in the Chart of The Day, that’s really a +2.40% year-over-year forecast @Hedgeye
Looking at that chart of the Hedgeye forecasts in the out quarters, you can also see that we eventually get to a 3% handle in Q1 of 2018. By that time, however, Mr. Market might not be so relentless in ramping growth bears after every dip.
Btw, if you bought the damn dip this week, well done.
In fact, if you’ve been buying these epic 1-3% US stock market corrections for the last 10 months you’ve absolutely crushed it. If you’ve panicked and sold every time the 50-day Moving Monkey “broke”, you’ve been crushed.
Yesterday’s SP500 and Russell 2000 closing prices of 2510 and 14888 were all-time closing highs. #Timestamped
As you know, the major US Equity Indices have been taking turns making all-time highs for the last 2 weeks of both the month and the quarter. The most recent part of the move should be credited to:
- Reflation having a rally off the July lows (Oil rallying back to bullish TREND @Hedgeye)
- The Fed acknowledging that A) inflation stopped falling and B) their growth forecast is still too low
- Headline GDP of +3.1%
Mr. Market isn’t stupid. If he’s sniffing out another +3.5% headline handle on Q317 GDP and all of the “inflation” data for SEP (which will be reported in OCT alongside Q3 GDP) accelerating again, sequentially…
Why wouldn’t he opt for the Dollar Up, Rates Up, Financials Up, Russell Up (26% Financials), ramp?
Unlike most Old Wall strategists and economists who are still whining about what the market and economy should be doing, we have a Bayesian inference #process that not only uses data driven predictive tracking algos, but Mr. Market’s signals as well.
That doesn’t make us “smarter” than everyone else. Our #process is simply providing us an opportunity to be more accurate with our predictions. I’ll take the knowledge embedded in the data over perceptions of the establishment’s intelligence all day long.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.21-2.33% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
VIX 9.36-10.70 (bearish)
EUR/USD 1.16-1.19 (neutral)
Oil (WTI) 49.68-52.81 (bullish)
Gold 1 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
