“He whom you do not want to panic in a crisis, train (exerce) him before the crisis.”
Key Takeaways
- Welcome to another Macro Monday @Hedgeye where we will start the week by showing you the trained discipline of our weekend work.
- What happens to Global Demand in a #Quad4 Recession?
- Looking at the recent Goldman “holdings” data, Mutual Funds chased Energy Stocks right into the highs of the Inflation & Profit Cycle Peak last year. They haven’t been this “overweight” Energy in a decade…
The big picture
That’s a good quote pertaining to what I coach: being proactively prepared. Guy De La Bedoyere employed it in Chapter 3 (“Gloria Exercitus: Making Soldiers”) of a #history book I just finished titled Gladius: The World of The Roman Solider.
“The Latin word for army, exercitus, was the same as the word for disciplined or trained. Both were derived from the verb exercere, to keep busy or to practice.” (pg 65)
They whom you do not want to panic in a bear market, train them before the next leg lower resumes.
Macro grind
Welcome to another Macro Monday @Hedgeye where we will start the week by showing you the trained discipline of our weekend work. This is when we contextualize the week-over-week macro market moves within The Cycle.
As a matter of discipline, let’s not look to TSLA’s live quote and latest tweet-narrative for information about the Global Macro Cycle and review the Global Currency market instead:
- US Dollar Index was up for the 4th straight week to +3.2% in the last month and remains Bullish TRADE and TREND
- EUR/USD was down another -1.4% last week and remains Bearish on both our TRADE and TREND durations
- Japanese Yen got smoked for another -1.7% weekly loss after Breaking Bad to Bearish TREND vs. USD
- GBP/USD was down another -0.8% last week to -3.2% in the last month and remains Bearish TRADE and TREND
- Argentina’s Peso continued its #Quad4 Crash -1.9% vs. USD, crashing -16.4% in the last 3 months
- Russia’s Ruble continued its #Quad4 Crash -3.0% vs. USD last week, crashing -20.2% in the last 3 months
Crashing more than -20% in the last 3 months is going to wear on Putin. Funding his war and supporting his soldiers just got a LOT more expensive.
What happens to Global Demand in a #Quad4 Recession? It collapses like Commodities have:
- CRB Commodities Index was down -0.2% last week making new Cycle Lows = Bearish TRADE and TREND
- Oil (WTI) was down -0.3% to -5.1% in the last month and also remains Bearish TRADE and TREND @Hedgeye
- Copper got clocked for a -3.7% loss last week, breaking bad to Bearish TRADE (but barely holding Bullish TREND)
- Corn was down -4.2% after breaking bad to Bearish TRADE and TREND
- Wheat was down -7.0% after breaking bad to Bearish TRADE and TREND
- Palladium was down another -8.1%, crashing -27.3% in the last 3 months and remains Bearish TREND
Why do we care about Palladium (PALL) or Putin? We’re short both.
Shorting Industrial Chemicals and Metals (via both their Commodities and Equities) remains a focus of ours. Think about it. Why wouldn’t you be Short Energy Stocks (XOP), for example.
Looking at the recent Goldman “holdings” data, Mutual Funds chased Energy Stocks right into the highs of the Inflation & Profit Cycle Peak last year. They haven’t been this “overweight” Energy in a decade…
Against my Commodity Shorts, I’m still Long of Gold. It was down -1.8% last week and is a good example of something that’s lost immediate-term TRADE momentum but remains Bullish TREND @Hedgeye:
A) Gold is down -6.3% in the last month = Bearish TRADE break with TRADE resistance = $1833
B) Gold is up +2.3% in the last 3 months = Bullish TREND with TREND support = $1793
That’s what happens to Gold when both nominal and real interest rates ramp like they just did:
A) UST 2yr Yield was up a big +20 basis points last week and remains Bullish TRADE and TREND
B) UST 10yr Yield was up another +13 basis points last week and remains Bullish TRADE and TREND as well
That, of course, inverted the Yield Curve by another -7 basis points last week to fresh new #Quad4 Cycle Lows. That’s one of our top leading indicators for GDP to #slow, big time, from +2.7% in Q4 to -2.0%, sequentially, in Q1 and again in Q2.
If you thought being long Gold for a -6.3% correction was bad, imagine you were long Cobalt, Urea, or Tin! Those losses in Peak Cycle Industrial Pricing are -30%, -21%, and -17%, respectively, in the last month alone.
Alternatively, you could have also been a panicked-bear-market-soldier and have bought the “consumer is in good shape” narrative at the FEB 2, 2023 lower-bear-market highs…
Consumer Discretionary (XLY) and Real Estate (XLRE) led Sector Style losers last week at -4.5% and -3.9%, respectively.
Stay well trained, patient, and disciplined.
Our levels
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.77-4.02% (bullish)
UST 10yr Yield 3.72-4.02% (bullish)
UST 2yr Yield 4.51-4.86% (bullish)
High Yield (HYG) 73.21-75.48 (bearish)
SPX 3918-4072 (bearish)
NASDAQ 11,209-11,806 (bearish)
RUT 1859-1939 (bearish)
Tech (XLK) 132-140 (bearish)
Defense (ITA) 114-118 (bullish)
Shanghai Comp 3225-3323 (bullish)
VIX 19.51-23.99 (bullish)
USD 103.07-105.34 (bullish)
EUR/USD 1.053-1.073 (bearish)
USD/YEN 132.50-136.84 (bullish)
GBP/USD 1.191-1.212 (bearish)
Oil (WTI) 73.25-77.86 (bearish)
Gold 1801-1894 (bullish)
Copper 3.92-4.23 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
