Julian Brigden
@JulianMI2
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Co-founder of Macro Intelligence 2 Partners, a global independent macroeconomic research firm @MI2Partners , and co-creator of Macro Insiders @RealVision
Vail, CO
Joined February 2017
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I understand that inertia is a powerful force. But I find it amazing that investors still think that US stocks are the place to be invested and will continue to outperform the rest of the world. I for one, don't take 5 standard deviations (1 in 1mio) bets.
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I can't take my eyes of this chart. Sure, the trend break could just be Ukraine and potentially false. But if it's real, it suggests is that we are starting the biggest rotation trade, we have seen in markets in a decade and the implications are utterly profound.
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*CALPERS UNLOADS RECORD $6 BILLION OF PRIVATE EQUITY AT DISCOUNT ...if you are looking for a black swan it's in private equity!
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When one of the best macro shops in the business says this, you should pay attention.
#inflation
#stocks
#FederalReserve
#bonds
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To help the repo market the Fed will inject approximately $500bln over the next month. But have we been here before? In 2000, because of fears related to Y2K, they announced special funding and guess where it went?
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In the last 50yrs, whenever New Homes for Sale materially diverged from New Homes Sold, the end result was always a recession and most of the time ugly ones.
#housingmarket
,
#recession
#recession2022
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In February 22, we compared US tech stocks to the bubble and suggested selling the
#Nasdaq
.Back then, one of our favourite charts had just hit its March 2000 highs. Well on Friday, it broke key support suggesting tech will continue to underperform.
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In the short term markets are extremely frothy and vulnerable to retracement. But is this the key chart for 2021? Broad commodities have broken from a massive wedge that's held for over a decade. This should deliver 2-3 fold gains over the next few years.
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The Fed is trying to reset market expectations by using an uber dove Kashkari, to emphasise a hawkish message. There is NO PIVOT and hikes together with QT will continue into 2023. Markets aren't listening but give it time grasshopper!
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I'm calling it! The rally from $539 to $780 was a confirmed bull trap. So the
#TSLA
bubble has bust and the stock should now be sold on any rally for years to come.
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People have suggested, the weakness in equities since the start of the year is similar to 2016, when the S&P subsequently gained 25%. They are DELUSIONAL! Back then we saw unprecedented policy intervention to support stocks. Now, the picture is the complete opposite!
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This is one of my favourite models. What it suggests is that the $ stands on the cusp on a rapid 30% decline. If it's right, then by the end of 2022 the investment landscape will look utterly different. What will you trade?
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Equity bulls are yet again jumping on the idea of
#inflation
peaking. We don't see it as long as
#PPI
keeps surging. Instead, we have 2 options 1) Companies eat the price increases = margins collapse 2) They pass them on = higher inflation = more hikes. Neither good for
#stocks
.
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As tensions boosts oil and inflation expectations, Treasury Breakeven rates are rising. While nominal yields fall. The net effect, is that real yields have dropped 80bps unwinding any tightening achieved thus far by the Fed. Unless stocks collapse, this isn't sustainable.
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Druckenmiller said "Earnings don't move the market, its the Federal Reserve...focus on the movement of liquidity". He learnt the hard way in 2000, buying the top of the Nasdaq as the Fed removed their Y2K funding. I wonder what he thinks of the Fed's current bonanza?
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Stocks are still using the 2009-21 playbook ie as growth slows the Fed eases. But we now live in a pre GFC world, where inflation not deflation is public enemy no.1. Hence, with ECI @ 5%, PCE @ 6.8 they are delusional. The only pivot we are getting is to 50bps vs 75bps hikes.
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Can we stop talking about "pivots" when the Fed isn't close to a "pause".
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The real "second wave", as layoff reaccelerating fast. Here's NI JOBCUTS on Bloomberg
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In the late 70s, rising house prices helped pump up CPI, pressurising Federal budgets. Hence, in 1983 the BLS switched to using Owner Equivalent Rent, which handily produced a lower and less volatile measure of CPI. Can you imagine where CPI would be now if we switched back?
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She's really making this stuff up as she goes along. Shameful
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MSCI the creator of all the ETFs that epitomise passive investment vs the 1920's bubble. Is this a spurious correlation now? If the analogy holds watch for a fail bounce.
