“My dear Kepler, I wish we could laugh at the extraordinary stupidity of the mob.”
- Galileo
Eventually (hate to break it to you, Hoodies), everyone who trades markets will be laughed at for making extraordinarily stupid mistakes at a top or bottom. That’s why I’ve concluded that it’s better to “call” tops and bottoms as processes, not points.
To be clear, many people think in terms of points. They think that there’s a point in “valuation” that something arrests its ascent or decline. That’s turned out to look extraordinarily stupid (on both the downside and upside) for a long time!
Instead, why not think of market prices like Kepler’s 3rd law of gravity? You know, why not think more about cycles in terms of time & space (or the distance from the sun)?
As modern math guru, Steven Strogatz, reminds us in Infinite Powers, “the farther a planet is from the sun, the slower it moves and the longer it takes to complete its orbit.” (pg 85)
Back to the Global Macro Grind…
Got integral calculus in your measuring and mapping process? Be honest, how many people are still staring at Moving Monkey averages of price, instead of particular moments in the volatility of a markets price that signals a Phase Transition?
It’s not like the secret to the universe (calculus) is new. Kepler and Galileo would be pretty old dudes if they were writing on ye Olde Wall these days.
They actually never met but “both worked on integral calculus – Kepler on the volume of curved shapes (like wine barrels) – Galileo on centers of gravity of paraboloids.”
In geometry, a paraboloid is a quadric surface that has exactly one axis of symmetry and no center of symmetry. So why would one use a 1-factor simple moving average or “valuation” at the center of their universe to make macro market decisions?
A: they don’t have a macro process never mind fractal geometry embedded within their assumptions
Enough about what they don’t do. Let’s get back to what we do. If most of what I’ve written so far this morning doesn’t make complete sense to you, I humbly submit you’re better than that. Read, study, evolve. You can do this!
On a more summary and simplified level about what I am actually seeing through the lens of my multi-factor multi-duration #process, here are this morning’s Top 3 Things (note I send to premium subscribers by 6AM EDT, daily):
Will the VIX stay below 26 (my TREND level) as we go through the heart of Earnings Season? Stay agile …
- USD (short) – with the short-term inverse-correlation to SPY at -0.93, the Dollar may as well be the VIX… and the Euro is finally signaling immediate-term TRADE #overbought within its Bullish EUR/USD TREND at $1.15 this morning – any short-term USD bounce is going to matter to macro market momentum, big time…
- GOLD (long) – with everyone (including Hoodies and The Machine) chasing Gold at this points A) it’s signaling immediate-term TRADE #overbought within its Bullish @Hedgeye TREND and B) has a 15-day inverse-correlation to USD of -0.95 this morning (its highest yet!) – Gold = +54% since we went bullish in Q418
- 10YR Treasury Bond (long) – why did we go bullish on Gold in Q4 of 2018? A: b/c we went Bearish on Real US Growth Slowing and Real Yields falling from that Cycle High. UST 10yr Yield of 0.59% this morning tells me were right on the screws with our call for #Quad3 Stagflation = Recession in Q3
The further an economy slows from its Cycle Highs, the slower it moves and the longer it takes to complete its Full Investing Cycle orbit. That’s why your Long Gold and Treasuries positions have crushed every other asset class since Q4 of 2018.
The more leverage (debt) one puts on either a company or country, the heavier the longer-term problems if and when that country or company continues to see its year-over-year growth rate slow.
Neither the Fed nor the Fiscal Establishment (who is trying to buy election votes) agrees with any of that. As you can see in today’s anti-gravity Chart of The Day, they think you solve a leverage problem with moarrr super-late-cycle leverage!
That looks like an extraordinarily stupid assumption about The Gravity of Cycles to both the Bond Market and me.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.58-0.66% (bearish)
SPX 3134-3280 (bullish)
RUT 1 (bearish)
NASDAQ 10,340-10,775 (bullish)
Tech (XLK) 105.26-110.02 (bullish)
Utilities (XLU) 56.44-60.73 (bullish)
Financials (XLF) 22.42-24.71 (bearish)
Shanghai Comp 3175-3515 (bullish)
VIX 23.01-32.43 (bearish)
USD 95.95-96.70 (bearish)
Oil (WTI) 39.31-42.06 (bullish)
Gold 1 (bullish)
Copper 2.82-2.98 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
