“You have to convey your priorities clearly and repeatedly.”
- Bob Iger
That’s another great leadership quote from Disney’s CEO, Bob Iger. Especially in our business (where a lot of people just talk), both internally and externally, my goal is to convey both our principles and our process clearly and repeatedly.
Spelling it out to you (and ranting it out to you on The Macro Show!) daily allows me to be repetitive. Over time, the repeatability of a disciplined and data-driven process will crush competitors who are chasing short-term headlines.
As my friends in Thunder Bay, Ontario like to say, “crush or be crushed.” They’d clearly understand #Quad4.
Back to the Global Macro Grind…
One more time for the home-team, what is #Quad4?
A) When the ROC (rate of change) of GROWTH … and
B) INFLATION, slow, at the same time
Yep, so easy an advanced 8th grader can understand it. As I remind my 6th grade son (who can do that math) “next to loving God, your family, friends, and teammates, you already know the secret to the universe, eh bud.”
Ok, now what?
After a great day for diversified #Quad4 portfolios yesterday (and the day before that), it’s another great day to be humbled by both incoming economic and market data. It’s all about The Quads & Signals. The daily #process is just rinse & repeat.
“But it’s a narrow #Quad4” (for now) in Q2 and … It’s a DEEEEP fractal dimension of similar sets signaling #Quad4 in FX, RATES, COMMODITIES, EQUITIES. Some of you love the elegance of The Quads, but need to listen more closely to my market signals.
Since so many people don’t look at “the market” the way we do, they didn’t see what FX and RATES markets in particular were seeing prior to the last 3 trading days.
Many US “stock market” only folk didn’t quite look at developing risks at all until the Dow was down 1,000 points!
But isolating that part of that Global Macro Market’s positioning revealed absolute complacency by Dow Bro (in points!) Perma Bulls (and capitulation by the bears) between FEB 13th and FEB 18th when:
A) SPY’s implied volatility dropped to a -6% to -8% DISCOUNT vs. 30-day realized volatility and …
B) Tech’s (XLK) implied volatility collapsed to a -8 to -11% DISCOUNT vs. 30-day realized
Be serious. Does the dude or dudette who bought TSLA in that week of fun and stock chart chasing games have any idea where futures & options markets are pricing in “risk”? Would they know what an implied vol discount is, never mind what it implies?
A “market” of “stocks” with an over-supply of non-data-driven opinions provides Global Macro Market pros a huge edge.
Post a 3-day smack-down in “risk” (and an epic ramp for Treasuries and Gold), here’s where equity market is pricing risk:
A) SPY’s implied volatility ripped to a +32% PREMIUM vs. 30-day realized volatility and …
B) Tech’s (XLK) implied volatility ramped to a +29% PREMIUM vs. 30-day realized
What does that mean? After capitulating on shorts and getting levered long between FEB 13th-18th, consensus positioning reflects bidding up “protection” AFTER a 3-day 5% SPY correction.
And for what? If you are the “market” (just stocks, baby), you’re -0.15% YTD pre the 9 basis point fee to have that on with no money manager. Oh, but “no one could see that coming”… and “everyone got crushed by corona”… seriously?
First, let’s start with the very basic fact that Japan printed a recessionary Q4 GDP report of -6.3% q/q pre-virus, bond yields were falling, the US Dollar was rising, and the yield curve was re-inverting… BEFORE the last 3 trading days.
I don’t want to go off on every economic time-series that was already #slowing pre-virus or the daily bean counting we’ve published for you throughout the virus. That would not only be too repetitive, but it would make our competitors feel silly.
I’d never do that! Instead, what matters most this morning is what you do next. Here are some countries to consider:
- CHINA – no change to the FX or Rates signals and the Hang Seng only bounced +0.27%
- SOUTH KOREA – no change to the FX or Rates signals and the KOSPI remains Bearish TREND
- AUSTRALIA – no change to the FX or Rates signals and the ASX 200 remains Bearish TREND
- GERMANY – no change to the FX or Rates Signals and the DAX broke @Hedgeye TREND yesterday
- RUSSIA – no change to the FX or Rates Signals and the RTSI was down another -3.5% overnight
- GREECE – no change to the FX or Rates Signals and the stock market is -13.7% in the last month alone
FX, RATES, EQUITIES with COMMODITIES having no bounce this morning and reflecting a Strong Dollar in #Quad4.
It’s repetitive, yes. But these are real numbers as opposed to false narratives. If anything changes, my job is to convey the numbers to you as clearly and concisely as I can.
Immediate-term @Hedgeye Risk Ranges with TREND signal in brackets:
UST 10yr Yield 1.32-1.55% (bearish)
SPX 3 (neutral)
RUT 1 (bearish)
Utilities (XLU) 68.13-71.82 (bullish)
REITS (VNQ) 96.10-100.99 (bullish)
Consumer Staples (XLP) 62.95-65.30 (bullish)
Nikkei 221 (bearish)
DAX 128 (bearish)
VIX 14.70-26.13 (bullish)
USD 98.16-100.21 (bullish)
EUR/USD 1.07-1.09 (bearish)
Oil (WTI) 48.28-53.39 (bearish)
Gold 1 (bullish)
Copper 2.52-2.62 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