Went I first posted this I was told it was "spurious correlation". But on CNBC this week Dan Nathan said if we have a peak in passive investing "we have a bigger problem". Do we have a bigger problem?
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How does
#ARK
implode? Most new investors are losing money (VWAP since Jan $120). As they sell, so does Cathie. But some of her names are illiquid. So she sells liquid stuff ie
#TSLA
#ROKU
. End game is a losing portfolio of infinite duration stocks you never wanted to own!
As the Fed accelerates the end of QE those stocks that lived by the sword will die by the same hand.
#arkk
is a perfect example of a liquidity driven bubble. If the analogy holds, today's close below the May lows opens us up to a major acceleration!
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With Ukraine on the backburner, can we refocus on central bank tightening and the impact on
#tech
? If so,
#teslastock
might be a canary in the coal mine. It's early in the week and I've been caught out before, but this looks like a clean break of a major trend
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Despite its relative size, the manufacturing cycle leads the broad economy. So, when the chair of ISM Manufacturing says "all 10 sub indexes in negative territory... I'm expecting to hunker down here for a much lumpier rough period than I thought a couple months ago" Take notice!
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I started my career trading precious metals and I can assure you I'm not a gold bug. But now is the time to own some protection. Q is which one to own? Gold or Silver? The RSI on the ratio just hit 55 year highs!
#ownsilver
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In 1998 Greenspan pivoted from fighting inflation to deflation. A seminal event which flipped bond and equity correlations and gave birth to 60/40 portfolios, risk parity etc, which have dominated investing ever since. If we are flipping again, the ramifications are profound.
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J Powell called supercore CPI "the most important category for understanding the future evolution of core inflation." Yet, he's going ahead with cuts with supercore CPI at over 4.5%. Bottom line in soft-landing there's no reason to own bonds.
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FINALLY, the market is coming around to our view, ie under the current policy framework, rates stay higher for long, which isn't 3 months. Rather as Williams said today, rates will be restrictive for a "few years". Technically, it looks like we need to price out cuts.
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At what point, does the concept of "transitory" inflation become laughable? How about 10% CPI?
Well surprise, surprise CPI was higher than expected! Powell said in March that "You'll see firms reluctant to raise prices" and our bet was that he'd be wrong. With let more price increases on the way this, is getting to be fun.
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Over the next few weeks, if the risk sell-off continues, you will hear the cheerleaders say the Fed needs to ease again. Ultimately, they will be right. But the question is at what level? In 2000, the Nasdaq was down over 30% and they still hiked 50bps!
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I'm sticking with my view, that the bull trap appears to have closed and that we are now in the "bust" phase of a classic bubble.
#TSLA
#ARK
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Our model for the S&P has caught all the major cycles since 2000. What it suggests now is that following the recent bounce towards in the S&P towards 2800, the highs are in and while the initial sell-off shouldn't be too rapid, the next big target is 2200.
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At Jackson Hole Powell said "He sees little evidence of a “wage spiral”. Well he's not looking very hard! Non-Supervisory (aka not your boss) Average Hourly Earnings are rising at 5.5%. It's the highest in 40yrs and should help to sustain company pricing power and inflation!
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#housingmarket
#stocks
The strength of the homebuilders has been perplexing. One explanation is the New Home Sales data has remained strong. But this data doesn't reflect cancellations and KB Homes just dropped a BOMB!
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The most important chart of the day! As the correlation between stocks and bonds turns positive (lags 24 hours) i.e. both bond prices and stocks fall equity portfolios have NO hedge. This is VERY dangerous, because the only place to hide is long volatility, cash or equity shorts.
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As the Fed accelerates the end of QE those stocks that lived by the sword will die by the same hand.
#arkk
is a perfect example of a liquidity driven bubble. If the analogy holds, today's close below the May lows opens us up to a major acceleration!
With recent hawkish Fed rhetoric, the odds are rising of another sharp leg higher in bond yields. In that scenario,
#ARKK
, which still looks like a classic bubble is extremely vulnerable. I'm watching May lows.
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Tesla's claim that they will grow annual average deliveries by 50% doesn't pass the smell test. How do you grow at all, if customer deposits for cars fell for the 2nd quarter and inventory continues to grow?
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Markets are celebrating lower inflation. But I fear they are forgetting that the reason inflation is declining is for the wrong reasons!
