"This is probably the third time in my career that I've seen this because I've only seen three economic cycle tops. I mean pure outright economic cycle tops defined by late cycle labor being at full employment."
Financial markets are painting a clear picture of Quad 4. This is an environment of U.S. Growth and Inflation slowing (in rate of change terms) and typified by volatile equity market sell-offs that is ultimately bullish for Treasuries but bearish for broader credit markets.
Hedgeye CEO Keith McCullough breaks down this dynamic in the quote below from a recent edition of The Macro Show:
"If you understand that there are three components that would get you to buy Treasuries:
On that third thing, you get another wave into Treasuries because everyone has to sell all their high-yield junk bonds and reallocate."
The three causal factors outlined by McCullough above explain exactly why we're bullish on Treasuries right now (click here to watch the video).
Get our Quad 4 call yet?
Here are some quick call-outs on recent financial market performance.
- Nasty MAY with S&P 500 -6.6% with Energy (-11.1%) and Tech (-8.7%) in full blown Quad 4 Scare
- HIGH LEVERAGE joined HIGH BETA and SMALL CAP last week with High Yield Option Adjusted Spreads widening +40bps to 4.33%.
- The MOVE (Treasury Bond Volatility Index) finally moved! It was +20% last week alone.