“The ability to perform deep work is becoming increasingly rare at exactly the same time it is becoming increasingly valuable in our economy.” -Cal Newport
That’s the hypothesis from the author of “Deep Work”, Cal Newport.
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“Deep Work: Professional Activities performed in a state of distraction-free concentration that push your cognitive capabilities to their limit. These efforts create new value, improve your skill, and are hard to replicate.” |
“Shallow Work” is defined as roughly the opposite: non-cognitively demanding, logistical-style tasks, little new value-add to the world, etc..
As someone who gets distracted very easily, the richness of data and case material backing up Cal Newport’s hypothesis is compelling. Interconnectedness and network tools are a colossal opponent to our respective Deep Work States.
Creating unbiased decision-making processes is a main priority in the asset and portfolio management realm right now. In other words, many funds are making a push to beef up the systematic component of the portfolio management process. I’m confident saying that movement is a good thing with the caveat that building robust systems, whether for fundamental data collection or trading, is an exercise in deep-work.
Cal Newport is a CS academic and makes the following claim which I tend to agree with:
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“Learning something complex like computer programming requires intense uninterrupted concentration on cognitively demanding concepts.” |
We’ve joked lately that we’re at an all-time high in "macro tourism." That technological interconnectedness that yields shallow work means that more people than ever can opine on whatever data series looks worthy of media attention and eyeballs.
Back to the Global Macro Grind…
We best serve our clients by turning off the macro noise as much as possible and focus on refining our data-driven process. The process behind the conclusion is what people care about more and more.
Put another way, if you can’t develop a repeatable swing on the driving range, it’ll be tough to replicate on the actual course with a little wind and rain mixed in…
Structural risks and geopolitical catalysts weren’t a factor in our Q1 2018 QUAD4 estimate for the Eurozone, and its major economies. QUAD4 is an environment where growth and inflation are decelerating and there are market return implications associated with this set-up. While some investors play event risk and structural changes beautifully in market terms, it’s a part of our core process. For better or worse, base effects and fundamental data aren’t adjusted for twin deficits or trade pacts.
- Eurozone GDP printed +2.7% Y/Y in Q4, which was an acceleration from +2.6% Y/Y in Q3 to a new cycle high, and quite possibly as good as it gets from a growth perspective.
- Eurozone Headline CPI decelerated to +1.2% YY (-10bps sequentially) and is trending lower. The Dec print was +1.4% YY, and the November print was +1.5% YY.
- Eurozone Core CPI was flat in Feb at +1.0% YY but is trending lower.
- Eurozone PPI for January was reported this morning. The print was +1.5% Y/Y which was a sharp deceleration from +2.2% YY in December (+2.8% YY was the November print). We see trending deceleration across inflation readings.
We’ve been quantitatively loud about our view that consensus was seemingly most bulled up on European equities, the Euro currency, and the Eurozone economy at the wrong time heading into 2018.
Underweight the major European Equity Indices in favor of continued exposure to U.S. growth sectors and style exposures continues to be a call we’re riding. The German DAX Index is the vehicle we have used in our macro themes deck to express this view.
The DAX is -2.1% intraday and tapping the low of our 12,090-12,577 risk range. On an intermediate-term basis, this is a BEARISH TREND that we want to short on strength.
We’ll end by checking in on this #EuropeSlowing theme on the consensus positioning front. The surprise downside in global equities can be seen in the shape of volatility surfaces in both the Euro currency and European Equities, DAX included.
- EURO: We were focusing intently on crowded LONG positions in EUR against USD heading into February, especially considering that we had the fundamental backdrop to support fading consensus bullish positioning in the Euro Particularly. Now that the USD Index has taken a pause, risk reversal pricing in EURUSD has retreated from 10year highs going into February, but volatility definitively still has a bullish tilt (~90th percentile on a 5Yr window for risk reversal pricing)
- EUROPEAN EQUITIES: What we show in the chart of the day is a global macro screen of the most extended moves in skew (top and bottom 10 out of a list of 100+ across equities & FICC). The positive Z-Score readings mean that the price of downside puts are relatively rich and more expensive compared to the price of upside participation via calls. 6 of the top 10 most extended surfaces in global macro right now are tied to major Asian or European equity markets. As a point of process, we typically look for this rich skew as a complement to oversold signals and other proprietary signals although this factor is never considered in isolation (i.e. with risk ranges).
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.79-2.89% (bullish)
SPX 2 (bullish)
RUT 11 (bearish)
NASDAQ 7044-7416 (bullish)
Biotech (IBB) 105-110 (neutral)
VIX 15.28-23.96 (bullish)
USD 88.93-91.26 (neutral)
EUR/USD 1.21-1.24 (neutral)
YEN 105.81-108.25 (bullish)
GBP/USD 1.37-1.40 (bullish)
Oil (WTI) 59.86-64.22 (bullish)
Nat Gas 2.52-2.79 (bearish)
Gold 1 (bullish)
Copper 3.06-3.20 (bearish)
Good luck out there today,
Ben Ryan
Macro Analyst