#unemployment
#recession
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Wondering why stocks and bonds are both going down together? Look no further than our good friend Risk Parity with their leveraged modern portfolio approach to investing. Is the worst over? Hard to tell but we are interesting levels.
Risk Parity is now at the epicentre of pain and indicative of a weakness in Modern Portfolio Theory. As bonds stop acting as a hedge to stocks, portfolios have no hedge and have to go to cash.
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This is absolutely pivotal and being utterly ignored by stocks. Toll Brother just said the housing market is "booming". But how sustainable is that, with banks tightening credit at "the fastest pace since the last crisis". Don't people need mortgages to buy a house?
U.S. banks are tightening business lending standards at the fastest pace since the last crisis, even though the Fed has taken unprecedented actions to make money cheap to borrow. Chart via
@soberlook
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Having utterly failed at home integration, the TV, the car, etc., we are now meant to believe it's home robots. I think the word that perfectly sums up
#Apple
at present is "floundering." They are a one-trick pony that lives and dies on iPhone sales.
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So far so good! If we keep following this pattern,
#arkk
sells off back towards $100 Then we get a solid bounce, before the next major leg lower, which takes us towards $60
Mate as we have discussed, given her fund is in infinite duration equities, it's essential for her to talk about deflation.
#inflation
is her kryptonite!
Meanwhile, from a chart perspective
#arkk
could be utter toast!
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This is a key chart. EZ inflation is utterly out of control with the 3mth annualised rate running at approx. 16%. Yet the risk-free asset in Europe i.e. 10yr Bunds yields 1.12% !$#^^@!! If this trend holds it will help. But if it breaks it will drag ALL global bond yields higher.
German 10-year yield is on the brink of a major breakout.
If it does, very likely to accelerate from here.
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The VIX doesn't suggest a low in stocks. We are following the pattern of the GFC. Back then, vol peaked when Lehman failed NOT at markets lows. Vol then sat above 40 chewing through risk appetite and stocks continued to fall. Using this metric we are in Oct/Nov 2008.
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I'm amazed how some people think that US consumption is going to collapse, and we are heading for a
#recession
. How does that happen with the tightest labour market in 54 years? PS. This chart is commensurate with about 3.4%
#unemployment
, higher wages and
#inflation
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Before equities cheer the drop in bond yields. They need to understand, that the bond market is betting that the tightening of bank lending that's coming, more than outweighs the Fed hikes that have been removed from the curve, i.e. the odds of a hard landing have risen!
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With German PPI
#inflation
hitting 45%, we have a 7 sigma (one in a billion years) divergence to CPI. This suggests two things 1) European bonds yields are moving higher and will take Treasuries for the ride 2) European corporates are facing massive margin compression.
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Stock bulls assume that with CPI falling, the Fed will soon cut. But in an inflationary economy with full employment, you have to target nominal GDP, and the if Fed’s own forecasts are correct, that’s accelerated to 9.5%!!! Even allowing for a margin of error that’s FAR TOO HIGH.
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Stocks are toying with 2 outcomes 1) tech weakness = broad risk-off or 2) a long awaited growth/value rotation. The decider could be the $. If it strengthens = 1, falls = 2. I'm watching the Bollinger band aka realised vol. Like 2014 it's rising. But this time the $ is falling.
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I'm not a fan of Jolts but the Powell is and with the gap between Hires and Openings almost back to the highs, it's clear that far from pivoting, the Fed's job isn't done. At this rate, forget cuts in H2, we'll be getting hikes!
#FederalReserve
#Powell
#bonds
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While the US is in the inflation sweet spot i.e. incomes are keeping pace with prices. In the Europe, the cost increases are so unprecedented that companies won't be able to fully pass them to customers. Take Spain where PPI hit 31.9%.
#stagflation
is a real threat!
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As bond yields have dipped, we have gone back to the P/E multiplication to justify higher stocks. In the case of
#NVIDIA
the result is that the PE has doubled and is approaching 70, where outside the and covid bubbles you saw material declines.
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In light of
#NFP
, I want to reiterate an observation I made 3 weeks ago. In 2000, with the
#NASDAQ
down 30%, the trigger for a
#FederalReserve
50bps hike was a 0.3% jump in Av. Hour. Earnings. It just jumped 1%!!! Don't expect the Fed to be your friend.
Over the next few weeks, if the risk sell-off continues, you will hear the cheerleaders say the Fed needs to ease again. Ultimately, they will be right. But the question is at what level? In 2000, the Nasdaq was down over 30% and they still hiked 50bps!
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Since June,
#NVDA
has continued to trace the pattern of a classic bubble. So now it's make or break. If it fails to make new highs and moves lower, the bull trap closes, confirming that THE top is in, and we enter the "bust". New highs negate the pattern.
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#Telsa
is on a knife edge. Since the 2020 lows, we have probed this trendline a few times. But we've never had a a consecutive close/open or vice versa below the line. Tomorrow's open after PCE inflation will key. My target on a break $550.
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Judging by today's price action, which has every sector up on the
#SPX500
, we either have yet another squeeze or we have solved all our problems.
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I just took part in Real Vision's "Has Everything Changed ?" series. In my interview, I outlined why I believe, we are at a massive generational inflection point in markets, monetary policy and society.
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It's been a long time, since we've seen financial repression like this! Yet we still expect foreigners to be willing to fund our record fiscal spending. Something has to give and historically in the 70's and 80's it was the dollar.
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A quote from the Chair of ISM Services should chill any FOMC member to the bone "You know the federal reserve has said that this looks to be transitory, as it relates to inflation right. Well, I can tell you these prices where they are now they're not going away anytime soon".
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In the last 40yrs, the widest spread between PPI and CPI has been 4.4%. Therefore, if the Kansas data is indicative and PPI is heading towards 10%, +5% CPI seems reasonable.
Yet more confirmation that inflation is going to significantly overshoot. The next question is what's already priced into Treasuries. Breakevens are priced off CPI expectations and the 1yr rate is 2.8%. So if we hit 5% as this chart suggests, my guess is that isn't priced.
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This morning, mortgage applications for purchases dropped again and are now, close to pre-Covid levels. Yet, investors have yet to wake up to the risks that poses to home sales and the home construction ETF.
Does anyone spot the slight divergence between homebuilder (NAHB) and consumer sentiment? I have to believe this raises the risk that the typical Spring housing buying season disappoints.
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I'm long
#Silver
from $12.62. But I'm suspicious this is more pros than
#WSB
. That said I think it has legs. In Dec I posted this chart and said it looked like 2011 when silver moved 90%. But watch the weekly RSI as it gets to 20%
Is silver about to reaccelerate, not just vs stocks but also gold? The ratio of the two metals faces a band of congestion between 60-70. But the price action of the RSI looks like 2011, when after a correction it fell driving the ratio 40% and outright silver up 90%!
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Since mid-2018, broad US equities have underperforming hard assets. After this bounce in Russell/Silver ratio now is a good time to enter. For Macro Insiders we are long silver outright from $23 with an initial target of $40.
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I'm no hedge fund titan. But I was at Phibro, Phibro Salomon, Salomon Phibro and Salomon (insider joke) in the late 80's, on the bullion desk ...and here's the photo to prove it!
The London Trading Floor of course,m and there were some hedge fund titans there early in their career:
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Can we shut up about the US curve inverting! The reason its 30bps is because 10yr Treasury yields are distorted by overseas flows seeking a home. If 10yrs were correctly priced i.e. over 4%, the curve would be +100bps. The biggest risk isn't recession but overheating.
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With markets as tense as they are now, I decided that it would be a great time to share my thoughts, which are normally saved for Macro Insiders with all my followers. I hope you and enjoy it and many thanks for your support.
Wondering what's going on in markets?
Check out this FREE episode of Macro Insiders where
@JulianMI2
& Roger Hirst join forces to break down just what the hell is going on.
These are the kinds of conversations taking place every single month on RV Pro 👇
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First Cathie dismissed the Fed's concern about inflation and was dead wrong. Now, she's accusing them of stoking deflation. She really needs to get her macro right and stop just talking her book.
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At mortgage applications for purchase drops to 28-year lows, the divergence to New Home Sales grows. How is that possible? Is it cash buyers, as we saw post CV-19 or as I suspect, errant seasonal adjustments and the fact that new sales don't reflect cancellations?
