“Instead of speculating on why things fell, he wanted to quantify how they fell.”
- Steven Strogatz
Imagine that. Instead of telling the world the way economies could/should be (using some simple letter of a politicized alphabet), Galileo was a good Bayesian Boy, bean counting the data.
“Galileo was the first practitioner of the scientific method. Rather than quoting authorities or philosophizing from an armchair, he interrogated nature through meticulous observation.” -Infinite Powers, pg 66
Old Wall Aristotelian story tellers would have hated hearing about that.
Back to the Global Macro Grind…
I get it. Many of you have SSTPP (super-short-term-performance-pressure) that’s being emotionally strained by Fear (The Gravity of The Cycle) & FOMO (stahks!). Maybe the Fed will create a facility for all of that.
Short-term behavioral and biological realities aside, it’s still my job to help you risk manage the intermediate to long-term of the Full Investing Cycle. From a cycle perspective, The Question to answer is quite simply “where are we on the sine curve.”
Like the question, “what is gravity?”… it’s a simple question with a complex answer. Just rattling off a letter of the alphabet is, sadly, a predictable short-cut heuristic reality. Almost 100% of “the bottom is in” bulls gave you NO letters on The Cycle at the FEB top.
There’s no repeatable process in that. But, if you need to be bullish on The Cycle, boy do they have talking points!
Yesterday I glanced at one of the many Old Wall brokerage notes that comes either into my email box or across my Twitter contra-stream every day. I don’t waste my time reading their narrative. I was just looking at their framing of the numbers:
A) The guy was using Russell Factor Performance “+40 Days Off Major Lows”
B) Using the 1998, 2002, 2009, 2011, 2016, 2018 “lows” as dates
Notwithstanding how ridiculous is it to be using a non-trending and short-term duration like 40-days (newsflash: most bear market bounces happen in 30-60 day windows; i.e. 1-2 months vs. @Hedgeye TRENDs which are 3-months or more)…
Quite literally every single year used wasn’t from THE CYCLE TOP!
I know it’s still hard for some people to grasp that the Spring Bear Market Bounces in the year 2000 and 2008 happened, but just wow on this. You have to be completely blind to Economic Cycle history to be calling 2020 something like 1998 or 2018.
But double-wow, doesn’t theorizing using random dates and durations that fit a narrative get some airtime!
I’m not going to waste any more time on refuting something that’s self-evident to the Macro Aware, but if you have friends who need to know something historically relevant about The Cycle tell them to remember this:
A) There have been 3 proper US Full Employment Cycle peaks in the last 20 years
B) Those Cycle Peaks were in the years 2000, 2007, and 2020
Everything that was super-late-cycle Credit and/or Equity “investing” from those major cycle peaks gave birth to asset bubbles. There are plenty of those that are already popping here in 2020, despite the Fed trying their best to blow them back up.
In other (shorter-term) actionable news this morning, here are my Top 3 Things:
- EUROPE – what happens when your V-shape is really only a recessionary bump in a W? Well, that’s what happened with European PMIs this morning and European stock markets resumed their bear markets on that with Germany’s DAX -1.2% re-opening into crash mode (-20% from FEB) and France down another -1.1%, taking the CAC’s crash to -27.2% since FEB
- OIL – I’ve been wrong re-entering the short side of Oil, so far, this week. It’s not easy modeling a Risk Range of Oil Volatility that’s 60-115 (equivalent of VIX), but no one said this game is easy when being held to account for every daily move; staying with the Brent Oil (BNO) short with immediate-term downside in my Risk Range of -25% vs. upside of 1-2%
- US DOLLAR – alongside Old Wall storytelling and talking points about why Oil and Emerging Market Equities have bounced (I re-opened shorts in both BNO and EEM this week) is the #1 Factor on Reflation FOMO in my model: USD. It’s been signaling immediate-term TRADE oversold within its Bullish @Hedgeye TREND for the last 48 hours; I re-shorted EUR/USD yest too
Yep, you do have to have a data-driven view on where we are in The Cycle to have a view on the US Dollar from here. You need to know where we most likely are going to be on the sine curve next. The only way we can do that is through meticulous observation.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.60-0.75% (bearish)
SPX 2 (bearish)
RUT 1211-1375 (bearish)
Healthcare (XLV) 98.28-101.93 (bullish)
Tech (XLK) 91.26-97.97 (bullish)
Financials (XLF) 20.32-22.64 (bearish)
Industrials (XLI) 58.05-65.05 (bearish)
DAX 105 (bearish)
VIX 26.61-36.77 (bullish)
USD 99.00-100.90 (bullish)
EUR/USD 1.07-1.09 (bearish)
Oil (WTI) 22.86-34.72 (bearish)
Nat Gas 1.54-1.92 (bearish)
Gold 1 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
