“Narrative economics is the study of the viral spread of popular narratives that affect economic behavior.”
-Robert Shiller
For some reason I have developed a skill to trigger a certain type of person on Twitter about their belief-system. In the most epic and bubbly phase of #Quad2 Asset Price Inflation, that makes sense. Belief-Systems are constantly being confirmed by last price.
But what happens when A) the last price is a lower one and B) is part of a broader Full Cycle Drawdown (like Gold yesterday, taking its drawdown from its #Quad3 (AUG) Cycle Peak to -9%?
Oh, did that trigger you? It’s ok. We’re all human. Some of us have dogmatic beliefs. Some of us have agnostic risk management processes. As Shiller reminds us, “an economic narrative is a contagious story that has the potential to change people.”
Back to the Global Macro Grind…
While I’m an Irish-Canadian-Catholic (please don’t cancel) and I pray 2x/day (I have 4 kids, you would too), my religious belief-system has 0% to do with my Full Cycle Investing decisions.
What I believe is based on back-tested economic and market history.
Put simply, The ROC (rate of change) NUMBERS front-run the future NARRATIVES of Ye Olde Wall and its conflict of interest and fire-engine chasing media (no offense to firefighters – my Dad was one for 38 years, so my belief-system says they are cool).
Since I already triggered some Gold Bugs, let’s use a real-time example of what I believe they (consensus) will believe either now (because I am such a tremendous storyteller) or in the 3-6 month future:
BREAKING NEWS: “US Inflation Tops 3%!”
Yep, if the real-time prices of Oil, Copper, Corn, etc. are either at this morning’s prices or inflating higher, our real-time GIP Model Nowcasts for US GDP Growth & Inflation for Q2 of 2021 are:
A) GDP accelerating to a Cycle High of +10.77% year-over-year growth
B) INFLATION (headline CPI) accelerating to a Cycle High of +3.08% year-over-year growth
And you sold some Tech (XLK) yesterday because a guy stole a plant and sat in Pelosi’s office for a selfie?
Don’t get me wrong, The Fourth Turning by Neil Howe is one mother of a long-term demographic narrative that is driven by the closest thing to a sure thing in macro that you’ll ever find (births/deaths and mortality)…
But, in the meantime (i.e. intermediate-term @Hedgeye TREND), there’s this thing called The Cycle that gets you paid.
Or, it doesn’t… because you, like some of my 16th century Catholic relatives, think that “valuation” and/or the Earth is still at the center of the globally interconnected macro universe!
Back to Gold and its relationship to what is breaking out right now (Interest Rates):
A) Gold peaked at $2100/oz when both the nominal 10yr Yield and Yield Curve #bottomed in AUG of 2020
B) Since then, all Gold has done is make a series of lower-cycle-highs as the 10yr Yield has made higher-lows
Oh I know… ‘you Mucker, you (that’s with an M not an F)… you’re not incorporating our belief-system that the Fed will NOT ALLOW (going all CAPS on me) rates to rise… and that Gold Mining Stocks are “cheap”, using the wrong Gold price…’
YES, “Value” Believers! I’m long plenty of legit cheap Natural Resource exposures (Energy Stocks, Rare Earth Equity, etc.) where the commodity price continues to A) make new Cycle Highs and B) are “cheap” using the wrong (too low) commodity prices!
And, no worries, Quadzilla (Darius Dale), Dr. Drake, and I will review all of the assumptions in both our GDP and inflation nowcasts during our Q1 Macro Themes Call today LIVE @HedgeyeTV at 11AM ET. Ping for access.
Get ready for some numbers driving some big time, Full Investing Cycle, narratives!
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.93-1.07% (bullish)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 12,666-12,955 (bullish)
Tech (XLK) 126.11-131.40 (bullish)
Energy (XLE) 37.10-41.51 (bullish)
Financials (XLF) 28.61-31.19 (bullish)
Utilities (XLU) 60.22-62.96 (bearish)
Gold Miners (GDX) 34.13-39.20 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 265 (bullish)
VIX 20.10-27.13 (bearish)
USD 89.16-90.53 (bearish)
CAD/USD 0.78-0.80 (bullish)
USD/CHF 0.87-0.89 (bearish)
Oil (WTI) 47.12-50.99 (bullish)
Gold 1 (bearish)
Copper 3.52-3.69 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
