“After about 50 throws, Bauer collects the balls in a bucket. Then he begins again.”
- Ben Lindbergh
Cincinnati Reds pitcher Trevor Bauer doesn’t have the now commoditized “Moneyball” process, he has a Bayesian one.
While the authors of the latest #process book I’m reading: The MVP Machine – How Baseball’s Nonconformists Are Using Data To Build Better Players, don’t quite explain it that way, in our research vernacular that’s the way I’d summarize it.
This, of course, is what Data Science @Hedgeye has become – having machines and technology give us more objective data, faster, so that we can use it to evolve our development, decision-making, and risk management processes.
Back to the Global Macro Grind…
What is your process? If there’s 1 question I’ve asked myself, my teammates, and our clients since starting this company 11 years ago, that’s The Question. How you answer it defines your daily disciplines. Chasing tweets about trade deals, not so much.
Yesterday was an interesting day of counting the beans (or collecting the balls) because:
A) Pre-market US Equity Futures were indicated lower post a nasty #Quad3 Chinese headline inflation report
B) European Equities were down hard (DAX -1.5% on the open, breaking @Hedgeye TRADE momo support) and …
C) Rates, globally, were heading lower in kind, as Germany, Italy, and Spain all tilted back into #Quad3
Then, the #BeanDeal headline…
And booyah into-year-end-comp, baby! US Equity Futures popped 15 handles on that and “we” (what CNBC people call the Dow, in points) were off to the FOMO races again. Sort of…
By end of the day, the bubbly US stock market was back to down on the day on accelerating volume. Total US Equity market volume (including dark pool) was +12% vs. its 1-month average after NFIB reported a 30-year (not a typo) high in compensation plans.
I know, I know. Hopefully your competition has Macro Tourism at the core of their “process”, and totally missed that last point. If you didn’t know that the most important US economic data of the day was LABOR UP, PRODUCTIVITY DOWN, now you know.
Here’s Quadzilla’s (Darius Dale’s) more specific update on that:
A) Yesterday’s Unit Labor Costs (+20bps to 2.2% YoY in 3Q19; fastest since 1Q18) and Nonfarm Productivity (-30bps to 1.5% YoY in 3Q19; slowest since 4Q18) data confirmed what we already knew…
B) US corporations are seeing their operating margins erode at an accelerating rate. Investors who expect that to ameliorate itself due to Fed easing or, worse, automatically, are in for a real treat in 1H20E.
C) The utter collapse in Japanese economic growth here in 4Q19E continues unabated with the Q4 BSI survey data. The headline index crashed -7.3pts to -6.2, which represents the worst print since JUN ’16.
Yeah, the sneaky Mucker (that’s with an M) slid in a little Japanese interconnectedness alongside The Cycle’s unreported and developing American reality. Remember, there is no “trade war” with Japan.
You actually don’t have to be long or short the tourism and trade tweets, if you’re just long the 1 big macro pivot call we made at the beginning of October (as the US economy joined China’s in #Quad3) = Long Commodities.
On that front, if you bought Saudi Aramco’s mega-cap IPO, you crushed it (it closed limit-up +10% on Day 1 of trading), as Long Oil/Energy remains an obvious way to be long of #InflationAccelerating. Here are some process/summary thoughts on that:
- COMMODITIES – freshly squeezed 2-month high for the CRB Commodities Index (19 Commodities) yesterday, closing at 182 with Oil Volatility (OVX) getting smashed to 27 (down from 49 in SEP as #Quad4 in Q3, i.e. Deflation, was being priced in); remember, the flows chase breakdowns in the volatility of asset prices BEFORE they start chasing Moving Monkey charts
- SECTORS – Long Inflation vs. Short Trade Tweets (and ISMs have “bottomed” hope)? One explicit way to do that is Long Energy (XLE) which was up another +0.2% yesterday in a down tape, leading Sector Style gainers at +1.5% in DEC vs. Short Industrials (XLI) which was down -0.1% yesterday to down -1.6% for DEC-to-date
- RATES – short-end of the curve is suggesting Powell is NOT Dovish Enough today (which, eventually, becomes the catalyst for him to go panic dovish again in the new year) with 2s at 1.63%, so I expect a re-flattening of the curve on that as European Rates go 1-month price momentum negative again as the Eurozone economic data re-enters #Quad3 (10yr Bund Yield down -8bps in the last month)
Yep, whether you’re measuring and mapping the release and rotation on every single ball you throw (you can do that with modern technology… prior pitchers, qualitative scouts, impressionable coaches, etc. couldn’t)…
Or doing the same with every bloody bean-counted economic data point before 80% of Old Wall Street wakes up in the morning… and then A/B Testing + contextualizing that data with modern market signals (like the volatility of volatility) to front run The Machine…
Well then, now you’re talking my kind of #process. Thanks for evolving, real-time, alongside us.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.70-1.89% (bearish)
UST 2yr Yield 1.53-1.69% (bearish)
SPX 3088-3163 (bullish)
RUT 1 (bearish)
Energy (XLE) 57.96-60.33 (bullish)
Shanghai Comp 2 (bearish)
DAX 12911-13296 (neutral)
VIX 11.73-17.40 (bullish)
USD 97.03-98.32 (neutral)
Oil (WTI) 55.99-60.79 (bullish)
Nat Gas 2.18-2.52 (bearish)
Gold 1 (bullish)
Bitcoin 7006-7880 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
