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“This kind of parent has an idea of the outcome they want.”
Peter Turchin

Key Takeaways

  • If Wall Street’s “Fed Fund Futures price in no hike”... but the Bond Market hikes the Cost of Capital anyway, isn’t that still a rate hike?
  • The Bond Market obviously has laser-like Hedgeyes and can see Inflation Accelerating like the Currency Market has
  • We remain Long of Inflation via Oil itself (USO), Gasoline (UGA), Uranium (URA and URNM), Energy Stocks (XLE, XOP, PSCE), INFL, NLR, AMLP, PFIX, TBIL, and TFLO

The big picture

There’s no inflation in education, is there? While a real-life education can be devastatingly expensive in markets, that’s not what I’m addressing this morning. In End Times, Turchin cites a 2021 article in The Atlantic titled “Private Schools Have Become Truly Obscene.”

“What’s changed in the last few years is the relentlessness of parents. For the most part, they’re not abusive; it’s that they just won’t let up. Many of them cannot let go of their fears that somehow their child is being left behind.” (pg 94)

But Wall Street begging for Fed Rate Hike Policy to “pause” will get that behavior under control, eh? To me, it’s all one and the same societal thing. At this stage of The Cycle in America, The Fourth Turning Is Here.

The Bond Market Is Parenting Powell - thumbnail 09.15.2023 inflation King Kong cartoon

Macro grind

Welcome to another Macro Monday @Hedgeye where it’s nice to see our uniquely American US Stock market catch up with Currency, Commodity, and Bond Markets on US Inflation Re-Accelerating!

As a matter of deliberate study, let’s start with what the Global Currency market continues to signal:

  1. US Dollar Index was up for the 4th straight week and continues to signal Bullish on both our TRADE and TREND durations
  2. EUR/USD was down another -0.5% last week and remains Bearish on both our TRADE and TREND durations
  3. Japanese Yen was down -0.1% vs. USD last week to -5.0% in the last 3 months and remains a Core Short
  4. GBP/USD dropped another -0.7% last week after a good Breaking Bad Signal from us to Bearish TRADE and TREND
  5. Swedish Krone was down another -0.7% vs. USD last week to -3.3% in the last month alone

As you all know, Sweden’s currency continues to weaken alongside the Euro because Sweden (like a big country called Germany) has already reported entering a RECESSION.

In the USA, ex-Corporate Profits (which are already in a reported US recession), our GDP Nowcasts have the broad headline US Recession starting in Q4 of 2023, but likely not “reported” until 1H of 2024, so this makes European Currencies relatively weaker.

In the meantime, plenty of US Small Businesses, Households, etc. have already entered their own recessions. See last week’s US NFIB Survey data for details on that and/or Friday’s US Consumer Confidence #slowing report out of the University of Michigan.

Why would US Consumer Confidence be slowing? Don’t all Americans get “AI” instead of higher Gas Prices?

A. CRB Commodities Index inflated another +1.8% last week to +5.6% in the last month = Bullish TRADE and TREND
B. Oil (WTI) inflated another +3.7% last week, taking its TRENDING INFLATION to +28.4% in the last 3 months
C. Gasoline inflate another +2.1% last week, taking its TRENDING INFLATION to +21.1% in the last 3 months

‘Oh, KM, you’re just cherry picking Oil and Gas prices – Krugman takes car service.’

Yep (on one of those things). Here’s moarrr of the INFLATION Accelerating:

A. Cocoa inflated +2.8% last week to +9.4% in the last month
B. Sugar inflated +3.2% last week to +14.3% in the last month
C. Coffee inflated +7.1% last week to +5.2% in the last month

Oh, so you have friends who can pay $4-5 bucks for a cup of coffee and not bat an eye? That’s cool (for them).

In other news, The Bond Market obviously has laser-like Hedgeyes and can see Inflation Accelerating like the Currency Market has:

  1. UST 2yr Yield was up another +6 basis points last week and is making a NEW CYCLE HIGH this morning at 5.05%
  2. UST 10yr Yield was up another +7 basis points last week to 4.33% and remains Bullish TRADE and TREND as well

If Wall Street’s “Fed Fund Futures price in no hike”, but the Bond Market hikes the Cost of Capital anyway, isn’t that still a rate hike? Don’t you love how gravity just takes over from their central market plans?

It’s like The Bond Market is parenting Powell. #LoveThat

So what if you’re a Dovish (Pause) Fed, Down Bond Yields, Buy #BubbleCap Tech band camp type? Well, even if he does what they begged him to do (no hike), that didn’t work either last week:

  1. Tech (XLK) was down -2.3% last week, Breaking Bad (again) to Bearish @Hedgeye TREND
  2. Both MSFT and AAPL are now signaling Bearish on our TRADE and TREND Signals heading into Q3 Earnings Season

With the beloved SPY (which we’ve been short since AUG 1) down for the 2nd straight week, there was still plenty of money to be made away from being Long Inflation:

A. Long MLPs (AMLP) were up another +1.0% to +3.6% in the last month
B. Long Japanese Stocks (Nikkei) were up another +2.8% to +4.0% in the last month
C. Long Indian Stocks (BSE Sensex) were up another +1.2% to +4.4% in the last month

All of those are current positions in our Macro Pro Long Only Asset Allocation Model. As I mentioned, we remain Long of Inflation via Oil itself (USO), Gasoline (UGA), Uranium (URA and URNM), Energy Stocks (XLE, XOP, PSCE), INFL, NLR, AMLP, PFIX, TBIL, and TFLO.

Our levels

Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets

UST 10yr Yield 4.20-4.39% (bullish)
High Yield (HYG) 74.21-74.93 (bearish)            
SPX 4413-4511 (bearish)
NASDAQ 13,518-14,030 (bearish)
RUT 1827-1877 (bearish)
Energy (XLE) 89.97-93.64 (bullish)
Utilities (XLU) 61.09-65.80 (bearish)                                             
Shanghai Comp 3074-3166 (bearish)
Nikkei 32,555-33,571 (bullish)
BSE Sensex (India) 66,107-68,290 (bullish)
VIX 13.08-16.37 (neutral)
USD 104.29-105.63 (bullish)
Oil (WTI) 85.62-91.60 (bullish)
Gold 1906-1955 (bullish)
Copper 3.68-3.88 (neutral)
AAPL 167-181 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer

The Bond Market Is Parenting Powell - 9.18.23 2