Week Ahead, Alpha Trades, and Macro Report
Week Ahead, Alpha Trades, and Macro Report
The world is on the edge of change
We are going to cover a lot in this article but I want to start on an important point. Over the weekend, I spent a lot of time reflecting on the risks in society as a whole and how they are specifically reflected through various sectors. This is one of the reasons I did the podcast on “Reading, Research and Being Exceptional.” It is so clear that institutional trust is failing, educational quality is plummeting and the type of financial benefits experienced by previous generations don’t exist in the same way today.
Many people are going to use these dynamics as an excuse instead of adapting and harnessing the opportunity. In past ages, everyone chased after acquiring and developing a plot of land. Today, we are in the information age.
In the information age, you simply need to be at the right place, at the right time, with the right information to succeed
Regardless of your view of crypto and digital assets, it is clear that data, information, and digital variables are taking a dominant role in EVERYTHING. I emphasize this point because your greatest asset in today’s world is to be able to adapt and be a clear thinker (see my previous articles on this: Link and link).
“Clear thinker” is a better compliment than smart
-Naval
Before we jump into markets, let me provide a very tangible step forward for you. The amount of time people spend on entertainment is absolutely unprecedented (link).
So much of this is simply spent on social media:
I am not saying there is anything wrong with phones, social media, or TV but we all know the majority of people are being used by their phones as opposed to the other way around.
If you want a very tangible example of an opportunity then shift your focus off of entertainment and onto the following:
#1: Identify a specific sector, industry, domain, or product you find interesting and think there is an opportunity there. If you are reading this Substack, I already know you are thinking in this frame of reference.
#2: Identify all the academic journals, data points, or reports on #1. For example, I have aggregated hundreds of academic journals and have linked them all up to https://feedly.com/homepage. I go through and read academic journal articles spanning a multiplicity of domains every day.
#3: Begin to read, think, and write about the variables you have identified from #2 (if you don’t know how to do this, reference this podcast: Link). If you have identified the players, problems, and opportunities within a specific domain, you are in an advantageous position to take risk-free bets. For example, if you share unique insights that can be harnessed and monetized, people will pay you. If you email individuals at companies (THIS IS FREE!) within these domains with your findings, I would be surprised if you didn’t get some type of job offer.
The name of the game is acquiring competence in a domain that functions as the expense line item for someone else. If you can make someone money and cost them less than you generated from them, they will almost always hire you. Always think of win/win situations like this and you will be unstoppable.
The problem is, no one is interested in putting in the work of #1-3. This is completely fine because it simply decreases the supply of individuals doing this, thereby increasing the payout for those who do.
This can be applied to financial markets for a specific strategy, sector, or focus.
With that being said, let’s shift to markets.
Week Ahead:
I have been very clear about my macro views as they were laid out in the following articles:
Big picture, we remain in the tensions I noted in the macro report (link). What are these tensions? Simply put, a recession is unlikely to occur in 2024 even though growth has marginally surprised to the downside. However, inflation risk remains a key factor in markets even though it is likely to decelerate but not hit 2% by the end of the year.
The economic surprise index is in the red but GDP remains positive which is a CRITICAL distinction.
This brings us to the week ahead with CPI. This CPI print will be key because the majority of the CPI prints YTD have been flat and surprised expectations:
This is why the inflation surprise index has risen YTD:
As we move into this week, a CPI print coming out in line with expectations is going to reverse a lot of flows we have seen YTD. For example, my partner Said on the
side has been tracking how Software (IGV ETF) has remained BELOW its previous high on a YTD basis.
This makes complete sense due to the move we have seen in rates:
Main idea: The first sign of core CPI decelerating will cause managers to have confirmation on inflation and aggressively put up risk on a weekly and monthly basis.
The main thing you need to focus on is CORE CPI. Everyone has all of these fancy opinions about CPI being “wrong” or random news about oil prices. The Fed and the market are watching CORE CPI with a laser focus right now. Crude prices and even headline CPI can have a lot of variance without changing how the Fed acts. It is core that is important.
On May 2nd when everyone was saying that the FOMC meeting was a “huge red flag for equities,” I shared this trade in the alpha report (link):
Here is where we are now:
This is exactly how risk premias work within this macro regime. See my previous note here: link
The question moving forward is what are the specific trades to run and tensions to monitor as we move into CPI this week?
Trades and Alpha:
Please review these articles as a frame of reference for my analysis below: