“Numbers couldn’t be trusted anymore.”
- Steven Strogatz
While that could be a universal quote for people in our profession who think and/or hope all that matters is “monetary impulse” (or cowbell), it’s one reflecting on the history of math and numbers going back to Euclidean Geometry.
Numbers themselves were “inadequate as a foundation for mathematics. To describe continuous quantities and reason about them, the ancient Greeks realized they needed to invent something more powerful than whole numbers…
So they developed a system based on shapes and their proportions. It relied on measures of geometrical objects: lengths of lines, areas of squares, volumes of cubes. All of these they called magnitudes.” -Infinite Powers, pg 32
Back to the Global Macro Grind…
In ROC (rate of change) terms, the order of magnitude of Chinese (PBOC) panic last night was real. The PBOC accelerated cash injections from 150B CNY to 400B ($57B USD) day-over-day.
Chinese Cowbell = Chinese Stocks (Shanghai) +1.3% + US Equity Futures +1.1%.
Phew, thank goodness for central market planners. The Coronavirus must be over and Google (GOOGL) really didn’t show a classic #LateCycle slow-down in Advertising Revenues last night. That was pre-virus data. It must be better now.
In other rate of change news, here’s your real-time update on USA’s Earnings Season:
A) 231 of the SP500’s companies have reported an aggregate year-over-year EPS decline of -0.02%
B) Industrials lead the y/y EPS decline at -7.0% with 45 of 70 companies reporting pre-virus reality
C) Utilities (only 4 of 28 companies have reported) have printed a +9.4% year-over-year EPS gain
Long Utes (XLU) and Short Industrials (XLI)? Yep, that’s where we’re at brothers and sisters of the ROC world. The best part about being long “expensive” Utilities and short “cheap” Industrials is that:
A) Utilities were “expensive” on the wrong consensus bond yield assumptions for 1H 2020 and
B) Industrials were “cheap” on the wrong earnings numbers for 1H 2020
It’s too bad Large Cap Industrials like Caterpillar (CAT) and 3M (MMM) didn’t guide up on the “bottom” in the ISM, eh?
Not to ruin the consensus narratives entirely (before they find a new one), but what happens if the intra-quarter-virus ISM is about to go back to 48 from its epic bounce to 51? Just asking for a friend.
And what if Facebook (FB) and Google (GOOGL), with > $1 TRILLION in non-contrarian-long market cap, weren’t lying to you about SLOWING revenues with RISING costs, pre-virus?
I know. It’s so hard to think about everything, instead of anchoring on today’s 1 thing (cowbell)…
But my big “call” today is that tomorrow will happen, and so will The Cycle. So let’s carry on with our measuring and mapping of the rates of change of GROWTH, INFLATION, and PROFITS.
Looking at the macro market’s net positioning, consensus still expects profits to accelerate and bond yields to rise in 1H 2020. For now, those consensus forecasted numbers can’t be trusted.
And that’s probably why a lot of people are hoping that it’s Chinese Cowbell that can save them from being wrong.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.46-1.73% (bearish)
SPX 3 (bullish)
RUT 1 (bearish)
Utilities (XLU) 67.21-69.68 (bullish)
Shanghai Comp 2 (bearish)
VIX 14.22-20.18 (bullish)
USD 97.15-98.12 (bullish)
Oil (WTI) 49.57-54.36 (bearish)
Gold 1 (bullish)
Copper 2.43-2.70 (bearish)
FB 198-213 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
