“A problem well put is half-solved.”
-John Dewey
Evidently everything could be awesome and #PeakCycle again if we get an “interim deal.” Unless you’re Autodesk (ADSK) or Oracle (ORCL)… and you had to report reality recently, that is…
I was obviously on the wrong side of this bond yield move this week. There have been plenty of weeks that I’ve been wrong since going bullish on Treasuries, across the curve, over 50 weeks ago.
A weekly performance problem can be a real problem if your investment duration is a month. I did 21 Institutional Investor meetings in the last 3 days in NYC. FOMO is real. Some people absolutely have to chase.
Back to the Global Macro Grind…
But, what if the market has discounted #Quad4 and we’re going to #Quad2? If that question is on your mind, don’t consider yourself unique. Remember you’re asking the guys who gave you that Quad Map!
Maybe I missed making the turn. Maybe I didn’t. My risk management job isn’t to wallow in 1-week performance problems. It’s a complex job, but the investment actions born out of it are quite simple. Every day I can try to improve my positioning.
Can it be confusing? Of course. It’s especially confusing for people who chase short-term moves.
I’m obviously not the smartest person on Wall Street, so I try to explain my #process to all of you, in both print and on The Macro Show, almost every market day. Openly explaining my decision making process helps me make less of the big mistakes.
I’m not the first person to operate in a big fishbowl like this. Kepler loved talking about his confusion and performance problems:
“Unlike Galileo and Isaac Newton, Kepler documented his confusion… “what matters to me”, Kepler wrote, “is not merely to impart to the reader what I have to say, but above all to convey the reasons, subterfuges, and lucky hazards which led to my discoveries.” (Range, pg 115)
Why wouldn’t I sell my #Quad4 US #GrowthSlowing Treasury Bond positions here?
- My @Hedgeye Risk Range implies the UST 2yr Yield can go to 1.38% (from 1.73% this AM)
- My @Hedgeye Risk Range implies the UST 10yr Yield can go to 1.36% (from 1.80% this AM)
Obviously if things like SHY (short-term Treasuries) and TLT (long-term Treasuries) were named The Dow and we yelled about them like “stah-ks” all day long on CNBC, you’d have some serious Treasury FOMO right here and now too. That ain’t happening.
The fundamental intermediate-term @Hedgeye TRENDs that would have me not only SELL my Treasuries but then SHORT them (see Q4 of 2016 to Q3 of 2018 for details) ain’t happening in my #process this morning either:
- US Dollar Index remains Bullish @Hedgeye TREND
- CRB Commodities Index remains Bearish @Hedgeye TREND
- Oil (WTI) is down another -0.8% this morning, reiterating its #Quad4 Bearish @Hedgeye TREND
As a refresher, to have a market pricing in a move to either #Quad2 or #Quad3, there has to be INFLATION #accelerating. If the Fed were to cut by 50 basis points and guide to endless QE (like Europe just did) next week, we might see that!
To be crystal clear on that catalyst specifically, I don’t expect the Fed to do that next week. If they do, I will probably sell my Treasuries, Gold, and Bond Proxies immediately and will not apologize for it.
While a Fed that’s not Dovish Enough is not priced in here (1.36% on the 10yr it might be), I don’t think a #Quad4 in Q3 Earnings Season is either. If it was, Oracle (ORCL) would have been UP on yesterday’s #EarningsSlowing news.
Could I be wrong? Obviously. Could I be right (again) buying more Treasuries, Gold, and Bond Proxies (again)? Yep. That’s what makes a market. What position are you going to take? Your next performance win or problem is a function of your next decision.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.36-1.83% (bearish)
UST 2yr Yield 1.38-1.77% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7 (neutral)
Utilities (XLU) 62.01-64.00 (bullish)
REITS (VNQ) 91.19-94.19 (bullish)
Financials (XLF) 26.20-28.62 (bearish)
DAX 119 (bearish)
VIX 13.01-19.99 (bullish)
USD 97.51-99.16 (bullish)
EUR/USD 1.09-1.11 (bearish)
USD/YEN 105.51-108.22 (bearish)
GBP/USD 1.21-1.25 (bearish)
USD/CHF 0.97-1.00 (bearish)
Oil (WTI) 53.54-58.30 (bearish)
Nat Gas 2.25-2.65 (neutral)
Gold 1 (bullish)
Copper 2.52-2.68 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
