“Anytime you hear financial experts talking about how the market went up because of such and such – remember, it’s all nonsense.”
- Peter Brown
If you don’t know who Peter Brown is, you should. He’s not like Ackman or Cooperman, giving you their “picks” on CNBC. His historical returns are way better. He’s one of the data/process guys from IBM who joined Renaissance Technologies, in 1993.
While Jim Simons, Bob Mercer, and Brown were building out their equities capabilities, they held bigly to some of Simons’ “long-held principles… a key one: scientists and mathematicians needs to interact, debate, and share ideas to generate ideal results.”
-The Man Who Solved The Market, pg 199
Love that. That’s what we’ve always done at Hedgeye. Now, with our latest product, you can listen to what we call The Call @Hedgeye. It’s our morning meeting where the data produced by our data scientists/engineers augments our classic fundamental research debate.
Back to the Global Macro Grind…
Not all firms have a collaborative culture of learning and working, together, out loud. Many firms work in silos. Some firms never hear from the guy or gal who runs the place. Whatever it is that you do, we’re happy to be part of your #process.
Not all “quants” or “macro” hedge funds get either the math or The Cycle right either. While it blows my mind to see both Dalio (Bridgewater Macro) and Asness (AQR Quant) blow up in one of the best month’s I’ve ever had, it gives me in confidence doing it our way.
That’s not meant to be cocky. That’s just the score. For the few of us free market capitalists that remain, I’ll proudly waive the Red, White, and Blue of an American flag that I still believe in. You shouldn’t have to have a Canadian do that though.
Moving along, I’ll keep this morning’s “call” tight. I went from being a buyer all of Tuesday to a seller of stocks yesterday. I bought more US Treasuries and US Dollars too. Here’s my Top 3 on why:
After a nice 2-day bear market bounce in US Equity Beta I turned back to selling on green yesterday (going back to net short Equities/Credit on the open)…
- GLOBAL EQUITIES – bear markets in important Global Macro countries like Spain (down another 2% on the open) and South Korea (KOSPI -1.3% overnight) have been going on, not for a few months, but for a few years now! Germany’s IFO for April collapsed to 74.3 from 86.1 so that’s partly why European stocks turn tailed this morning (April is the 1st batch of Deep #Quad4 in Q2 data)
- OIL – Dollar Up, Oil Down (Global Equities Down) – what could possibly go wrong for someone buying US FOMO Futures this morning? WTI failing where it did yesterday matters in my model with it back down to $16.28 as I type this and immediate-term downside in the @Hedgeye Risk Range to $10.29/barrel (don’t forget Energy Stocks were one of the top contributors to the bear market bounce we sold into yesterday)
- HIGH YIELD – yeah, forget all of FX, Rates, Gold, Oil, Commodities, etc. there’s something special about US “stahks” that stirs the emotions of Americans. Love it! But High Yield didn’t during yesterday’s SPY rally to lower-highs. In fact High Yield OAS barely moved (Spread closed up 1 basis point on the day at +762 over) which, inclusive of it being marked to model by a community that needs it, is still uninvestable to me
Immediate-term @Hedgeye Risk Ranges: SP500 = 2; UST 10yr Yield = 0.52-0.76%. So that means, for now, I think the long end of the curve (in Treasuries breaks) breaks out to new cycle highs as bond yields break down to new lows.
It also confirms why I should still have Gold in my Top 3 Asset Allocations alongside Treasuries and US Dollars.
Why is the market signaling that? Given the aforementioned performance problems, it’s not clear to me that people see what our Hedgeyes see when we look at ROC’s (rates of change) within the lens of The Quads.
On job losses yesterday, here’s what we (and Gold) saw:
A) 4.4 MILLION Jobless Claims taking CONTINUING CLAIMS to 16 MILLION (which is an all-time high by more than 2x the prior)
B) CONTINUING CLAIMS were 78% of (the prior weeks) initial claims vs. 68% and 64% in the prior 2 weeks, respectively
As such, we expect to see three-quarters or more of this week's 4.4 million initial claims show up in next week's continuing claims number, pushing that figure to 19+ MILLION, or nearly 3x the previous high seen during the financial crisis in 2008.
So, instead of listening to whoever on Old Wall TV talk about some letter of the alphabet “recovery” when they didn’t call either The Cycle that peaked back at the end of Q3 of 2018 OR the causal factor that #accelerated the Global economy into Deep #Quad4 in late JAN…
Just listen to the market. Ex a narrowing range of US “stahks”, the cross asset class macro message is crystal clear.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.52-0.76% (bearish)
SPX 2 (bearish)
RUT 1165-1248 (bearish)
Consumer Staples (XLP) 56.90-61.08 (bullish)
Healthcare (XLV) 93.15-102.00 (bullish)
Financials (XLF) 19.93-22.90 (bearish)
Shanghai Comp 2 (bearish)
Nikkei 180 (bearish)
DAX 10106-10802 (bearish)
VIX 36.68-47.96 (bullish)
USD 98.82-101.20 (bullish)
Oil (WTI) 10.29-19.67 (bearish)
Gold 1680--1785 (bullish)
Copper 2.21-2.35 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
