“What would you like? I can label it 1953 or 1955, whichever you prefer.”
- Le Negociant
Sometimes some people call me a trader. I’m ok with that (one does need to execute trades in order to save and make money). In French, a “negociant” is a wine trader. They buy/sell grapes, juice, fermented wines from growers, etc.
The aforementioned quote comes from a great research/process book I’ve been reading while taking some vacay time with my family up in Canada. It’s been a long time since the border re-opened, so the vino has been flowing up here!
What you’ll learn from Kermit Lynch from his Adventures On The Wine Route is something you’ll learn if you spend enough time traversing both the buy and sell-side routes of Wall Street. Markets don’t lie, but plenty of people do.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where we’re measuring and mapping the most probable routes that will help you generate your own alpha. We don’t promise perfection – we deliver a probability weighted #process.
Let’s start with the Global Currency market where the cross-currents of The Quads continue to manifest:
- US Dollar Index was down -0.3% last week after failing, multiple times, TREND resistance since JUN 2020
- EUR/USD was +0.3% last week and remains Neutral on our intermediate-term @Hedgeye TREND duration
- Yen was up another +0.6% vs. USD last week and is also Neutral TREND but getting close to signaling Bullish
- GBP/USD was flat last week and is +0.4% in the last month = Bullish @Hedgeye TREND
- Canadian Dollar was +0.3% vs. USD last week and, like the Euro, is signaling Neutral TREND for now as well
What does one do when a bunch of Neutral Signals appear in our proprietary Risk Range™ Signal product? A: nothing. Or, at least that’s what this patient Full Cycle Investor slash “trader” does…
Why force or “feel” like you need to make a move in something that isn’t TRENDING?
Unlike consensus Old Wall econs, I pivot into and ride Investable Full Cycle @Hedgeye TRENDs (like INFLATION since June of 2020). I don’t whine about missing them or make excuses calling them “transitory.”
With both US Producer and Consumer Price INFLATION having #accelerated to new Cycle Highs in the last few months, being long Commodity Inflation has provided a better real-world understanding of it:
- CRB Commodities Index inflated another +1.2% last week to +6.9% in the last 3 months = Bullish TREND
- Oil (WTI) was +0.2% last week, taking it’s inflation in the last 3 months to +7.9% and +42% YTD
- Corn inflated +3.0% last week (after consolidating for a few months, taking 1-month inflation to +6.8%)
- Wheat inflated +5.6% last week (after consolidating for a few months, taking 1-month inflation to +20.5%)
- Oats inflated another +7.2% last week taking its 1 and 3 month inflations to +17.8% and +33.9%, respectively
- Sugar inflated +6.8% last week to +16.8% in the last month alone!
That’s been the thing about inflation, it’s been broadening across my Commodity Price Sample Baskets (part of our proprietary predictive tracking algos that helped us nail the Inflation Cycle, both ways) for an long investable time now.
Consumer Price Inflation (CPI), per the US Government’s definition, continues to be understated at +5.4% year-over-year. The delta on reported “Rent Inflation” of +650 basis points (gov says +1.9%, REIT Rob @Hedgeye says +8.4%) is a glaring example of that which Rob Simone wrote about in a great Early Look last week.
Back to making money on it instead of trying to tell the investing world what INFLATION should or could be, being long of European Inflation via their #Quad2 stock markets has been awesome:
- EuroStoxx600 inflated another +1.3% last week, taking its TRENDING (3-month) return to +8.8%
- German Stocks inflated another +1.4% last week, taking their TRENDING return to +5.1%
- Swiss Stocks inflates another +2.4% last week, taking their TRENDING (3-month) return to +13.0%!
Who knew that being a Macro Aware Full Cycle Investor, riding stocks in Switzerland, was going to be such an easy 6% Asset Allocation to hold? I guess those who aren’t constantly trying to call for deflation!
Now all of you longer-term investors who are good at trading know that the real debate right now isn’t in Swiss, French, Dutch, or German stocks (our Top 4 European positions). It’s in whether the USA is still in #Quad3 or heading to #Quad2:
A) UST 10yr Yield broke down below 1.31% TREND support into last week’s end, signaling #Quad3
B) Russell 2000 (IWM) broke down below TREND signal support on Friday, closing down -1.1% on the week
C) Utilities (XLU) were up another +1.8% last week to +6.8% in the last month alone, signaling #Quad3
Another big #Quad3 Stagflation signal was the High Yield OAS Spread widening another +8 basis points week-over-week to +42bps in the last month alone as US markets Phase Transitioned from #Quad2 to #Quad3.
So, it’s #Quad4 this morning (short, not long their stock markets) in Japan and South Korea. It’s TRENDING #Quad2 in Europe, and until the Singularity of The Signaling Process says to pivot otherwise, I’ll stay with #Quad3 in the USA.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.16-1.43% (bearish)
UST 2yr Yield 0.17-0.26% (bullish)
SPX 4 (bullish)
RUT 2190-2263 (bearish)
NASDAQ 14,688-14,918 (bullish)
REITS (XLRE) 45.98-47.10 (bullish)
Tech (XLK) 152.34-155.67 (bullish)
Utilities (XLU) 66.52-68.89 (bullish)
Nikkei 27,407-28,095 (bearish)
DAX 15,551-16,026 (bullish)
VIX 14.68-18.37 (bearish)
USD 91.78-93.06 (bearish)
EUR/USD 1.169-1.190 (neutral)
USD/YEN 108.90-110.90 (neutral)
GBP/USD 1.380-1.398 (bullish)
CAD/USD 0.78-0.81 (neutral)
USD/CHF 0.90-0.93 (neutral)
Oil (WTI) 66.35-72.70 (bullish)
Gold 1 (neutral)
Bitcoin 39,499-49,623 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
