"I see it all perfectly; there are two possible situations - one can either do this or that. My honest opinion and my friendly advice is this: do it or do not do it - you will regret both."
- Soren Kierkegaard
Regrets are pretty much inevitable in life. They seep into our subconscious based on mistakes, decisions not made, and those decisions yet to be made. While in some respect, regrets are unavoidable, what’s not unavoidable is minimizing their impact on future decision making.
In stock market operating, regrets come into play in many ways, but perhaps one of the most important is loss aversion bias. Investors with loss aversion bias associate more pain with the losses, compared to the pleasures of the gains. For this reason, they tend to stay away from losses, as much as possible. Those who manifest this bias often take much less risk than appropriate to maximize gains. And often wait too long to sell their losers.
There is a neurological foundation to loss aversion bias that drives this decision-making bias. The regions of the brain that process value and reward get silenced when the regions of brain that process loss get activated. In effect, we are wired (perhaps there is some Darwinism at work) to prevent us, at times, from taking appropriate risk to maximize outcomes.
There are a few studies that have tried to quantify loss aversion. The first study done by Daniel Khaneman (2011) showed that, roughly speaking, losses hurt about twice as much as gains make you feel good. Another, more focused on our personal lives, concluded that in marital interactions it generally takes at least five kind comments to offset for one critical comment (Baumeister et al, 2001).
Our advice on this is quite simple: wake up and play the game in front of you every day. It’s impossible to change the past. To paraphrase Meynard Keynes (not that we agree with his economics!):
“When the data changes, I change. What do you do, sir?”
So, do, or do not, but do not regret.
Back to the Global Macro Grind…
In what is another bad sequel to the movie Groundhog Day, the news of the day is, again, that the Chinese are going to waive certain import tariffs and increase agricultural purchases. By our count, this is the third time in the last three months in which Trump indicated that the Chinese would begin purchasing a meaningful amount of U.S. agriculture products.
In fact, on October 12th President Trump tweeted:
“The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country. In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out. Thank you China!”
Sounds great, but never happened. Our Washington policy team has long held the view that any trade deal would take much longer than expected. Nothing new on that view this morning.
Luckily enough, politically motivated tweets aside, the data, as always, will set us free. And this morning we are going to get a slew of data, including the following:
- U.S. nonfarm payrolls for November are expected to increase by 187,000 from the prior month and the unemployment rate is expected to hold steady at 3.6%. (8:30 a.m. ET)
- The University of Michigan's preliminary consumer sentiment index for December is expected to tick down to 96.5 from 96.8 at the end of November. (10 a.m. ET)
- U.S. wholesale inventories for October are expected to rise by 0.2% from the prior month. (10 a.m. ET)
It’s a loser’s game to try and front run any specific macro-economic data point, but there is some evidence that the jobs report will be on the softer side today. In the Chart of the Day, we show ADP job numbers versus non-farm payroll over time. These two data series aren’t always in lockstep, though do move in the same direction 2/3s of the time. As the chart shows, we will need one of the largest spreads versus ADP of this cycle to show job acceleration.
We’ll be covering the job reports live on our Macro Show at 9am with our U.S. economic analyst Christian Drake. If you don’t have access to the live broadcast, ping .
Speaking of data, in as much as we have been getting constructive on German equities, the data from one of the largest economies in the world continues to be abysmal. In fact, Germany’s October industrial production came in at -5.3% year-over-year versus an expectation of -3.6%. The output component fell by -5.3%, the largest decline in a decade. Not great for an industrial focused economy.
Ironically on the back of this miserable data from Germany, a Bloomberg survey of European economists indicate they expect that the ECB is done cutting rates and the next rate cut is likely two years away. We don’t play the prognostication of rate cut game, but what we can tell you is whatever a consensus of economists believe is likely to be wrong.
Meanwhile over in Vienna, OPEC continues to debate production cuts. Rest assured the Saudis will be doing everything they can to ensure compliance on current production cuts and push hard for additional cuts. Much like investment bankers in the U.S. working hard to support a cloud software stock at 15x revenue, the Saudis have that Aramco IPO to support. Needless to say, we expect the OPEC decision to continue to support our long call on oil.
Drill baby drill!
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.70-1.85% (bearish)
SPX 3083-3159 (bullish)
RUT 1 (bearish)
NASDAQ 8 (bullish)
Utilities (XLU) 62.34-63.57 (bullish)
REITS (VNQ) 91.07-94.00 (bullish)
USD 97.30-98.40 (neutral)
AMZN 1 (bearish)
FB 196-202 (bullish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
