I haven’t been able to sleep since like October.
In running U.S. Macro, Housing and Crypto research while going further down the ML/Deep Learning/AI rabbit hole, I’ve effectively been sitting at the nexus of a metaverse of overlapping innovation …. A dizzying intersection for everything shaping the domestic and global future-scape.
There’s no ‘watched pots’ or staring at paint on walls. The evolution is observably accelerating in real-time, hourly.
I’m not tired. Quite the opposite, actually - a notable phenomenon that is more life lesson than investment insight.
That is, by and large, we reflect back what we absorb.
By optimizing your exposure to interesting and stimulating things, you optimize the energy exchange (back to yourself) associated with it ... a kind of perpetual, life mojo machine that requires only that make the simple but intentional decision to plug into it to enjoy the innervation.
Anyway, we usually start the Early Look with a quote.
“Usually” is good for consistency and expectations management. It can also be a euphemism for ‘stale/boring’.
In trolling my twitter feed for a quote that effectively relates to the broader messaging around the prevailing social-cultural zeitgeist I was hoping to convey, I (re)found the below.
Hedgeye remains an exit from stale institutionalized finance.
We were birthed from a vision of large-scale decentralization with an aspiration of democratizing world-class investment research … before social media, before Defi, before Satoshi.
That was 14 years ago.
The next successes will come from corners that embrace and plug into the evolution associated with the 4th Turning, not those resistant to change, fighting to maintain an antiquated power structure that cultivated their privilege.
So, as we move the clocks ahead and look to a season of renewal this weekend, the message remains simple:
Keep Springing Forward … let the competition Fall Back.
Back to the Global Macro Grind ….
“Feel” is not part of our investment or risk management process.
But if you sit fully data immersed, daily, you can literally feel the marginal changes and emergent inflections in macro and markets.
For example, the emergent buoyancy in the labor market in recent weeks was all but tangible. We offered the following in reviewing the Jobless Claims data on 3/4:
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After a year in the tunnel, plodding forward in vapid but hopeful anticipation of an uncertain future, the lead edge of the huddled, Covid-fatigued masses have begun to emerge – newly inoculated and starved for normalcy. For those still in the tunnel, but with the light tangibly close, the collective exhale of relief is equally cathartic. …. As we metaphorically emerge from the pandemic tunnel the handoff to organic improvement is liberated to begin taking shape. The Claims numbers should begin to come down more meaningfully from here, finally. |
Then we got the +465K print for February Private Payrolls.
Then yesterday’s Initial Claims printed a new pandemic low while JOLTS Job Openings (Jan data) printed a pandemic high.
The JOLTS data also showed the Quits Rate fully retracing back to pre-pandemic levels while the Openings-to-Hires ratio hit an all-time low.
This underscores the trend in Survey data (ISM respondent commentary, NFIB Labor Shortage Series, Fed Regional Survey data, etc) suggesting labor remains the (primary) bottleneck to further increases in activity, particularly across the industrial-mfg complex.
It also underscores the upside to payrolls and the associated upside for ‘organic’ improvement in aggregate income growth.
Then Biden signed the stimulus legislation.
Then equity benchmarks made ATH’s.
Don’t overthink this, yet.
Is Services Activity likely to improve over the coming months as inoculation’s proliferate and a more conspicuous macro renormalization takes shape?
Of course it is.
Against a backdrop of organic improvement and the easiest comps in modernity, payroll gains and activity across the Services Sector is going to progress in quickly then more moderately fashion.
I’ll continue to curate and contextualize the monthly data because I’m obliged to but we all know we’re set to traverse an epic Quad 2 bonanza. The larger objective will pivot to monitoring for the (inevitable) negative inflection following the (inevitable) period of discrete strength.
Yes, prices are ramping, but a major factor in that is idiosyncratic pandemic conditions that have forced supply to chase demand, particularly with respect to labor.
The labor data suggest companies haven’t been conducting proactive mass hiring in anticipation of increased activity. They have/will hire as activity renormalizes. But activity is going to renormalize faster than supply, which will show up in prices.
In other words, price pressure will remain a feature but that will progressively ebb.
If the idea that demand will demonstrate step function improvement alongside mass inoculation while a commensurate hiring of labor to meet that demand will occur on some variable lag – and with that demand-supply imbalance flowing through prices - seems wholly common sensical, that’s because it is.
Keith highlighted the probable data procession yesterday, but I just want to reemphasize it because it will define the slope of domestic macro, in reported data terms:
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Wide-spread vaccination will pave the way for a further step function increase in employment, a prospective easing in supply chain bottlenecks and a progressive reversion lower in pandemic related goods inflation → easy comps and an acceleration in aggregate private sector income growth associated with employment gains will drive an acceleration in collective consumption capacity → the organic acceleration in income growth will be further amplified by fresh stimulus funds, a decrease in the savings rate and a drawdown in the cumulation of excess savings resulting in a domestic household spending juggernaut. |
In other words, the line in the first chart below is going to continue to rise while the (massive) bar on the right hand side of the 2nd chart continues to fall.
Again, if all of the above sounds like a familiar refrain, that’s because we’ve been saying it for months.
Is the emergent reflationary palooza consensus at this point?
Yes, probably, but trying to somehow take the other side of it before:
- It actually plays out over a multi-month/multi-quarter period.
- When we’ve had roughly a decade of accumulated long duration/slow-flation allocations. That doesn’t ebb, capitulate, then build in the other direction overnight.
- When neither the Quads nor Quant signal are pointing in the that direction.
…is not a high-probability scenario, yet.
Keith flagged the emergence of some prospective yellow lights and lower-high signals across Global Macro the last couple days.
Enough for us to take down some gross exposure and tighten our net, but not enough to pivot out of the Quad 2 playbook.
We’ll be back Monday and everyday to let you know if/when that changes.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.42-1.64% (bullish)
UST 2yr Yield 0.12-0.18% (bullish)
SPX 3 (bullish)
RUT 2136-2353 (bullish)
NASDAQ 12,428-13,695 (neutral)
Tech (XLK) 124.36-135.50 (neutral)
Energy (XLE) 47.99-54.99 (bullish)
Financials (XLF) 32.70-34.94 (bullish)
Utilities (XLU) 57.85-62.47 (bearish)
Gold Miners (GDX) 30.37-33.20 (bearish)
Shanghai Comp 3 (bearish)
Nikkei 285 (bullish)
DAX 138 (bullish)
VIX 20.60-28.91 (bearish)
USD 90.34-92.58 (bearish)
EUR/USD 1.181-1.214 (bullish)
Oil (WTI) 60.74-67.97 (bullish)
Nat Gas 2.57-2.87 (neutral)
Gold 1 (bearish)
Enjoy the weekend …. And, remember, the demon you defeat gives you its power.
Christian B. Drake
Macro Analyst
