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“It’s difficult to imagine how the system will be built to achieve that. At the same time, it is inevitable that we are headed in this direction.”
-Ray Dalio, on MMT, April 2019 

Say what you want about his politics, or his drive to raise awareness about the myriad ways in which American Capitalism has devolved into little more than a bastardized tool for the exploitation of the many by the privileged few – and that’s just at the corporate level (think: AMZN and it’s ultra-uncompetitive cost of capital) – everyone in our industry can agree that when Ray Dalio speaks, it’s best to pay attention. 

I don’t agree with everything Ray says and neither should you, but I do think he’s fast become a thought leader on what is likely to emerge as the topic de jour in the 2020 general elections: inequality. Whether it be income, wealth, gender, etc. – pick your arena – there is evidence abound that the system is broken

While the hardworking families of @Hedgeye may lack the means to right all of America’s wrongs, we are committed to propagating social justice in our respective communities. On that note, we are hosting our sixth annual charity golf challenge on Monday, May 13th at Wee Burn Country Club in Darien, CT. All proceeds go to support the community development efforts of Bridgeport Caribe Youth Leaders (BCYL) – an organization that focuses on providing youth with diverse educational and sports opportunities that foster intellectual, physical, and social development. 

I would not have had the opportunity to achieve much, if anything, in life if it weren’t for the mentorship, discipline, and vision I gained from participating in programs like BCYL in my own community. Please help us help provide those same opportunities for another Darius Dale(s) to make his or her way in this world: https://www.hedgeye.com/cares/golf.

Don’t Be “Too Busy” - zcv

YOU can make a difference if you have the desire to be great.

Back to the Global Macro Grind

I think a lot of us rush to find comfort in the convincing of ourselves that we’re “too busy” when we dismiss calls to action. That doesn’t mean the rest of the world ceases to exist, however. I’m no better than you in this regard, having found myself so busy marketing, updating models, refreshing backtests, and fielding client inquires this week that I somehow overlooked the busiest spate of global economic releases of the year – and that’s not including central bank activity. 

In total, there were well over 100 economic data points reported this week that directly impacted the GIP Model outlooks of the world’s largest economies. Here is our summary of the most critical development(s) for the top five by nominal GDP: 

  1. USA: Busy week of data highlighted by Wednesday’s ISM Manufacturing print – which ticked down -2.5pts to 52.8 in APR (lowest level since OCT ’16) – and today’s APR Jobs Report. Slowing Auto Sales in APR, mixed Construction Spending in MAR, and accelerating PCE and Factory Orders in MAR all coalesced to incrementally confirm the US economy’s descent into #Quad3 here in 2Q19E. We’ll be out later today with more color on how trends the domestic labor market are feeding into our projections for GDP and corporate profits.
  2. China: Few data points have had as negative an impact on global investor sentiment in the YTD as China’s APR Manufacturing PMI release. The -0.4pt tick down to 50.1 came at a most inopportune time, as many investors – including ourselves – are anticipating a rebound in Chinese economic growth here in 2Q19E. FWIW, our nowcast model for China still has the mainland economy recovering into #Quad2 even after the sequentially soft print.
  3. Japan: Nothing material to note this week on the economic data front, nor is there anything material to do with Japanese assets according to our “1-3-1” GIP Model Quadrant progression from now through year-end. If we can’t spot a multi-quarter pattern in the table below (either Quad sequence OR GDP/CPI delta), we don’t have an investable opinion on that country’s financial markets.
  4. Germany: The search for a bottom in German economic growth continues on the back of a weak Q1/Q2 handoff in the Manufacturing PMI (+0.3pts to 44.4 in APR vs. a Q1 average of 47.1) and Consumer Confidence (flat at 10.4 in APR vs. a Q1 average of 10.7). That’s less relevant to us than the bounce in German inflation data that has the German economy now tracking in #Quad3 here in 2Q19E: Headline CPI +70bps to 2.0% YoY (fastest RoC since NOV). Our model says to fade that, with likely downside of 40-50bps in reported inflation through 3Q19E.
  5.  UK: “Mixed” is the most appropriate characterization of this week’s releases of British survey data for the month of APR: Manufacturing PMI down -2pts to 53.1, Services PMI up +1.5pts to 50.4, Consumer Confidence flat at -13, and Business Confidence +4pts to 14. The net result of these signals is that the UK economy is tracking in the first of two consecutive quarters of #Quad4 here in 2Q19E – an outcome that has likely weighed on the pound since it peaked in mid-MAR. 

That’s about all we have time for this morning, folks. Subscribers of our institutional product will receive a full detailed breakout of the key GIP Model updates from around the world later today. 

All told, I want you to take away two things from this note: 

  1. Always make time to give back; and
  2. Always A │ B Test your investment views. Today we focused on the “A” aspect of research process. Keith will be back in the saddle Monday morning to focus on “B”.  

Have a great weekend!

Our immediate-term Global Macro Risk Ranges are now: 

UST 10yr Yield 2.44-2.63% (bearish)
SPX 2 (bullish)
Energy (XLE) 63.35-69.69 (bullish)
Financials (XLF) 26.74-28.44 (bearish)
VIX 11.38-15.72 (bearish)
USD 95.92-98.68 (bullish)
Oil (WTI) 61.71-67.43 (bullish)
Gold 1 (bullish)

Keep your head on a swivel,


Darius Dale
Managing Director

Don’t Be “Too Busy” - Chart of the Day