• Bull.

    HEDGEYE'S DEAL OF THE MONTH

    TRY OUR DAILY MACRO PLAYBOOK

    FREE FOR 30 DAYS!

“The natural order, money, and time are intrinsically bound together…”
Roy Sebag

Key Takeaways

  • Welcome to the start of a new week where we measure and map ALL of Global Macro markets and the ROCs (Rates of Change) of their commensurate economic data in order to make good Asset Allocation and Long/Short decisions.
  • At one point mid-week, the 10s MINUS 2s Curve was -87 basis points inverted. That’s a new CYCLE LOW for #Quad4 and I expect that to continue to invert further as headline REAL US GDP GROWTH #slows, big time, from Q4 to Q1.
  • From here, I’m simply assuming long-term UST Yields (10s and 30s) back off from the top-end of my Risk Ranges as REAL US GDP slows, and Gold bounces off the low-end of its Risk Range (which is $1834 this morning). 

The big picture

How are they bound together? How do fractals explain the edges of a leaf or the contour of an ocean line? A: they are interdependent factors that we measure and map, daily, in order to inform longer-term Full Investing Cycle decisions.

My personal thanks to my fellow Canadian, Roy Sebag, for summarizing part of his life-cycle-work-to-date in an excellent book that he recently published titled The Natural Order of Money.

“The natural order, money, and time are intrinsically bound together such that no part of this triad can truly be comprehended in the absence of others” (pg 5). That’s why The Cycle isn’t defined by SPY’s 0DTE Bubble order flow!

USD Says Still #Quad4 - 02.17.2023 wage growth cartoon

Macro grind

Welcome to the start of a new week where we measure and map ALL of Global Macro markets and the ROCs (Rates of Change) of their commensurate economic data in order to make good Asset Allocation and Long/Short decisions. 

Imagine you sold US Dollars and chased GOOGL’s “chart” 3 weeks ago? USD has been up for 3 straight weeks and if you bought GOOGL there, you already have to be up +14% (from here) to get back to break-even!

As always, let’s start with what the Global Currency Market is signaling, across our TRADE, TREND, and TAIL durations:

  1. US Dollar Index was +0.2% last week breaking out on our immediate-term TRADE duration after holding TREND
  2. EUR/USD was +0.1% last week and remains Bearish on both our TRADE and TREND durations
  3. Yen broke bad (i.e. back to Bearish TREND) vs. USD with a particularly important -2.1% weekly decline
  4. Canadian Dollar is back to bearish TRADE and TREND vs. USD after a -1.0% week
  5. South Korea’s Won was down hard -2.7% vs. USD last week and remains Bearish TRADE and TREND as well
  6. Colombia’s Peso was down -2.2% vs. USD last week (still Bearish TREND) and is -3.5% in the last month

Other than Global #Quad4 (ex-China) Demand Slowing, “why, why, why, KM?” I hear your questions. Mine (for you) is why do you spend more time on why than you do acting on WHEN?

Why do I care about the Colombian Peso? I’m travelling there next week and want to make sure I’m Macro Aware with my currency adjusted bartering decisions. You should be with everything you do in your life too!

Since it’s a LOT easier for an inexperienced FOMO Retail “Investor” to tell you where TSLA’s single-factor-50-day Moving Monkey is than where Global #Quad4 is at on Demand Destruction and Disinflation, here’s the update on the latter:

  1. CRB Commodities Index was down -1.9% last week taking its Disinflation to -19.3% from its #Quad3 Cycle Peak
  2. Oil (WTI) disinflated another -4.2% last week taking its #Quad4 Crash to -38% from its Inflation Cycle Peak
  3. Copper reflated +1.8% last week and, like Gold, remains #divergent vs. CRB and Oil at Bullish @Hedgeye TREND 
  4. Natural Gas continued its #Quad4 Crash at -9.2% last week, crashing -60.1% in the last 3 months alone
  5. Palladium was down another -2.1% last week taking its #Quad4 Crash to -26.3% in the last 3 months
  6. Lumber disinflated -8.9% last week taking its #Quad4 collapse (in Housing Demand) to -15.0% in the last 3 months

You see, it’s not just GOOGL that consensus was chasing on fictional narratives (“earnings are better than expected” with GOOGL EPS -31% y/y? LOL) 3 weeks ago. They were chasing “Dovish Fed, Down Rates, Buy Home Depot and Housing” too!

