“If you react to everything someone says to you, you’re going to lose.”
- Tim Grover
Let’s start our week with some empathy. Imagine living the market life of a Macro Tourist, believing in and reacting to everything you hear from places like the Fed or its Old Wall media?
Your returns will get a lot better by front-running both.
That’s precisely what happened on Friday when PE Powell opted to triple-down on “transitory.” The US Dollar broke down and those of us who have been long of TRENDING Inflation got paid.
There was no need to get emotional about it. There was no need to have an intellectual debate with the market about the definition of your Full Investing Cycle returns either.
As Grover says, “control your emotions and you control your actions.” -Winning, pg 84
Back to the Global Macro Grind…
Welcome to the final Macro Monday of what was your #Quad3 in Q3 summer of 2021. What will September and Q4 of 2021 bring? More #Quad3 or another asset allocation pivot into #Quad2? I don’t know. That’s why I’m working.
As always on Mondays, I start with the measuring and mapping of it all. Let’s start with Global FX:
- USD Index failed at critical @Hedgeye TREND resistance last week, closing down -0.9%
- EUR/USD was up +0.8% last week and remains Neutral on both my TRADE and TREND durations
- Yen was -0.1% vs. USD and also remains Neutral on both TRADE and TREND
- GBP/USD was up +1.0% moving back to Bullish @Hedgeye TRADE but Neutral TREND
- Brazilian Real was +3.3% vs. USD last week and is back to Bullish TRADE and TREND
- Norwegian Krone was +3.6% vs. USD last week moving back to Bullish TRADE and still Neutral TREND
I care on those Brazilian and Norwegian currency crosses because they’re, to a degree, proxies for the sustainability of Commodity Inflation.
When you start looking at macro markets fractally, you’ll start caring more about what markets care about at particular points in Cycle Time, and far less about what other people think markets “should be” doing on their time.
The best part about Powell’s view is that he doesn’t do timing. He just uses words and consensus opinions that have been dead wrong on The Inflation Cycle. Here’s how that did for your Commodity Asset Allocations last week:
- CRB Commodities Index inflated +5.9% towards its prior Cycle Highs = +6.5% in the last 3 months
- Oil inflated +10.6%, moving back to Bullish @Hedgeye TRADE after holding @Hedgeye TREND support
- Copper and Corn inflated +5.1% and +3.1% week-over-week, respectively
- Natural Gas inflated +13.5% last week, taking its 3-month TRENDING return to +46.7%
- Oats inflated +15.5% last week, taking it’s 3-month TRENDING return to +40.2%
No worries, if you don’t use the air-conditioning in your house, that is. Powell didn’t say a peep about America’s ripping RENTS or Nat Gas. Instead he cherry picked “used car prices”, which is a tiny component of the CPI.
The Bond Market’s opinion on all of this Fed blather was more of the same (i.e. #Quad3 in Q3 with a potential Phase Transition back to #Quad2 developing in Q4):
A) UST 10yr Yield was up +5 basis points week-over-week, recapturing @Hedgeye TREND support of 1.30%
B) High Yield OAS Spread was down a big -18 basis points last week, failing like USD did @Hedgeye TREND
One way to simplify the complex on a Fed Policy Mistake (i.e. tightening into #Quad3 Stagflation and/or an outright Q2 of 2022 #Quad4 slowdown) is the opposite of what you saw last week – when the market discounts that it will be:
A) A US Dollar breakout on my TREND Signal and a correlated and TRENDING deflation of Commodities … with
B) A breakout in High Yield Spreads, Credit Risk, etc. alongside a breakdown in the 10yr Yield to lower-lows
Ironically, but not surprisingly, all Powell did was set himself to be wrong again on inflation by being the short-term catalyst for another reflation. Gotta love front-running The Game!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.21-1.37% (neutral)
UST 2yr Yield 0.20-0.26% (bullish)
SPX 4 (bullish)
RUT 2126-2293 (bullish)
NASDAQ 14,766-15,295 (bullish)
REITS (XLRE) 46.25-47.31 (bullish)
Tech (XLK) 154.10-159.90 (bullish)
Utilities (XLU) 68.07-69.96 (bullish)
VIX 14.71-19.46 (bearish)
USD 92.23-93.61 (bearish)
EUR/USD 1.167-1.183 (neutral)
USD/YEN 109.28-110.19 (neutral)
GBP/USD 1.361-1.385 (neutral)
Oil (WTI) 62.23-70.92 (bullish)
Nat Gas 3.85-4.49 (bullish)
Gold 1 (bullish)
Copper 4.11-4.48 (bullish)
Bitcoin 44,490-50,664 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
