“Optimism is the madness of insisting all is well when we are miserable.”
-Voltaire
Voltaire died in France in 1778, but his dark quote about optimism lives on in Washington, D.C. this morning. Depending on their political partisanship and ideology, some people over there are just downright miserable.
In other unemotional, apolitical, and non-fake-news, US Small Business Optimism (NFIB reading which is in the Chart of The Day) ripped to an all-time high yesterday. The November reading on “hiring plans” was also an all-time high.
The US stock market ramped to a freshly squeezed all-time closing high (again) of 2664 for the SP500 as well. With a most recent headline of +3.3% GDP and US corporate profits #accelerating for 5 quarters in a row, I guess the optimists didn’t really need “tax reform.”
Back to the Global Macro Grind…
‘Oh, but KM… at least the last 5% of the US stock market move had to do with Tax Reform.’ Really? It’s nice to compete against people who write perfectly qualitative research like that. That subjective opinion has literally no place in my #process.
For those out there who need to see the beginning of the end of this unprecedented move in the US stock market (either politically or from an active manager under-performance perspective), don’t worry… when the rates of change in the data slow, I’ll get you plenty miserable.
For now though, in addition to yesterday’s monster move in Small Business Confidence (which corroborates the recent 204 month high in US Consumer Confidence), here’s what yesterday’s reflation data looked like:
- US Producer Prices (PPI) #accelerated to +3.1% year-over-year
- That was the fastest rate-of-change growth rate in PPI since 2012
- Energy Prices were a primary driver of “Good Prices” at +12.4% year-over-year growth
‘But, but, KM… if you back out Energy and just whine about the flattening of the yield curve…’ Well, you can do that, but you just missed Reflation’s Ramp from SEP to NOV and all of the associated rate-sensitive asset allocation and sub-sector exposure moves!
While I have no idea if optimism is peaking or not (latest data points obviously say it hasn’t), I do have a view that Reflation Rolls Over:
A) Sequentially in December vs. November (see CRB Commodities Index breaking @Hedgeye TREND this am for details)
B) And then again on a year-over-year basis as headline CPI (Consumer Price Inflation) sees much tougher comps come FEB 2018
That’s why this morning’s “call” is to fade what should be a hawkish (tone) Fed Rate Hike. How do you fade the move?
- Bet that UST 2yr Yields back off at the top-end of the 1.74-1.85% @Hedgeye Risk Range
- Bet that UST 10yr Yields back off at the top-end of the 2.33-2.43% @Hedgeye Risk Range
- Bet that Financials (XLF) stop going up at the top-end of the @Hedgeye Risk Range
- Bet that Utilities (XLU) stop going down at the low-end of the @Hedgeye Risk Range
- Bet that Gold (GLD) stops going down at the low-end of the @Hedgeye Risk Range
Those are a lot of immediate-term rate-sensitive bets.
No, this doesn’t mean I’m an intermediate-term TREND bear on rates and newfound “valuation” TREND bull on something like Gold. Those have been loser positions since Oil’s SEP Reflation … and losers tend to lose into year-end. Winners win.
Since my goal isn’t to be a loser, I’m always open to changing my mind and positioning. When and if the rates of change in GROWTH, INFLATION, and PROFITS change, hopefully I will in a timely manner.
For those of you who didn’t know timing matters in macro, now you know.
What else is big and interesting … and bullish on Mr. Market’s intermediate-term TREND signal right now?
A: Bitcoin
Oh boy, here we go now. Imagine someone like me who isn’t the world’s self-proclaimed expert on crypto has a view on the biggest cryptocurrency’s price? All I needed was volatility data to make that happen, so my thanks go out to the CBOE for that!
What does Bitcoin “look like” to me using my #process instead of some dude’s biased narrative about the future of hash-graphing?
- NYSE Bitcoin Index has an immediate-term @Hedgeye Risk Range of 16,152-19,237
- And it is obviously signaling Bullish TREND @Hedgeye with TREND support of 10,847
In other words, I’d love to buy me some #BitcoinMania at 16,152. But The Question is, would the perma bulls love that kind of a correction (or God forbid a real one to 10,847 TREND support) like I would?
In a world with too many miserable people missing both the US stock market and Bitcoin moves, we definitely need more love. I’d be super long of that in real-life terms during the Holiday Season too.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.33-2.43% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
VIX 8.99-10.74 (bearish)
USD 92.75-94.42 (neutral)
Oil (WTI) 56.00-58.75 (bullish)
Gold 1 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
