“The human brain grows and changes in response to training.”
- Anders Ericsson
Unlike plenty of politicized and/or fake news you may or may not waste your time reading today, that quote from Ericsson’s Peak – Secrets From The New Science of Expertise, is a factual one about how your brain develops.
“In 2000, neuroscientist Eleanor McGuire used magnetic resonance imaging (MRI) to examine the brains of London taxi drivers” (comparing them to non-taxi drivers… “and found that the posterior part of the hippocampus, a region of the brain associated with spatial recognition and recall, was larger in taxi drivers than the other subjects.” -The MVP Machine, pg 104
We all know that some people on Wall Street (and in Washington) think they have hugely large brains. But, when it comes to deliberately studying macro data and market signals, how many of them actually do ALL of the bean counting and daily reps?
Back to the Global Macro Grind…
The good news for me is that since my brain was smaller from the start (I had the lowest SAT score in my class @Yale), in rate of change terms, I still have lots of upside. Since Quadzilla (Darius Dale) is both younger and larger than me, he has even more upside!
If you’re an older man who started off being a lot smarter than me (i.e. 100% of white Old Wall Econs and Sell Side Strategists), don’t forget that, neurologically, you’re going to start to lose it (in rate of change terms) once you get over the age of 73.
And remember, even if you’re 20-30 years older than me, you still have to grind… “deliberate practice takes place out of one’s comfort zone… it demands maximal effort, which is generally not enjoyable.” -Anders Ericsson
With that, let’s get after it this morning!
From a Global Macro Market Signaling perspective, what’s new? Other than all-time SPY highs, not much:
- FX: US Dollar continues to signal Bullish @Hedgeye TREND (as it should with China and the USA heading back to #Quad4)
- RATES: no change, Sovereign Bond Yields, globally remains Bearish TREND @Hedgeye on 10, 20, and 30 year durations
- CURVE: no change to the shape of the Yield Curve as UST 5yr and 2yr yields move towards re-inversion
- COMMODITIES: no change as both Oil and the CRB Index remain below both TRADE and TREND signal levels of resistance
Oh, I almost forgot “STOCKS” (no I didn’t), which generally continue to signal Bullish TREND @Hedgeye with SPY, DAX, Nikkei all moving back up towards the top-end of their respective @Hedgeye Risk Ranges on the latest equity market catalyst, the virus?
Whatever the catalyst was (FOMO, performance chasing?), I don’t particularly care… mainly because my PRICE/VOLUME/VOLATILITY signaling process doesn’t. If you’re a Macro Tourist trying get around London, my signals are as “dumb” as a bunch of taxi drivers, I guess.
Dispassionate and data-driven market signals are deliberate.
But what about these deepening and deliberate #Divergences across macro markets and… drumroll… on the inside of both US and Asia Equity markets? What do the taxi drivers know?
A) Asian Equities overnight saw the KOSPI and Nikkei recapture @Hedgeye TREND support while the EM Asia (Philippines down -0.9%, Indonesia -0.7%, and Malaysia -0.6%) is signaling Bearish @Hedgeye TREND?
B) US Equities are seeing core LONG #Quad4 Sector Styles like REITS (VNQ) and Utes (VNQ) absolutely smoke core SHORT #Quad4 Sector Styles like Energy (XLE) and Basic Materials (XLB)
US Financial “stocks” (XLF) at +1.1% YTD are obviously sucking wind from the performance tail-pipe of my taxi-drivers too (relative to Gold and Long-term Treasuries), but I digress…
Digressions aren’t what you pay me for. You pay me to tell you what I deliberately wrote down in my notebook this morning.
On the real-time data front, here’s what’s new on today’s ole school sheet of paper (transposed from Quadzilla):
A) USA - Yesterday’s JOLTS data was another shot across the bow for the US labor market. On a YoY rate-of-change basis, Job Openings growth decelerated -312bps to -14.12% YoY in DEC, which represented the sharpest annual contraction since DEC ’09 and the sharpest decline since MAR ’08 on a ∆-adjusted basis
B) ASIA - Given that Japan’s Machine Tool Orders statistic is far and away my favorite leading-to-coincident indicator for the global industrial cycle, it’s quite a bit alarming to see growth there decelerate -210bps to -35.6% YoY in JAN – the 16th straight month of annual contraction. Given that this is a pre-Corona Virus figure, it doesn’t bode well for the global manufacturing cycle
So… if pre-virus data was slowing, was the virus the catalyst to blindly “buy small cap stocks” (IWM) and short Treasuries (TLT)? That’s not an opinion. That’s what Consensus Macro CFTC futures & options positioning was to start 2020.
While I booked some more gains in Gold and Treasuries (#timestamped in Real-Time Alerts) on Monday morning, I’m going to need a much larger (CNBC type?) brain to get me to sell those core Asset Allocations as China and the USA head towards #Quad4 in Q2.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.49-1.68% (bearish)
SPX 3 (bullish)
RUT 1 (bearish)
Utilities (XLU) 68.10-69.61 (bullish)
REITS (VNQ) 94.24-97.50 (bullish)
Tech (XLK) 96.69-102.98 (bullish)
Shanghai Comp 2 (bearish)
Nikkei 23197-24051 (bullish)
DAX 1313 (bullish)
VIX 13.35-18.97 (bullish)
USD 97.30-99.17 (bullish)
Oil (WTI) 48.90-52.31 (bearish)
Nat Gas 1.72-1.91 (bearish)
Gold 1 (bullish)
Copper 2.48-2.62 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
