“A limit is like an unattainable goal. You can get closer and closer to it, but you can never get all the way there.”
-Steven Strogatz
With recent “market” (US stock market, of course, not the Global Macro market) headlines like “Melt Up” (an Old Wall bank call) and “Buy High And Let It Fly” (Barron’s), what could possibly go wrong? If you’re looking at a Moving Monkey chart, isn’t there limitless upside?
For whoever still reads it for their “research”, even the Old Wall Journal has a lead article this morning titled “Growth Outlook Improves…” And this, of course, comes after US Retail Sales hit a 7-month low on Friday and Jobless Claims (Thursday) were +18% year-over-year.
For the Perma Bulls “fortunately, in calculus the unattainability of the limit usually doesn’t matter. We can often solve for the problems we’re working on by fantasizing that we can actually reach the limit and seeing what the fantasy implies.” (Infinite Powers, pg 8)
Back to the Global Macro Grind…
While I never thought I’d see the 1999 fantasy-land for “stahks” again, I should never say never again! The ongoing divergence between the US stock market’s “year-to-date” gains and the ROC (rate of change) #slowing in earnings in 2019 only has 1 predecessor: the year 2000.
Again, I’m sure it will all end great. Huge and great, really.
But what if it doesn’t? I suppose it shouldn’t surprise you that neither investment banking “research” nor Barron’s or their Old Wall Journos have one credible person writing about The Cycle, in rate of change terms. That’s not different than late 2000 or 2007 either.
But, other than being long Commodities and Energy Stocks (vs. Short Dollars) in December, what would I know about that?
Isn’t it amazing, but not at all surprising, that for this part of the limitless upside in “stocks”:
A) The US Dollar Index has broken bad to Bearish @Hedgeye TREND and fresh Q419 lows
B) Bond Yields have done absolutely nothing as the performance chase in Junk (JNK) hits new all-time highs
C) Commodities (CRB Index) Index are +7% from their early October and #FullInvestingCycle lows
Oh, and for the month of December (i.e. when the Dollar realized it’s not #Quad2 or #Quad4, but #Quad3 Stagflation):
A) Energy Stocks (XLE) were up another +1.3% yesterday and are +3.8% for December to-date
B) Industrial Stocks (XLI) did nothing at yesterday’s all-time SPY highs and are down -0.5% for December-to-date
C) The December-to-date “PMI Bounce” hopes ran into a no-bounce Markit PMI print of 52.5 in DEC
I know, I know. No one in fantasyland wants to talk about December-to-date… because it doesn’t rhyme (at all) with their latest chameleon-like narratives of 2019 “year-to-date” where:
A) They started the year-to-date after crashing either their or client capital into 2018 year-end-to-date
B) They thought China and EM would “recover” from the globally synchronized #slowing of Q4 2018
C) They ended up needing multiple rounds of Fed Cowbell to save all narratives that everything was fine
And who, after getting body bagged in Long Commodities, Energy, EM, etc. throughout 2018 and pre October 2019, has that as their #1 process driven pivot going into 2020-year-to-date? I don’t know. But I know I don’t need a fantasy to stay long of that.
To be fair, we haven’t made the “big EM bull market” call, yet. But we’re certainly not short of EM like we were with a #Quad4 Strong Dollar. And we remain quite interested in being long EM countries like Russia (RSX) that are heading into #Quad2 in early 2020.
For those of you who don’t know what #Quad2 is, it’s when both inflation and REAL GDP growth #accelerate at the same time.
That is not The Quad that the USA, Europe, or China are in as of this morning. Instead of trivial compensation-to-date talk (what Wall Street gets paid on a calendar year basis trumps even Trump’s tweets), we update that macro view every morning-to-date:
1. Yesterday morning’s DEC Flash PMIs left a lot to be desired in the direction of “bouncing” post the Great Soybean Deal of 2019:
a. < 50 and Unchanged: Japan Composite, Germany Composite, Eurozone Composite
b. < 50 and Decelerating: Australia Manufacturing, Australia Services, Australia Composite, Japan Manufacturing, Germany Manufacturing, Eurozone Manufacturing, UK Manufacturing, UK Services, UK Composite
2. PMIs - was that it for the “PMIs are set to bounce” trade? Our “Quad 3 to Quad 3” transition math suggests it might be. I mean, c’mon, we couldn’t even string together four months of acceleration in the Markit US Manufacturing PMI off the AUG lows
3. US HOUSING - In non-growth-slowing news, US housing continues to confirm the bull case we laid out 15 months ago. The NAHB Housing Market Index spiked +4pts in DEC against upwardly revised NOV estimates to a 20yr-high of 76 on the headline – a state of builder ebullience exceeded only by the twin 77/78 prints at the apex of the housing bubble. Existing Home Sales accelerated +110bps to 4.6% YoY – the fastest RoC since MAR ’17
When you wake up to macro markets in the morning, do you wake up to the ROC (rate of change) data or your emotions and Old Wall headlines? I wake up to my process, fully loaded with Quadzilla’s (Darius Dale) aforementioned ROC data.
While we publish to many every morning-to-date, selfishly I also manage my own money from a Full Cycle Investing perspective. Yes, that means getting Long Housing 15-months ago when the Old Wall hated Housing, REITS, Gold, and Treasuries “charts.”
It also means being happily in bed with #InflationAccelerating positions instead of “Small Cap Stocks” (which are still down over -5% from where you could have been plugged with limitless upside “charts” back in August of 2018).
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.72-1.91% (bearish)
SPX 3119-3199 (bullish)
RUT 1 (neutral)
NASDAQ 8 (bullish)
Energy (XLE) 58.00-61.46 (bullish)
Shanghai Comp 2 (neutral)
Nikkei 239 (bullish)
DAX 127 (bullish)
VIX 11.80-16.76 (neutral)
USD 96.40-97.55 (bearish)
Oil (WTI) 57.78-60.76 (bullish)
Nat Gas 2.15-2.45 (bearish)
Gold 1 (bullish)
Copper 2.64-2.86 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
