“Money won’t create success, the freedom to make it will.” -Nelson Mandela
Great inspirational quote but my macro #process wasn’t built on it. My job isn’t to solve the world’s political problems either. You have such outstanding politicians and central market planners to do that for you!
The aforementioned quote comes from your typical crypto book (The Age of Crypto Currency, by Paul Vigna). I’ve read a bunch of them in the last 6 months. They’re often written by journos (Vigna is a WSJ guy). They always have an idealism about what should be.
What “should be” in macro markets and your portfolio returns are rarely aligned with A) what is and B) where the probabilities are rising that we’re going to be. Dollars or Bitcoins won’t create success - a repeatable and data driven risk management process will.
Back to the Global Macro Grind…
The reason why I mentioned crypto in my opening volley this morning is that my @Hedgeye TREND price/volume/volatility signal has recently moved from ultra-bearish to neutral and now Bullish TREND @Hedgeye (hence the reading of the books).
The books about Bitcoin have largely underwhelmed me. That’s nothing personal against the authors. Most of them have no credibility and/or track record in macro-economic forecasting, so they can’t contextualize the alleged “asset class” vs. what moves asset classes.
That’s why I’m mostly interested in anything that ticks in a two-way market. If you give me a time-series of market data (including a liquid futures and options market), I’m in. Long or short, I do not care. My job isn’t to promote an “asset class” either.
Moving along…
It’s Day 2 for me seeing Institutional Investors in New York City and the Top 3 Things in my notebook this morning are:
- TECH – if the causal factor that was US #GrowthAccelerating for a record 8 straight quarters slows, what do you think Tech companies with slowing sales growth are going to do? Mr. Market’s initial response to that was an abrupt -4% correction from the NASDAQ’s all-time closing high which, don’t forget, was only registered last week!
- BOJ – I’ve seen plenty a JGB bear over the course my career (most of them don’t run money anymore and write for Zero Edge) and last night’s alleged catalyst for a big BOJ led global bond market selloff didn’t happen – 10yr JGB Yield down a full 4 basis points to 0.05% and the Yen down -0.5% vs. USD as the BOJ finally cut their absurd inflation forecast, albeit by not nearly enough
- UST 10YR – down -3bps to 2.95% on the non-BOJ news… in a very interesting spot ahead of both the Fed decision (expecting hawkish) and the jobs report on Friday (again, expecting hawkish) with the immediate-term @Hedgeye Risk Range = 2.83-3.02% - selling #PeakCycle “news” on US growth, inflation, and Fed hawkishness is not for the faint of heart! Use the range
If you’d like to receive either my daily @Hedgeye Risk Range product (that’s where the call on Bitcoin has been refreshed daily throughout its crash and potential recovery) and/or the Top 3 Things in my notebook (that comes out pre 6AM EST), ping . With both products you get to read less words.
Reading isn’t the most consensus thing to do in The Age of TV Lawyers and Econs, but I’m big on education. I personally have no idea how so many Macro Tourists have an opinion on everything without the supporting evidence of times-series upon time-series of data.
Since one of the greatest bull market securities in world history (the Japanese Government Bond) isn’t “over” this morning, there’s a much more timely and topical debate to be had here about Tech.
One hedge fund manager (runs between $15-20 billion and actually has great performance for the last 2 years because he didn’t short GROWTH on valuation or something like that), asked me a very simple question yesterday:
Q: So is this move in Tech and Momentum just another correction or the beginning of something longer-term
A: Growth as a FACTOR exposure should see its relative run start to end between now and Q4
He also asked me a specific question around timing and how to tactically manage the Phase Transition. My process-based risk management answer that was:
- If we’re right… and Q2 was the #PeakCycle print for US GDP, growth #accelerating as an epic 8 quarter tailwind becomes a new headwind and …
- At first, there should be a big time divergence between the performance of GROWTH stocks that continue to report #accelerating revenue growth vs. those that don’t, looking more like the top-down rate of change slowing of GDP growth…
- Then, everything corrects all at once (we call that Quad 4)
Yesterday was more like the C part of the process. Facebook (FB), which is the B part of the process (they guided to slowing revenue growth and rising expenses), went down but so did Google (GOOGL) and Momentum (MTUM). Each was down -1.8% on the day.
As the now-legendary Cliff Asness and his crew over at AQR have proven, momentum, as a Style Factor, can be “growth” or “value.” It’s whatever is going up. And, when the US economy moves into Quad 4, long-term Bonds and their Low Beta proxies go up.
Since the NASDAQ’s all-time closing high was last week (July 25th of 2018 = 7932, write it down), I think we’re in the A to B part of the re-rating process. But that doesn’t mean we can’t have part C days. So keep your mind free and flexible in the meantime.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.83-3.02% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
VIX 12.03-14.98 (bullish)
USD 93.75-95.10 (bullish)
Oil (WTI) 67.03-70.25 (bullish)
FB 162-190 (bearish)
NFLX 329-360 (bearish)
TSLA 283-314 (bearish)
Bitcoin 7166-8530 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
