“Often 4 days ahead, I didn’t know I was going to make a big call.”
- John Taylor
I had the pleasure and privilege of sitting down for a Real Conversation @HedgeyeTV with hedge fund legend John Taylor yesterday. If you have the time this weekend, you can watch us talk about this particular moment in global macro markets here.
Coming out of the last Full Investing Cycle peaks (2000 and 2007), John Taylor was up +26% in 2001 and +12% in 2008.
Like all of us, he’s made plenty of mistakes. He just didn’t make the mistake of being wrong when consensus was at those critical US economic cycle turns.
Back to the Global Macro Grind…
What is it about this particular moment that has what was an ultra-complacent consensus dazed and confused?
A) That consensus thinks it’s all about The Virus when it’s really about when it hit within the context of The Cycle?
B) That there is no imminent catalyst to get either China or the USA out of #Quad4 in Q2?
C) That US Equity market volatility (VIX) makes “stocks” uninvestable during a Phase Transition in VIX > 31
As Taylor reminded me yesterday, it wasn’t 9/11 that made the US stock market crash in 2001-2002. All that “shock” did was come at the most inopportune time in The Cycle.
What does that mean? Well, it’s no different than anything else in nature. Like an avalanche, the collapse has emergent properties that are already de-stabilizing (like GROWTH, INFLATION, and PROFITS #slowing at the same time).
That’s why I always say that risk happens slowly, then all at once.
I’m not going to go back to the peak of The Cycle and re-hash everything we’ve written and said since we got you to buy Treasuries, Gold, Housing, REITS, Utes, etc. back on SEP 27, 2018. The Cycle has been happening. It’s rate of change reality.
This time, everyone could have seen it coming.
But, but, “its different this time in Credit, Keith”… or “what you don’t understand is that these are Secular Growers, Keith”… yes, I heard that 1,000x over as US economic data was slowing slowly… and now you’ll see what happens to those assumptions when it slows all at once.
Pre-virus, look at this Chart of The Day – this is Consumer Durable Goods Orders:
A) #Slowing at its fastest pace to -7.4% year-over-year growth … and
B) Confirming our #Quad4 nowcast for the US consumption economy in Q2 of 2020
Yes, we had that view pre-virus. All the virus does is pull the slow-down forward. Instead of repeating what some journo on CNBC said throughout the Q3 of 2019 #Quad4 slow-down (“the consumer is in great shape”), the consumer was in classic late cycle #slowing shape.
But, but, they’re going to cut rates (like they had to in OCT post the Q3 slow-down)…
Yep, they already did. As we proactively predicted the Fed would do in #Quad4, the Fed has:
A) Already had a panic-rate-cut of 50 basis points … and
B) Is expected to be forced to cut by another 50 basis points in 12 days
That’s right. In 16 days, the Fed is going to cut by 100 basis points, all within less than 1-month from the US stock market’s ALL-TIME highs…
Then what? Does it really matter yet? We’re going to get paid, in epic Treasuries and Gold terms, as the Fed heads down that path to rate cutting perdition. You already knew what happens to “risk” assets when the Fed is panicking towards the 4th and 5th rate cut, eh.
Since “valuation” is not a catalyst to stop this economic and global macro market Phase Transition, I’ll just stay with both my long-term Full Cycle Investing positioning and risk management #process this morning. I don’t have to be as short-term as some long-termers do.
I won’t be surprised if, 4 days ahead, I don’t know when I’m going to make a call to reverse course to the next Quad either.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.69-1.17% (bearish)
UST 2yr Yield 0.41-0.91% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 8 (bearish)
Utilities (XLU) 61.75-70.99 (bullish)
REITS (VNQ) 85.90-98.11 (neutral)
Consumer Staples (XLP) 57.75-64.23 (neutral)
Tech (XLK) 85.05-95.17 (bearish)
Nikkei 203 (bearish)
DAX 118 (bearish)
VIX 24.36-46.37 (bullish)
USD 96.09-99.65 (bullish)
EUR/USD 1.08-1.13 (neutral)
Oil (WTI) 43.02-47.71 (bearish)
Nat Gas 1.61-1.90 (bearish)
Gold 1 (bullish)
Copper 2.50-2.60 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
