“How can you just leave me standing?”
-Prince
If PE Powell wants to get my new relationship with a different Quad going, he’s going to have to do a lot more than what he did yesterday.
Jerome, “Don’t make me chase you,
Even Doves have pride”
-Prince
Back to the Global Macro Grind…
“Should a downturn materialize”… you can bet the entire capitalization of the US Private Equity industry that PE Powell is going to show you what it sounds like when doves cry.
Where would that “materialize”?
A) Credit Spreads #Widening (again)
B) Russell 2000 #Crashing (again)
C) “Alone in a world so cold”
Seriously. Who really cares anymore about the economic materialization of #Quad4 when all you have to do is:
A) Wait for markets to correct (again)… then
B) Wait for Powell to ring the #Cowbell (again)… and
C) Not own FedEx (FDX) or US Steel (X) when they report reality in the meantime…
Yep, that’s the damndest thing about the whole “don’t fight the Fed” meme. You can lose a ton of money not fighting the weakest of “Double B Minus” Credits and Cyclical “Stocks” all the while…
This, of course, is all part of what happens when it’s genuinely #LateCycle (i.e. past peak growth rates on GDP, Inflation, and Corporate Profits) and Labor wants to get paid (see GM strike for details).
The Fed can eventually ring that cowbell louder than anyone ever did on Saturday Night Live (and “believe me”, you’re going to like it, from a price), but they can’t fire people and/or cut wages.
= #MarginSqueeze
= #WideningSpreads
= #MoreRateCuts
What could possibly go wrong in the meantime? Well, today is going to happen… so we’re going to have to deal with what didn’t happen yesterday too:
A) Powell was not able to devalue the US Dollar
B) Dollar Illiquidity (see Repo market) remains a #Quad4 cyclical reality
C) The Curve continues to compress
The Curve, eh? “Maybe you’re just like my mother… Why do we scream at each other?” The 10s/2s Spread just got pancaked from +10 basis points wide 3 days ago to +2 basis points wide this morning… and is setting up to re-invert!
Jerome, “How can you just leave me standing? Maybe I’m just too demanding?”
But when the repo market is so cold… “world so cold”… and the curve re-inverts… and “stocks” drop… “this is what it sounds like, when doves cry.” Doot, dootie, doot… doot doot doot.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.45-1.90% (bearish)
UST 2yr Yield 1.46-1.85% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
Utilities (XLU) 62.23-64.10 (bullish)
REITS (VNQ) 91.34-94.06 (bullish)
Financials (XLF) 27.08-28.85 (bearish)
VIX 13.50-17.58 (neutral)
USD 97.55-99.01 (bullish)
Oil (WTI) 52.72-62.25 (neutral)
Gold 1 (bullish)
Copper 2.55-2.68 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
