“Ultimately, the mass of people whose investment decisions cause economic fluctuations are not very well informed.”
- Robert Shiller
So, you’re saying that 60+ million new online brokerage accounts knew that the Top 2 weights in the Momentum Factor basket were Tesla (TSLA) & Apple (AAPL)? How many Institutional Investors knew that AND that bond yields breakout to the upside in #Quad2?
No worries, everyone and anyone can tell you about the bond market now. Their narratives will be riveting.
Remember, the numbers ultimately drive the narratives. The Uninformed Volume eventually gets eviscerated by The Cycle. That’s all I saw yesterday. Some major performance problems (into another month end) for those who were Macro Unaware.
Back to the Global Macro Grind…
“KM, thanks for the great call on #Quad2, what’s your target for the 10yr Yield this year?”
A: Higher.
“Yeah, I hear you – but how much higher?”
A: Up slowly, then all at once.
“But, you must have a target?”
A: I don’t do targets. I do daily direction, TRENDING rates of change, and market timing. But if you need a number to come out of my mouth, a fractal level for the UST 10yr Yield is 1.8-1.9%, with timing on that in the 1st half of 2021, during #Quad2.
“Ok, thanks a lot.”
---
That typifies a typical line of questioning I’ve been getting from both Institutional & Individual Subscribers to the Hedgeye Process since November (i.e. when we made the call that interest rates were going to breakout to the upside, so you should be short Duration, or long-term Treasuries, Gold, Gold Miners (GDX), Utilities (XLU), Staples, etc.).
I get why our profession needs box-checking answers on what your “call” is but that’s not really the way The Game works. Phase Transitions in both the natural world and markets are no different than how I always answer the question.
They happen slowly, then all at once. And the least prepared for the moments of real entropy suffer the most tragic of losses, including their jobs and lives. So, if you want an EOW (end of world) narrative this morning, how’s that?
Unlike most Macro Tourist and Old Wall Media narratives, at least mine is true. Not unlike an avalanche or an earthquake, Phase Transitions in Currency and Commodity markets lead Phase Transitions in Equity Markets, almost all of the time.
Would bond yields be breaking out if Commodities weren’t?
Of course not. Instead of reading about “Commodity Supercycles” in FEB 2021, who got you long Commodities, as an Asset Class, back in June of 2020? Who got you out of Duration/Deflation Asset Allocations in November?
Who gets you out?
There were 2 glaringly obvious fundamental reasons why bond yields busted to new Cycle Highs yesterday:
- INFLATION – Commodities (CRB Index, 19 Commodities) inflated to new Cycle Highs alongside the Oil price
- GROWTH – US Durable Goods Growth #accelerated to +6.3% year-over-year in JAN vs. +2.6% in DEC
Yeah, inside the Durable Goods report you’d have seen that US CAPEX GROWTH was +9.1% year-over-year too! These ROCs (Rate of Change Accelerations, including Oil +75% since NOV) are the most epic any of you have seen in your investing career.
To put +6.3% year-over-year growth in Durable Goods in context (i.e. where data point is on The Cycle’s Sine Curve), when the US economy was coming out of #Quad3/#Quad3 scares in OCT, that growth rate was +0.2%.
And what do you think the US growth rates for both inflation and cyclical growth are going to look like when we lap the April 2020 compares, which were the lowest in the natural history of Cycle Lows?
I get it. Not everyone has a Go Anywhere, Full Investing Cycle, process. Not everyone can go both ways either. But I can.
And I don’t have to find a narrative that suits other people’s performance problems because they either chose to start with “targets” (like valuation targets) or theories about DCF’s and multiples for certain “levels” of bond yields.
But, again, if you really need a narrative, use history’s and these 3 numbers (they’re all years): 1994, 1999, 2013.
The only one of those years that I was publishing Early Looks from my fishbowl was 2013, but I spent ALL of that year telling subscribers why I was buying the damn dips in both cyclical and organic GROWTH exposures as bond yields broke out to the upside.
The other 2 years, 1994 and 1999, had the same thing in common. Bond Yields were breaking out because The Cycle was. By 1999 were there bubbles born out of those epic #accelerations? You’re damn right there were.
And dammit, why wouldn’t you be long a bubble before it became a bubble? And be short the bubble in Treasuries that’s popping alongside Deflation expectations right here and now? Rear-view looking consensus narratives, be damned.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.22-1.56% (bullish)
UST 2yr Yield 0.12-0.18% (bullish)
SPX 3811-3957 (bullish)
RUT 1 (bullish)
NASDAQ 12,992-14,326 (bullish)
Utilities (XLU) 58.56-61.28 (bearish)
Gold Miners (GDX) 31.60-34.45 (bearish)
VIX 17.80-30.99 (bearish)
USD 89.71-90.90 (bearish)
Oil (WTI) 58.41-64.14 (bullish)
Gold 1 (bearish)
Copper 3.99-4.43 (bullish)
Silver 26.49-28.20 (bullish)
AAPL 118-130 (bearish)
AMZN 3019-3214 (bearish)
TSLA 644-780 (bearish)
Bitcoin 44,072-54705 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
