“Anxiety has been heightened by the weekend events in Iran, which promises to raise the price of oil and reduce American influence in the Middle East…”
- James Sinclair (February 1979)
It’s not the 1970s, yet… but, across major Macro Factors (fully loaded with the government policy that is perpetuating them), the table has been set for more macro moves like the epic squeeze you just saw in Natural Gas.
Back to the Global Macro Grind…
If I changed the aforementioned quote from Iran to Afghanistan… and had you think fractally, instead of linearly, you might “connect the dots”, as my friend Mario Gabelli likes to say, to a weaker and less credible US Dollar too.
Why? Bear in mind that simplifying the complex (using a simple narrative that even the lowest level player can understand) can be a very dangerous. Narratives generally are, especially if it’s not the numbers that are driving them.
That said, some narratives perpetuate themselves because… wait on it… the numbers do!
That’s why my recent Real Conversation with Jim Rickards @HedgeyeTV grabbed me on the Geopolitical Risk front. As you know, I’m no geopolitical “expert”… but I can definitely put those risks in my model when they’re rising.
If you’re triggered by one of Rickard’s (or anyone’s) political views, that’s on you. I have a god given ability to actually listen to both political and apolitical people… and stay focused, selfishly, on what might make me money! ha
Jim can forget more about Global Macro on the way to the bathroom than most Macro Tourists will ever know, btw.
Back to the point (I.e. the one that Rickards called out) that ties what happened in Afghanistan to the US Dollar and the commensurate Correlation Risk (that was already being priced into the market pre-Afghanistan):
A) USD inverse correlation to SPY is currently -0.82 on my immediate-term TRADE duration
B) USD Inverse correlation to Oil is currently -0.90 on my immediate-term TRADE duration
*Power-User (of the process) Note: those are extremely high Correlation Risks (to the upside for inflation)
And, to be crystal clear on this, Jim could have told me anything (he’s got great contrarian lines of thinking) and I’d be willing to believe that THE MARKET and THE MACHINE could believe in US Dollar Risks to the downside.
This one doesn’t require a huge conceptual leap: a lot of people in certain parts of the world trust both the US government and the credibility of its currency LESS post Afghanistan.
Ask my long positions in Bitcoin or Ethereum (or any of the related crypto equity positions I have in my PA) about that this morning and they’ll all say, hell yeah!
Irrespective of you agreeing or disagreeing with it here’s what my portfolio and core Asset Allocations think about that this morning (these 2 things are from our premium subscriber Top 3 Things note, which goes out daily at 6AM ET):
Another all-time NASDAQ high and a big (bullish) higher-low in our Bitcoin Risk Range™ Signal…
A) RUSSELL – will the 3rd Russell Ramp above @Hedgeye TREND resistance hold? 2252 is the TREND Signal line and the bond market doesn’t agree with that move (which would signal moving back to #Quad2 from #Quad3) with The Curve flattening again this morning, but it’s to be paid attention to
B) EURO – our EUR/USD Signal (from Neutral back to Bullish @Hedgeye TREND) from earlier this week is still of major consequence to both Commodities and our Inflation Nowcasts (Down Dollar = Up Commodities) – staying short USD and Long of Commodities since JUN of 2020 has been of major Full Cycle Return consequence too!
Part A is absolutely influenced by and correlating to Part B. If the US Dollar were to fall even 3-5%, from here, you’re going to see new all-time highs in SPY chased by new Cycle Highs in Commodities…
If we get our 60th going on 65th all-time SPY high of 2021, it’s going to be tough to stay short Small Cap, as a Factor Exposure, with the probability rising of a Quad Shift from #Quad3 in Q3 to #Quad2 in Q4 too.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.23-1.37% (neutral)
UST 2yr Yield 0.20-0.26% (bullish)
SPX 4 (bullish)
RUT 2168-2314 (bullish)
NASDAQ 14,866-15,442 (bullish)
REITS (XLRE) 46.96-49.37 (bullish)
Tech (XLK) 155.06-160.90 (bullish)
Utilities (XLU) 67.88-69.99 (bullish)
VIX 14.80-18.90 (bearish)
USD 92.16-93.40 (bearish)
EUR/USD 1.169-1.188 (bullish)
Oil (WTI) 63.27-71.83 (bullish)
Nat Gas 4.05-4.71 (bullish)
Gold 1 (bullish)
Bitcoin 46,905-50,675 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
