Answer = #Quad2

“The only thing that counted was the answer.”
- Richard Feynman

Feynman loved to compete. “We had a thing in high school called the Algebra Team, which consisted of five kids, and we would travel to different schools as a team and have competitions…”

“The only thing that counted was the answer. If the answer was ‘six books’, you’d have to write ‘6’ on the board and put a big circle around it. If what was in the circle was right, you won; if it wasn’t, you lost.” (pg 22)

That’s a great excerpt from Surely You’re Joking, Mr. Feynman. Obviously if he was tasked with trying to get the right answer on what economic Quad we are in, there’s only one #FullCycle Return number associated with that too.

Back to the Global Macro Grind…

Welcome to another beauty of a Macro Monday @Hedgeye where the only thing that counts is the bean counting of it all! Narratives are fun for bedtime stories with your kids. At the top of the risk mgt morning, we do numbers.

Let’s start with what the Global Currency market continues to signal on a TRENDING basis (hint: Global #Quad2):

1. US Dollar Index had a Counter @Hedgeye TREND bounce of +0.5% last week and remains Bearish TREND
2. EUR/USD corrected -0.5% towards the low-end of its Risk Range™ Signal and remains Bullish @Hedgeye TREND 
3. Canadian Dollar corrected -0.6% vs. USD and remains Bullish on both our TRADE and TREND durations
4. GBP/USD corrected -0.4% last week and also remains Bullish TRADE and TREND
5. Mexican Peso was +0.4% vs. USD and is +3.7% on our TRENDING duration (3 months or more)
6. Russian Ruble appreciated another +1.2% vs. USD last week and is +3.0% in the last month alone

What do the Mexicans and Russians have a lot of that their currencies appreciate? A: Oil. And, despite a modest Dollar Up week, USD was not up vs. Pesos and Rubles, partly because Oil and Commodities were up (again) too!

I love it when our #Quad2 Asset Allocations go up during Counter @Hedgeye TREND moves in FX. Here’s what the most glaringly obvious payouts for Full Cycle Investors did in #Quad2 last week:

1. CRB Commodities Index inflated another +0.9% to a new CYCLE HIGH last week = +9.1% in the last 3 months
2. Oil (WTI) inflated another +1.9% last week to a new CYCLE HIGH = +8.9% in the last 3 months (i.e. TREND)
3. Copper inflated +0.2% last week to +9.6% in the last 3 months and +29% YTD (i.e. TRENDING return)
4. Corn Inflated another +3.1% last week to +26.1% in the last 3 months = Bullish @Hedgeye TREND
5. Natural Gas inflated +6.4% last week to +9.9% and +17.0% in the last 1 and 3 months, respectively
6. Lumber disinflated by -17.3% last week to +34.1% in the last 3 months

So… was the Lumber move signaling DEFLATION or some disinflation of epic INFLATION? I don’t see one Deflationista out there who called for these epic Commodity inflations that are over 1-year old today in Full Cycle Investing terms.

However, I do see that Gold was A) down another -0.7% last week to B) -1.4% YTD taking its C) Full Investing Cycle Drawdown (from its #Quad3 Cycle Peak in AUG of 2020) to -11.4% this morning…

Instead of being long Gold, you should have stayed with Core #Quad2 Asset Allocations like Commodities and High Yield Bonds (HYG) that made new ALL-TIME highs last week alongside the SP500 (SPY).

How about being long of the #Quad2 Answer in European Equity terms last week?

1. French Stocks (CAC40) appreciated another +1.3% last week to +9.4% in the last 3 months
2. Swiss Stocks (EWL) appreciated another +2.3% last week to +7.8% in the last month alone!
3. Russian Stocks (RTSI Index) appreciated another +1.9% last week to +11.5% in the last 3 months

Oh, but Bond Yields and the Financials (XLF) corrected in the USA last week…

Yep, so did you short more Duration (TLT) and buy more XLF on last week’s Counter @Hedgeye TREND correction of -2.4% to +9.1% in the last 3 months (i.e. its TRENDING #FullCycle Return)?

Remember the time some people told you to SELL “Small Caps” because they were “breaking down in May?” Well, the Russell 2000 (IWM) was up +2.2% last week to +5.8% in the last month. Why? Answer = #Quad2 in Q2.

Immediate-term @Hedgeye Risk Range™ Signals (with TREND signal in brackets):

UST 10yr Yield 1.42-1.69% (bullish)
SPX 4190-4258 (bullish)
RUT 2 (bullish)
NASDAQ 13,707-14,138 (bullish)
Energy (XLE) 54.17-57.35 (bullish)
Financials (XLF) 37.19-38.86 (bullish)
VIX 14.33-18.17 (bearish)
USD 89.56-90.65 (bearish)
EUR/USD 1.210-1.225 (bullish)
USD/YEN 109.01-110.30 (bullish)
GBP/USD 1.409-1.422 (bullish)
CAD/USD 0.82-0.84 (bullish)
Oil (WTI) 67.59-72.29 (bullish)
Nat Gas 3.03-3.32 (bullish)
Gold 1 (bearish)
Copper 4.45-4.71 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer