“Like the Odyssey, this 10 year journey cannot be understood without reference to the struggle that preceded it.”
- Jim Rickards
Since plenty of people in mainstream media were panicking like we were entering World War III last night, I decided to kick off my Early Look with a quote from my friend, Jim Rickards’, recent history book, Aftermath.
Some people are polarized by books from the likes of Taleb, Rickards, etc. If you can check your cognitive, emotional, and political biases at the door, you can learn something from any history book (including what were lies about prior histories).
If you have friends who don’t want to know where any historical economic or market time-series is, let them read tweets. According to the President of the United States, “all is well” this morning. Ex-#Quad3, “believe” him.
Back to the Global Macro Grind…
If you’d prefer to believe the ROC (rate of change) data, we’re here for you on this morning. First, I’ll give you the Top 3 Economic Data Callouts from Quadzilla (Darius Dale):
- In the USA specifically, NOV Factory Orders slowed -20bps to -1.5% YoY, joining the downward revision to NOV Durable Goods, which decelerated -260bps to -3.8% YoY. Capex was the lone bright spot of the report, accelerating +140bps to 0.4% YoY – the first positive reading since JUN.
- German Factory Orders decelerated -90bps from a downwardly-revised OCT print to a three-month low of -6.5% YoY in NOV. Worse, the European Commission’s DEC Industrial Confidence Index (-0.2pts to -9.3) didn’t leave much in the way of sanguinity from a forward-looking perspective (the report it around the ~6yr low reached in OCT).
- South Africa’s DEC Manufacturing PMI print slowed -0.6pts to a three-month low of 47.1. Despite the weakness, South Africa still is tracking in Quad 1 for 4Q19E and continues to have one of the highest-probability projected accelerations in GROWTH throughout the world here in 1Q20E.
What do I do with all these new (and now historical) YoY (year-over-year) learnings?
- In the USA, I reiterate that the US Economy is still stagflating in what we call #Quad3
- In Germany, I wait and watch as its economy was in #Quad3 in Q4 and the DAX just broke @Hedgeye TRADE support
- In South Africa, I’m waiting and watching for a buy signal on South African Stocks (EZA) – getting close!
What is it that you are doing this morning? I certainly hope you didn’t lose sleep over what the US Equity Futures did before you went to bed. This job is stressful as it is – there’s no need to panic about what you cannot control.
What you can control is investing across a Full Investing Cycle. By getting long of:
A) US Growth Slowing Exposures in Q4 of 2018 … and long of
B) US Inflation Accelerating Exposures in Q4 of 2019
You have yourself a portfolio of both latent #Quad4 Bonds and Equity proxies + new #InflationAccelerating positions (Commodities, Energy Stocks) that both work when the top 2 economies in the world (USA and China) are mired in #Quad3.
What is #Quad3?
A) When inflation is accelerating … and
B) Real Growth is slowing in kind
If you’re running risk managed portfolios like I do in my personal accounts (i.e. you want to have some Shorts on against your #Quad3 Longs), here’s a natural pair that I’d put on this morning:
A) Long of more Inflation Protection via TIP
B) Start shorting some super late cycle credit risk via Convertibles (CWB)
TIPs are a good example of a Full Investing Cycle position that we initiated at The Cycle turn for US INFLATION in October of 2019. Shorting Converts (CWB) is a good example of a #Quad3 Short that I didn’t short until yesterday…
Because my risk management and signaling process told me to wait on CWB until it signaled immediate-term TRADE #overbought, i.e. at the top-end of my CWB @Hedgeye Risk Range.
Again, my job isn’t to tell you about 2019 “year-to-date” and completely ignore what gave birth to those “returns” from the lows of December 2018-to-date.
My job is A) to get The Cycle right and B) help both you and my family get the Full Cycle Investing returns right across Asset Classes, Sector Styles, and Factor Exposures.
Getting the market timing part of that right matters. So does understanding the history of economic and market cycles. The next 10 year struggle to generate alpha cannot be understood without reference to the struggle that preceded it.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.76-1.87% (bearish)
SPX 3190-3257 (bullish)
RUT 1 (neutral)
Utilities (XLU) 63.51-64.75 (bullish)
REITS (VNQ) 90.75-92.95 (bullish)
Energy (XLE) 59.10-61.10 (bullish)
Tech (XLK) 90.73-93.47 (bullish)
DAX 13106-13284 (bullish)
VIX 12.01-15.95 (bearish)
USD 95.81-97.31 (bearish)
USD/YEN 107.66-109.20 (bearish)
GBP/USD 1.29-1.33 (bullish)
Oil (WTI) 60.38-63.94 (bullish)
Nat Gas 2.08-2.30 (bearish)
Gold 1 (bullish)
Copper 2.77-2.87 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
