“The truth is incontrovertible. Malice may attack it, ignorance may deride it, but in the end, there it is.”
-Winston Churchill
Good morning from San Francisco, California! “Believe me”, after spending the long-weekend in a bitterly cold Providence, Rhode Island and then part of Day 1 of the work week in South Dakota (minus 7 degrees), I am very happy to be here!
Happy to take questions all day long about when this raging bull market in US Growth stocks ends too. “When do you stop being bullish on US growth?”… “When are you going to turn bearish?”… “What are the biggest risks?”
If you have friends who’ve been surfing Zero Edge (bearish since 2009) for that one data point that tells them, for sure, that this is the beginning of the end, I hope they expressed that call shorting Bitcoin a month ago. They’re already up +47%.
Back to the Global Macro Grind…
Obviously if your great aunt or uncle’s cousin chased the Bitcoin chart and bought it at $19,000, they’ve lost almost half their money. No worries. Bitcoin is the “new money” that is going to replace the US Dollar, right? They should buy more!
Notwithstanding some of the truths that still exist in this world (like the math that says that if you lost -47% of your money, you need to be up +89% from here to get back to break-even), there’s plenty to do out there before the world ends. So let’s get after it!
Q: Should we buy the damn dip we saw in US stocks yesterday?
A: Yes, but only where you see immediate-term #oversold signals
I’m a real stickler on the timing component of this whole dip-buying thing… so, while we did get a nice little dip intraday yesterday, we haven’t yet tapped the low-end of the @Hedgeye Risk Range in something like the Nasdaq. We did, multiple times, in December.
Here are 6 important immediate-term @Hedgeye Risk Ranges for US Equities (with @Hedgeye TREND views in brackets):
- SP500 = 2 (bullish)
- Russell 2000 = 1 (bullish)
- NASDAQ = 7040-7283 (bullish)
- Biotech (IBB) = 108-112 (bullish)
- Oil & Gas Stocks (XOP) = 37.92-39.78 (bullish)
- RMZ (REITS) 1083-1139 = (bearish)
What you’ll note here is that when it comes to Bullish vs. Bearish @Hedgeye TRENDs one of these things is not like the others…
Buying REITS is an interest rate and reflation sensitive position, so I’m not interested in buying that index (or its cousin, Utilities)… but I am interested in using the risk range of the UST 10yr Yield to buy more of our favorite Hotel REIT Stock – Host Hotels (HST).
The @Hedgeye Risk Ranges for US Treasury Yields that matter most to me are:
- UST 2yr Yield = 1.92-2.04% (bullish)
- UST 10yr Yield = 2.46-2.59% (bullish)
Put simply, when bond yields are at the top-end of the risk range, you should cover some of your Treasury and/or slow-growth bond proxy shorts (i.e. book gains) and think about adding to any contrarian ideas you have that are rate and reflation sensitive.
And when I think about the beginning of the end of this edition of the “Reflation Trade”, that’s one that is indeed closer than the nation state being overtaken by my libertarian friends and their Bitcoin Mining Ops.
Why do I think it’s closer?
- Headline Inflation (CPI) already rolled over on Friday (US CPI ticked down to +2.1% y/y from the cycle high of 2.7%)
- The comparisons for headline inflation only steepen in the coming 2 months
- The long-end of the curve is betting the Fed fades at 2 hikes on any redo of Reflation’s Rollover (MAR-AUG 2017)
The other big one that might be approaching the beginning of the end in terms of the impressiveness of its #acceleration is the US Corporate Profit Cycle. But you have to wait until Q118 reporting season for that (April 2018). We just started Q417!
Finally, the easiest beginning of the ends to call are the ones that are already being reported in real-time data terms:
A) Old China #Slowing
B) Southern European Consumption #Slowing
You see, the thing about our rate-of-change research #process is that it has nothing to do with people’s opinions on things like “valuation” or politics. Mathematically speaking, whether something is accelerating or decelerating isn’t an opinion. It’s a fact.
Our bearish and bullish calls will continue to start and end with that.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.46-2.59% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7040-7283 (bullish)
Nikkei 23101-24365 (bullish)
DAX 13004-13422 (bullish)
VIX 8.59-12.75 (bearish)
USD 90.01-92.25 (bearish)
EUR/USD 1.19-1.22 (bullish)
YEN 109.97-112.33 (neutral)
GBP/USD 1.35-1.38 (bullish)
Oil (WTI) 60.82-64.90 (bullish)
Nat Gas 2.73-3.25 (neutral)
Gold 1 (bullish)
Copper 3.18-3.27 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
