Whoever said money can’t buy happiness simply didn’t know where to go shopping.”
-Bo Derek
All set with your holiday shopping? I’m not. So I better get cracking. Unlike a lot of chart-chasers who buy high and freak out lower, I personally like to buy things on sale. There were some exciting 1-day flash sales in both Bitcoin and Bonds yesterday!
Back to the Global Macro Grind…
While I’m not ready to buy-the-damn-dip in Bitcoin yet, I told subscribers to do so in Long-term Treasury Bonds while they were on sale in Real-Time Alerts yesterday. For those of you who remember the “Tizzle” (TLT), it’s back (for a trade) baby!
FYI, now that I’m getting some actual volatility data from the futures markets, I’m measuring and mapping Bitcoin the same way I measure and map any other commodity that ticks. All I need is more time in the time-series to give you an opinion within my process’ framework.
When it comes to macro market moves, having an opinion is also a commodity. Turn the mute off CNBC and you’ll realize why so many opinions from Macro Tourists are free. Having an accurate opinion based on a repeatable #process is how you get paid.
So let’s dig into what happened yesterday in the bond market. Here’s my review of what’s been happening on the short-end of the curve:
- UST 2yr Yield had been ramping to new YTD highs almost daily as Reflation Ramped (Oil +19%) from SEP-NOV
- On the “news” day of the Fed’s hawkish rate hike, the 2yr yield backed off small (it was +55bps from SEP to DEC)
- Then it popped again yesterday to 1.87% signaling immediate-term #overbought within its 1.77-1.87% @Hedgeye Risk Range
On the long-end:
- UST 10yr Yield ripped from 2.05% at the beginning of SEP to an OCT high of 2.46% as Reflation broke out @Hedgeye
- Then the UST 10yr proceeded to trade in the tightest monthly range since 1979…
- Then it had one of its biggest one-day rips of 2017, seeing an intraday high of 2.47% yesterday
All-the while the Macro Tourist Industry, sponsored by Zero Edge, saw a boomlet of commentary that the latest-beginning-of-the-end for the US economic cycle was near due to the “yield curve flattening.”
Imagine you shorted the US stock market on every down day from SEP to DEC 2017 on that macro meme? #Painful
It was only fitting (and not ironic whatsoever) that the US stock market finally sold off from freshly squeezed all-time highs yesterday as the Yield Curve had one of its biggest STEEPENING days of the year! Lol
If and when the US growth cycle starts to actually slow, I’ll have no problem making that call crystal clear to you. The data won’t lie; people on mainstream TV and those with click-bait advertising models do.
Will the Yield Curve compressing to +25bps wide then inverting be something we call out in conjunction with many other macro factors symptomatic of a potentially pending recession? Absolutely. But we’re nowhere near that part of the cycle yet.
Ahead of tomorrow’s US GDP report for Q3 of 2017 which will have another +3% handle in front of it, here’s your update on Q4:
A) Our predictive tracking algo has ticked up post last week’s booming Retail Sales and IP data to +2.67% year-over-year growth
B) That 2.7% y/y number imputes a +3.07% q/q SAAR forecast for Q4 of 2017 (that’s the headline # Wall Street reads to you)
That’s why all you Trump lovers out there can say he’s actually telling the truth when he’s talking up the “3% GDP economy.” If our nowcast model is right, the US economy is going to score a hat trick of 3 straight quarters of headline +3% US GDP.
Now you might say, heck, if that’s where we’re at… that’s why bond yields ripped higher yesterday. But that’s actually not what gets the long-end of the curve to break-out to new highs – the combination of GROWTH & INFLATION #accelerating at the same time does.
In @HedgeyeData speak we call that Quad 2. Looking back at the SEP to NOV 2017 period that is precisely what you saw. Most of the economic data being reported is NOV data, not DEC. In DEC is where we’ve started to see a subtle Reflation Rollover.
If we’re right on Reflation rolling over both sequentially and year-over-year in Q1 of 2018, that’s called Quad 1.
What’s the difference between Quad 1 and Quad 2?
A) Quad 2 = Growth and Inflation #accelerating at the same time
B) Quad 1 = Real Growth #accelerates as inflation decelerates
And when inflation (or reflation) decelerates in rate of change terms, the long-end of the US Treasury Yield Curve sees some compression. Long-term rates don’t have to “break down” on that. They stop going up and/or just trade sideways in a boring risk range.
At the top-end of my 2.33-2.47% @Hedgeye Risk Range for the UST 10yr Yield, I’ll be happy to buy long-term bonds on sale (for a trade). Whoever says you can’t buy Treasury Bonds in a bull market for stocks doesn’t use my market-timing and risk management process.
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)
VIX 9.01-10.80 (bearish)
USD 92.60-94.29 (neutral)
EUR/USD 1.17-1.19 (neutral)
Oil (WTI) 56.11-58.12 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
