“If ignorance could be banished from our land, a real millennium would commence.”
-Ephraim Cutler
While central market planners worldwide are still working at banishing economic gravity, cycles, etc., we all need to work harder at banishing our own ignorance. Our work on that front will never be done.
The aforementioned quote comes from David McCullough in a chapter of The Pioneers titled “The Cause of Learning.” If you go all the way back and study the history of America, you’ll find plenty of secular stories that ran into epic cyclical headwinds.
By 1815, the Ohio River had become a modern day American internet and “one of the especially great thoroughfares… with traffic greater than ever before… with the flow of freight in both directions such as never seen.” (pg 195)
Back to the Global Macro Grind…
And then it #slowed… and then it evolved… and then it re-accelerated again.
Just like most things “secular” that have never seen a cycle before, that is.
But why is it that self-perceived experts of “Secular Growers” struggle so much with The Cycle?
If one claims to “meet with a company” so often that they achieve zero ignorance on a subject matter, shouldn’t they understand secular (cyclical) slowing as much as the growing part?
At least we ROC (rate change) heads who start with the macro know we don’t know what we don’t know!
Top-down, what we know about the US economic cycle as of yesterday is as follows:
A) US Durable Goods #slowed to a new cycle low of -5.4% year-over-year
B) US Capex #slowed to a new cycle low of -0.8% year-over-year
C) US Q3 GDP #slowed to +2.05% year-over-year (which imputes +1.99% q/q SAAR)
In other words, it was definitively #Quad4 in Q3… and there’s a high and rising probability that no matter what #BeanDeal America gets, both aggregate and US Tech/Software Capex will continue to slow throughout Q4 of 2019.
While it’s not a big enough contributor to US GDP to change what I just said, New Home Sales came in at +15.5% year-over-year growth yesterday, so I’ll stay with our core Long/Short US Equity Sector Style positioning of:
A) Long US Housing (ITB) and
B) Short Software (IGV)
Bottom-up, I’m also going to reiterate our SELL call on Secular Slower, Amazon (AMZN). Nah, not really #slowing (yet) in the “consumer” part of the business that arrives at your door every other day…
But yes, and very obviously yes, AMZN the software company is seeing a cyclical slow-down in their AWS (Amazon Web Services) business. If you back that out (even though the perma bulls didn’t when it was #acclerating), no worries…
Until the consumer slows at a faster pace, that is.
Since you aren’t ignorant enough to start every comment about “stocks” with “the consumer is in great shape” (which btw was true in October of 2007 before SPY dropped -6% in November of the same year)…
You already know that a contributor to the US GDP cycle slowing from its peak year-over-year growth rate (last year) of +3.20% to our current GDP nowcast of +2.05%, was last week’s US Retail Sales #slowing report where:
A) US Retail Sales slowed to +4.1% in SEP from +4.4% in AUG… and
B) That’s down from its #PeakCycle growth rate of +6.5% in JUL of 2018
We were bullish on AMZN in July of 2018 because Secular Growers crush it when the US economy is #accelerating in #Quad2. We were bearish on AMZN during #Quad4 in Q4 of 2018, then bullish again until JUL of 2019 when we made the #Quad4 in Q3 call.
Did having a basic level of awareness of macro matter? Of course it did.
Selfishly, I’d never want to banish Macro Tourism (ignorance) from this business. That said, I want to turn that into a positive for all of the people who pay us by going from ignorant (on the ROC of The Cycle) to aware.
Only then can we start learning about what we don’t know in a more timely manner.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 1.61-1.81% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 8009-8208 (bearish)
Utilities (XLU) 63.04-65.01 (bullish)
REITS (VNQ) 92.41-95.99 (bullish)
Energy (XLE) 56.26-59.70 (bullish)
Shanghai Comp 2911-3013 (bearish)
VIX 13.20-17.68 (neutral)
USD 96.70-98.25 (bullish)
Oil (WTI) 52.00-56.51 (neutral)
Gold 1 (bullish)
AAPL 229.99-245.32 (bullish)
AMZN 1 (bearish)
NFLX 260-281 (bearish)
Bitcoin 7 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
