“Modern neuroscience is trying to pin down the determinants of the human impulse to tell stories.”
- Robert Shiller
One of the main determinants in telling scary stories about markets is that’s how some people get paid. Fear-mongering generates clicks and subscription dollars. If you want to subscribe to Scary, As A Service, tune into @Hedgeye during the next #Quad4.
Back to the Global Macro Grind…
How were you “feeling” while some people were forced to sell last week’s US and Global Equity market lows? Did you Re-Gross? How do you feel today after India’s (INDA) stock market ramped another +2.5%, taking its 2-day Global #Quad2 ramp to +6%?
What is your portfolio’s dramatic arc?
“Paul Zak, a neuro-economist, has shown experimentally that narratives with a dramatic arc increase the levels of hormones oxytocin and cortisol in the listener’s bloodstream, as compared with more flat narratives.” -Narrative Economics pg 55
Obviously people on the bid/ask have neurological responses to storytellers that are invoking fear. My risk management #process was built to fade those feelings. Hopefully you just did.
What’s really going on in Global Macro this morning? Both Inflation and Earnings continue to accelerate:
A) ISM Prices Paid ramped to 82.1 in JAN vs. 77.6 in DEC = new Cycle High
B) Commodities (CRB Index) inflated to a new #Quad2 Cycle High of 177 yesterday
C) Earnings (189 of 500 SPX Companies) have reported an aggregate EPS #acceleration to +3.9% y/y
To put that in context, using the lows of The Cycle (which are now the #Quad2 base effects, or comparisons):
A) ISM Prices Paid bottomed at 35.3 in APRIL Of 2020 (i.e. during #Quad4)
B) Commodities (CRB Index) bottomed, in … drumroll… APRIL of 2020 at 106
C) US Corporate Profits bottomed at -19.2% y/y in Q2 of 2020 (which includes the month of APRIL)
Of course, certain companies and Sector Styles in the US economy had far scarier profit declines than -19.2%. That’s why I was trying to scare you into selling on this day in 2020 into pending #Quad4!
But why are you scared today? If Gamestop (GME) and #SilverSqueeze is having that much of an emotional impact on your portfolio, maybe next time you should be long HIGH SHORT INTEREST and COMMODITIES in #Quad2.
As I’ve been saying for months now, the accelerating participation of Uninformed (Retail) Volume is one of the most bullish things you can have during a ROC (rate of change) #acceleration in both inflation and earnings.
When hedge funds are panic-selling like Retail Investors, that’s even more bullish!
Now what? With GME down -25% pre-open and Silver selling off -5.7% from the top-end of the @Hedgeye Risk Range, do we do anything differently? Absolutely not. Jumping from CNBC headline to headline is what rookies and tourists do.
Focus on what markets (and The Cycle) are doing:
A) LONG Japan (EWJ) saw the Nikkei +1.0% overnight to +3.3% in the last month
B) LONG South Korea (EWY) saw Dr. KOSPI +1.3% overnight to +7.8% in the last month
C) LONG India (INDA) saw the BSE Sensex +2.5% overnight to +4.5% in the last month
That all happened on the heels of yesterday’s Re-Gross Ramp in US Equities to:
A) SPY -2.1% from its all-time closing high
B) NASDAQ -1.7% from its all-time closing high
C) Russell 2000 -1.6% from its all-time closing high
I know. #Scary, eh.
What was obviously scary were some performance drawdowns in the hedge fund community in January. While I have never had one remotely resembling something like that, I do sincerely feel bad for some of those people – plenty of them are my friends.
As a 46 year old man, plenty of my friends have had far worse things happen to them in their lives. The Game is hard, but life is harder. There’s absolutely no need to wakeup in the morning to self-interested-fear-mongering emails that make it worse.
When the numbers go from Peak Cycle to #slowing, that’s when we’ll tell you a non-fictional story that you should risk manage.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.04-1.16% (bullish)
SPX 3 (bullish)
RUT 2077-2196 (bullish)
NASDAQ 13,083-13,785 (bullish)
Tech (XLK) 128.32-135.52 (bullish)
Energy (XLE) 38.40-44.01 (bullish)
Nikkei 270 (bullish)
VIX 18.71-37.02 (bearish)
USD 89.81-91.16 (bearish)
Oil (WTI) 51.98-54.68 (bullish)
Nat Gas 2.45-3.03 (bullish)
Gold 1 (bearish)
Silver 26.20-29.63 (bullish)
GME 134-361 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
