“What I do takes long hours of studying and uninterruptible concentration.”
-Donald Knuth

Knuth is the world renowned computer scientist and mathematician from Stanford who wrote The Art of Computer Programming back in 1968. The book is still not complete probably because one’s independent research process is ongoing.

The aforementioned Knuth quote comes from a book I reviewed earlier this year called Deep Work, by Cal Newport. After a market day like yesterday where multiple market prices tap the low-end of the @Hedgeye Risk Range, one question is “was that it?”

But what’s that? 

And on what short-term duration are we trying to answer the question? How about in the intermediate and long term? 

I work across multiple-factors and multiple-durations using multiple-people and processes on my team. There’s what Newport calls a “chain-method” to the entirety of this #process “with a set starting time that you use every day for deep work.” (pg 111) 

Back to the Global Macro Grind… 

#GlobalDivergences: Was That It? - 05.11.2018 China bear cartoon

I’ll humbly submit that having a credible answer as to when a market risk is “priced in” should have a source that measured and mapped the evolution of the market risk to begin with. But that’s just me. 

Alternatively, on the Old Wall, these “risk on” moves from China to Emerging Markets to Italy are much more episodic. I guess that’s why Macro Tourists keep jumping from headline-to-headline instead of from time-series-to-time-series, across durations. 

What we do takes A) a big team with B) long hours of studying rates of change and their causal relationships. Success (defined by not being long exposures that implode) in our process depends on what Newport defines as our “ability to go deep again and again.”

So let’s round up the Top Takeaways from our predictive tracking algos and notebooks this morning, and do this, again! 

  1. US Dollar is correcting -0.4% this morning but remains firmly in Bullish @Hedgeye TREND breakout mode
  2. Euro is bouncing +0.6% vs. USD but off the low-end of the $1.14-1.18 @Hedgeye Risk Range
  3. Oil (WTI) bounced off $66.02 @Hedgeye TREND support and is currently > $67/barrel
  4. UST 10yr Yield is +7bps this morning trying to recapture @Hedgeye TREND support of 2.85%
  5. German 10yr Yield is +6bps this morning to 0.32% but remains Bearish TREND @Hedgeye
  6. Italy’s 10yr Yield is correcting -13bps this morning to 3.00% but remains Bullish TREND @Hedgeye
  7. German Stocks (DAX) are trying to bounce +0.1% this morning and are currently a Neutral TREND @Hedgeye
  8. French Stocks (CAC) are down -0.8% this morning and still signaling Bearish TREND @Hedgeye
  9. Italian Stocks (MIB) are bouncing +0.5% this morning but remain Bearish TREND @Hedgeye
  10. Chinese Stocks (Shanghai) got crushed, dropping -2.5% overnight to fresh YTD lows and remain Bearish TREND @Hedgeye 

Oh, right. #ChinaSlowing + #EuropeSlowing is another big thing that led to yesterday’s US stock and bond market volatility thing that we need to know more about if “that was it” for more than a few days in this really big thing called #GlobalDivergences. 

And, of course, since #ChinaSlowing is readily apparent to anyone doing the deep work on the data… the following fallouts continue to make a lot of sense within our Global Macro Risk Management signaling process: 

  1. EM ASIA: Equity markets like Malaysia (down -2.8% overnight) and Indonesia (down another -1.1%) remain Bearish TRENDs
  2. COPPER: down another -0.6% this morning continues to signal Bearish TREND @Hedgeye
  3. INDUSTRIALS: especially US listed ones with big Chinese exposure got crushed again yesterday (XLI is down -1.6% YTD) 

So, “Ex-Europe”, with a full-on currency crisis in motion in Emerging Markets, there’s plenty to have been risk managing so far in 2018. But back to Europe’s real-time rate of change economic data #slowing update: 

  1. Germany’s Retail Sales #slowed (again) to +1.2% year-over-year growth in APR (vs. 1.3% in MAR)
  2. France’s Consumer Spending #slowed (again) to +0.2% year-over-year in APR (vs. +2.3% in MAR)
  3. Spain’s Retail Sales #slowed (again) to +0.7% year-over-year in APR (vs. +1.5% in MAR) 

“So”, what precisely, is going to stop #EuropeSlowing from slowing? The ECB? Ha! 

This brings us all the way back to what the central market planners of the world believe they can be. They fundamentally believe that they can bend and smooth economic gravity. 

To simplify the most complex part of their pending calculus, I have one very basic question to ask the ECB and all those who worship at its bureaucratic alter: how do you stop the biggest spending cohort in the Eurozone from #slowing, demographically? 

That question might sound a little wonky for some. But I’m asking Nobel laureates, so they’ll understand why the Eurozone’s 35-54 year old population growth rate chart is one of the scariest charts in all of Global Macro research (Chart of The Day – slide 86). 

The ongoing 3D Risk in Europe (Demographics, Debts, and Deficits) are about to be as intense as they have ever been. That’s secular. The cyclical call on #EuropeSlowing is still A) contrarian and B) early innings. So, no, for Europe, longer-term that wasn’t it. 

Our immediate-term Global Macro Risk Ranges (intermediate-term TREND views in brackets) are now: 

UST 10yr Yield 2.77-3.16% (bullish)
SPX 2 (bearish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
Energy (XLE) 73.98-80.33 (bullish)
Industrials (XLI) 73.82-76.58 (bearish)
DAX 122 (neutral)
VIX 13.22-17.66 (bullish)
USD 92.81-94.99 (bullish)
EUR/USD 1.14-1.18 (bearish)
GBP/USD 1.32-1.35 (bearish)
Oil (WTI) 66.05-73.11 (bullish)
Copper 3.02-3.12 (bearish) 

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

#GlobalDivergences: Was That It? - 05.30.18 EL Chart