“People’s intuitive expectations are governed by a consistent misperception of the world.”
-Danny Kahneman & Amos Tversky
That observation, of course, isn’t always the case. But it’s an important #behavorial reminder for those who anchor on small sample sizes, narrow-casted “surveys”, and inherently leading and/or biased questions.
You shouldn’t data mine for information that supports your position. The entire Undoing Project (book where the aforementioned quote comes from) was “rooted in Dannny’s doubts about his own work… and his eagerness to find error in that work.”
“Danny’s tendency to look for his own mistakes became the most fantastic material. For it wasn’t just Danny who made those mistakes. Everyone did.” (pg 161)
Back to the Global Macro Grind…
What’s the biggest mistake you’ve ever made in this business? Was it big enough to get you fired? Mine was. On this day in 2007, I was fired by Carlyle for being too bearish on US stocks.
Thank God for that.
If I wasn’t fired, I wouldn’t be up at the “top of the risk management morn”, tweeting away and ranting to you in this note. In case you can’t tell, I love what I do. It’s been almost 10 years now… but professionally and personally, I’m still having the time of my life.
What happened after I got fired?
- US stocks stopped making all-time highs (OCT 2007 was that top)
- November 2007 was the beginning of the end – the topping process was underway
- Not until Q1 of 2009 was an obvious bottoming process in motion
Tops and bottoms are processes, not points.
I’m not trying to say that I was right. When I got fired, I was wrong. Period. The right call would have been to have understood the market, bought every damn dip in the summer of 2007, sold everything on November 1st, and shorted everything from there.
I think Madoff did that.
There is only one guarantee I can make about running money – you will make many, many, mistakes. The question isn’t whether you get fired for making mistakes. It’s whether you learn from your mistakes.
As Rick Ricksby explains in what I think is an excellent 10 minute speech about life, https://www.youtube.com/watch?v=ewTyltKvB2Q “only at rock bottom can you build a new foundation.”
And I thank my God, every day, for that.
Moving along…
What’s going to matter most to Mr. Market this morning?
A) Powell
B) Earnings Season
C) US Jobs Report
POWELL: while mainstream media is going to do their best to drive clicks and make this a market moving story, Mr. Market is yawning on the news of our next central market planning overlord. The US Dollar is down, barely, -0.1% vs. the Yen (and -0.02% vs. The Pound); UST 10yr Yield hasn’t budged at 2.37% (the 2yr yield is testing new highs at 1.62%); and Gold doesn’t care either.
EPS SEASON:
- Aggregate year-over-year SALES and EPS growth for the SP500 is running at +6.0% and +8.6%, respectively
- Aggregate year-over-year SALES and EPS growth for the Nasdaq is running at +11.6% and +22.4%, respectively
- Aggregate year-over-year SALES and EPS growth for the Russell 2000 is running at +5.9% and +254%, respectively
No, that Russell EPS growth rate isn’t a typo. It’s simply a small sample size mistake made by Bloomberg this morning.
While growth in Russell 2000 profits is clearly #accelerating, GoPro (GPRO) is jacking up the number. Instead of $0.10 to $0.15 they changed it to $150 which made for a +27,873% year-over-year EPS gain for the consumer electronics sub-sector!
US JOBS REPORT?
- Expectations are high, looking for +310,000 non-farm payroll adds vs. -33,000 lost during the hurricanes
- We’re expecting to see US Wage Inflation #Accelerating as it usually does at this stage of the employment cycle
- A hawkish wage growth report should keep the Yellen Fed (yes, she’s still there) relatively hawkish
To answer the question, what will matter most to Mr. Market isn’t people’s politics. It’s going to be the rates of change embedded in the growth, inflation, and profit cycles. I’d have made a lot more mistakes in 2017 if I hadn’t learned to stay with that.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.33-2.47% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
XOP 32.70-35.55 (bullish)
VIX 9.38-11.70 (bearish)
USD 93.55-95.20 (bullish)
EUR/USD 1.15-1.17 (bearish)
YEN 112.11-114.66 (bearish)
GBP/USD 1.30-1.32 (bullish)
Oil (WTI) 51.95-55.13 (bullish)
Gold 1 (bearish)
AAPL 159.27-171.34 (bullish)
AMZN 1030-1151 (bullish)
FB 173-185 (bullish)
GOOGL 1011-1060 (bullish)
NFLX 191-201 (bullish)
TSLA 302-340 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
