“When he talked of learning, he did not mean studying but rather the process of creativity.”
-Robert Coram (on John Boyd)
This might shock you, but some people in this profession really don’t like me. If they work with someone who actually took the time to understand my #process, they might have to resort to acknowledging that I’m “creative” or “clever”… but that’s about it, ha!
If you want to be successful on Wall Street for more than a few cycles (20-30 years), the #process of creativity is critical. The Game is always changing and you absolutely have to evolve alongside it or your alpha generation star will die.
Yes, The Quads that Darius, Dr. Drake, and I came up with were creative (some even call them “elegant”). So are our cartoons. Front-running our own 4 Quadrant risk management #process isn’t a creative idea though. That can be a very bad one.
Back to the Global Macro Grind…
Did you front-run the “pricing in” of #Quad4 in Q3 and go ahead and dip a toe into some blackhole exposure? That’s on you if you did. Especially if you’re one of the few Institutional Asset Managers who can actually invest for more than 6 months, I get why you did too.
Now if your investment duration is 6 days to 6 weeks (c’mon bros, admit it), you lost a few toes in that early AUG 2019 blackhole of #Quad4 Risk, so you want to be careful with the rest of your feet here in early OCT.
Since we’re the ones who came up with The Quads, “believe me”, I know what I want to buy when the singularity of my risk management process says to SELL my Quad 4 asset allocations and BUY either some Quad 2 or Quad 3 exposures instead.
What if you went ahead and chased some of the following #Quad2 charts at their lower-highs in mid-SEP 2019?
- Oil (WTI) and Natural Gas
- Energy “Stocks” (XOP or XLE)
- Industrials (XLI)
Oh boy, with Oil & Gas Stocks (XOP) and Industrials (XLI) down -3.6% and -2.4% on the day yesterday, those HIGH BETA asset, sector, and factor exposures lost a LOT of your (or other people’s) money yesterday. October “to-date” = #notgood.
Conversely, you could have stayed with your core #Quad4 exposures:
- Treasuries
- Gold
- Utilities
And kept all your toes… while out-running your competition (while avoiding epic episodic draw-downs of your hard earned capital) for the last 12 months of US #GrowthSlowing alongside Global #GrowthSlowing.
Oh, but KM, the “Citi Surprise Index” and Telecom Tom told me that PMIs and ISMs are going to “inflect positive”…
LOL
Yeah, when they actually do, we ROC (rate of change) people will let you know. Post yesterday’s putrid Global PMIs #slowing (again), USA’s ISM #slowing report was the SLOWEST of The Cycle:
- 123-month low in the ISM
- ISM “New Orders” were barely “better” than last month’s “lowest since 2008” print
- ISM “Export Orders” blew through the 2011 and 2016 lows (see Chart of The Day)
Oh, but that’s all about the “trade deal.” LOL
Yeah, had to give my haters the Double LOL this AM. Literally every Old Wall economist/strategist who has missed Global #Quad4 #Slowing since Q1 of 2018 is now the author of it is “all priced in.”
But, but, “it’s the manufacturing part of the economy and not my beloved US consumer”…
Yep, heard in every non-clever and/or creative meeting I’ve had with Institutional Investors since the US consumer stopped spending the last time we made the #Quad4 in Q4 2018 call.
Q: With a 123 month-low in ISM and corporate profits going NEGATIVE (broadly) year-over-year, do people get hired of fired?
A: Seriously
Q: And what happens when the ROC (rate of change) of US Jobless Claims starts rising for the 1st time in a decade?
A: Consumer Confidence doesn’t re-ramp to all-time highs
Q: Then what happens to these totally cool “secular grower” companies that have never seen a cycle?
A: Shorts
And btw, if we “get a trade deal”, what, precisely, is that going to mean?
- Remember the new awesome NAFTA 2.0 deal with Mexico? (#slowing for months, their PMI #slowed to 49.1 this AM)
- What’s the deal going to be with The People of Hong Kong who were shot and/or hospitalized yesterday?
- And how about that Chinese missile Xi was trumpeting yesterday (that can hit USA in 30 minutes)?
Obviously these are big rabbit hole questions that are part of a darker blackhole of geopolitical risk if it were to continue to manifest...
These are also the kinds of concerns I’d like to see capitulate when I take 1 or 2 of my existing 10 toes and finally dip them in to new Quad exposures.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.59-1.79% (bearish)
UST 2yr Yield 1.50-1.73% (bearish)
SPX 2 (neutral)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 63.17-65.38 (bullish)
Financials (XLF) 27.11-28.12 (bearish)
VIX 13.75-19.69 (bullish)
USD 97.75-99.56 (bullish)
Oil (WTI) 53.08-56.69 (bearish)
Nat Gas 2.23-2.46 (bearish)
Gold 1 (bullish)
Copper 2.51-2.61 (bearish)
Bitcoin 7105-9920 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