When you have afforded yourself and your family’s hard-earned capital the long-term Full Investing Cycle gift of #patience, these 3-6 week Counter @Hedgeye TREND moves are so silly…

Bond Yields continued higher last week because INFLATION isn’t slowing fast enough for the Fed to back off the Short-end of the UST Curve (this is 100% inline with our INFLATION Nowcast of +5.92% US headline CPI for Q1 of 2022):

  1. SHORT END: UST 2yr Yield was up another +10 basis points last week and is +41 basis points in the last month
  2. LONG END: UST 10yr Yield was up +8 basis points last week and is +27 basis points in the last month
  3. SHORT END (Fed Policy) minus LONG-END (Real Growth) is DOWN -15 basis points in the last month to -80bps

At one point mid-week, the 10s MINUS 2s Curve was -87 basis points inverted. That’s a new CYCLE LOW for #Quad4 and I expect that to continue to invert further as headline REAL US GDP GROWTH #slows, big time, from Q4 to Q1.

#BubbleCap TSLA and Bitcoin “charts” may not get that yet, but the High Yield market gets what it means when GDP goes from +2.5% QoQ headline to -2.4% QoQ headline (we think by April when Q1 prints a negative, and then again in Q2):

A) High Yield OAS Spread WIDENED +12 basis points last week to +16 basis points wider in the last month
B) Energy Stocks (XLE) were down another -6.3% last week to -8.5% in the last 3 months

Since we’re not Bozo The Clown with 1 TSLA Short being 10-30% of our Short Book, we were pleased with how our diversified High Yield (HYG), Junk (JNK), and Oil & Gas (XOP) Core #Quad4 Shorts performed last week.

Gold wasn’t pleased with Dollar Up, Rates Up (it never is). But my family can handle a -1.3% weekly Buying Opportunity in something that’s still A) Bullish TREND ($1803 support) and +3.2% in the last 3 months.

From here, I’m simply assuming long-term UST Yields (10s and 30s) back off from the top-end of my Risk Ranges as REAL US GDP slows, and Gold bounces off the low-end of its Risk Range (which is $1834 this morning).

It’s all about the natural order of The Cycle, time, and space.

Our levels

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

UST 30yr Yield 3.67-3.96% (bullish)
UST 10yr Yield 3.57-3.90% (bullish)
UST 2yr Yield 4.38-4.70% (bullish)
High Yield (HYG) 73.90-76.33 (bearish)           
SPX 3983-4177 (bearish)
NASDAQ 11,301-12,157 (bearish)
RUT 1854-1977 (bearish)
Tech (XLK) 134-144 (bearish)
Defense (ITA) 114-119 (bullish)
Shanghai Comp 3218-3315 (bullish)
VIX 18.03-21.58 (bullish)
USD 102.58-104.38 (bullish)
EUR/USD 1.062-1.078 (bearish)
USD/YEN 130.29-135.30 (bullish)
CAD/USD 0.739-0.751 (bearish)
Oil (WTI) 75.35-80.17 (bearish)
Nat Gas 2.21-2.66 (bearish)
Gold 1834-1917 (bullish)
Copper 3.98-4.20 (bullish)
META 165-191 (bullish)
GOOGL 87-104 (bearish)
TSLA 169-217 (bearish)
Bitcoin 20,729-24,954 (bearish) 

Best of luck out there this week,
KM

Keith R. McCullough
Chief Executive Officer

USD Says Still #Quad4 - MonCOD