#stocks
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A great day, as equities priced in a benign Fed. Utterly delusional! But it gives us an interesting setup in
#nvidia
. This looks like a classic bubble in the process of a Bull Trap rally, which should fail $296-315. PS you've never made sustained profit with P/E more than 70.
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In the last few weeks, I've written 3 pieces outlining why our work suggests that the US economy is heading for a hard landing. Thanks to the Economist front cover, now I know I'm right!
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A great bit of work from Jesse ‘Why did these companies sacrifice long-term financial health for short-term stock prices gains? .....“stock based compensation.” I'm a capitalist but this has to end!
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There's a nursery rhyme in which green bottles fall off a wall, until one is left. In US stocks, that one bottle is
#APPL
. Vs its peers the current divergence is 2.8SD, which only occurs 0.26% of the time. Which way does it break? If Apple breaks $138, we could find out quickly.
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If you don't watch FX, I'd like to draw your attention to USDJPY. Currently, it looks like a classic bubble and $145 is a HUGE level. Why is it that important? Well, it is the funding currency. So a reversal or breakout here could set the tone in broad risk.
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This logic is utterly asinine. The quickest way to get a proctology examination and tighter oversight from US and EU regulators of
#cryptocurrency
and its exchanges is if it's used to circumvent sanctions. In a new Cold-War there is NO decentralised. You pick a side!
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At Jackson Hole, Powell assured us that a “narrow group of foods and services” were responsible for the “spike of inflation”. Yet, in the latest Kansas City Fed survey, EVERY i.e. 100% of the respondents said their raw material prices were higher than a year ago!
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Typically, Price highs or lows are a function of capitulation. If that's true, we haven't seen a low in
#cathiewood
#ARK
. Amazingly, investors or are they "disciples" keep buying. They've added over 12% since the Jan lows and 8% in the last two weeks!
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If
#Bitcoin
can hold the $28.8-30k level, we should have the basis for a rally. If not, there is NO support until $20k
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#nvidia
continues to follow the pattern of a classic bubble. Thus, having declined over 35% from the highs (see my post from 30th July), the move back above $106.50 suggests we are starting the bull trap rally. Typically, when that fails, the trap is sprung and the top in.
#Nvda
Ladies and gents, this is a chart I shared with clients in early June. It backs up my prior posts and clearly illustrates that
#NVDA
has ALL the features of a classic bubble in the down leg of its bull trap. Typically, these declines are between 25-50%. before a bounce.
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I despise almost all politicians because they are either liars or just clueless! Biden "You could argue whether (the stimulus) had on the margin a minor impact on inflation. But the idea that it caused inflation is bizarre". Really? It was 5x anything we've seen in 60yrs!!!!!
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CDC DIRECTOR ESTIMATES 30 TO 60 MILLION PEOPLE IN THE U.S. MAY HAVE HAD CORONAVIRUS. IN SOME AREAS IT'S LESS THAN 1% OF THE POPULATION, IN OTHER AREAS IT'S UP TO 20%. In Spanish Flu Herd Immunity was achieved at 20%, which raises the questions should NYC still be locked down?
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One chart that says it all! Never before have US stocks outperformed the rest of the world to this extent, especially, as the Fed is hiking. That's only possible because broad domestic financial conditions keep easing ….If that changes lights out!
I love how after CPI stocks assume we have Goldilocks. What they're missing is that financial conditions have EASED as the Fed has hiked so are too loose. Therefore because stocks are part of that equation the more they rise the more the Fed will have to hike until equities pop!
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If you think the $ has come too far, too fast and therefore must retrace, consider 2014's price action. Back then, as the Fed ended QE, EURUSD dropped from 1.4000 to 1.0500 in 10 months with virtually NO major corrections. This time the Fed's balance sheet is going the other way.
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I'll say it again, Tesla isn't a stock, it's a cult. How else do you explain a valuation even before today's disastrous earnings was double analysts' (hardly an objective crowd) earnings expectations (blue line)?
#tsla
#TeslaEarnings
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Both JPM's Kolanovic and BoA's Subramanian suggest it's time to sell tech and buy value. The Q is how does the ratio corrects? The "Nice" or "Nasty" way? With tech no dominant can it be nice? This is the S&P Growth/Value ratio and I can't help think it looks a bit like 2000!
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