“To punish me for my contempt of authority, fate has made me an authority myself.”
- Albert Einstein
Obviously I am no Einstein. I am Mucker. And I am long of #Quad2 in Q4.
That’s one of my favorite Einstein quotes and Adam Grant used it masterfully in a chapter of Think Again that he called “A Preacher, A Prosecutor, A Politician, And A Scientist.”
When it comes to risk managing your hard earned capital, who do you want to be? “Preachers have no proof required and politicians have no training required – scientists have experiments required.” (pg 22)
Back to the Global Macro Grind…
In rate of change terms, it looks like the #EOW (end of world) didn’t happen last week. For those of you who put your hard earned capital to work on red last Monday, welcome to another Macro Monday @Hedgeye!
In order to mute the fear-mongering and cash-raising noise, we stay with measuring and mapping markets from a PRICE, VOLUME, and VOLATIILITY perspective. Let’s start with the Global Currency market:
- USD Index was flattish last week and remains Bearish @Hedgeye TREND since JUN of 2020
- EUR/USD was also flat last week and is Bearish TRADE, but Bullish TREND
- Yen was -0.7% vs. USD last week, breaking bad back to Bearish @Hedgeye TREND
- CAD/USD was +0.9% last week, moving back to Bullish @Hedgeye TREND from Neutral
- Norwegian Krone was +1.5% vs. USD last week and remains Bullish TREND at +2.9% in a month
- Philippine Peso was -1.4% vs. USD last week, moving back to Bearish TRADE and TREND
If you have Old Wall friends who aren’t looking at everything all at the same time (like the Philippine Peso) but like to read about rear-view narratives in the Old Wall Journal, let them. You do what you do.
Next to Oil inflating, one of the biggest reasons for the Norwegians getting people paid in both their currency and stock market this year is that they aren’t beating around the bush on raising rates with the economy in #Quad2.
You know that both stocks and interest rates go up, at the same time, in #Quad2, eh?
There are 2 main components to #Quad2 = GROWTH and INFLATION, #accelerating, at the same time. On INFLATION’s ongoing acceleration to new CYCLE HIGHS, here’s what you should have seen happening last week:
- CRB Commodities Index inflated another +1.4% to +4.8% in the last month alone
- Oil (WTI) inflated another +3.0% to +10.0% in the last month alone
- Copper inflated +0.9% to only +0.6% in the last month but +22.1% YTD
- Coffee inflated another +4.3% last week to +4.6% and +24.4% in the last 1 and 3 months, respectively
- Oats inflated another +6.0 last week to +13.6% and +53.3% in the last 1 and 3 months, respectively
Respectfully asking for some #HedgeyeNation friends, are you long of Coffee in JO terms?
While I highly doubt Old Wall media will be onto the rip-roaring inflation story in the Oats component of their breakfast parfaits this morning, they’re definitely starting to “hear” about Natural Gas prices!
As we’ve reminded you multiple times, it’s silly to engage in a debate about a word no one used before (“transitory”), when being long of TRENDING #FullCycle Inflation is what’s been getting you paid since June of 2020.
Back to The Signaling of #Quad2 in Q4, there’s no better signal of #Quad2 than Commodities and Bond Yields rising, at the same time:
A) UST 2yr Yield broke out to +0.27% last week – that was a +5 basis point move week-over-week
B) UST 10yr Yield broke out to +1.44% last week – that was a +9 basis point move week-over-week
The Bond Market absolutely nailed this #Quad3 in Q3 (when long-term yields are falling) to #Quad2 in Q4 Phase Transition. If the UST 10yr Yield breaks down through @Hedgeye TREND support of 1.30% again, I’ll let you know.
The rising probability of a #Quad2 in Q4 Phase Transition (see our Q4 Macro Themes deck for details on why) was very obvious in terms of both US Equity Sector Styles and Factor Exposures last week:
A) Energy Stocks (XLE) were +3.2% last week to +5.2% in the last month… versus
B) Utilities (XLU) were down -1.9% last week to -5.0% in the last month
Thank goodness we weren’t raising cash or going to “neutral” on Utes and Gold. Getting out of both was pure process inasmuch as observing this #Quad2 pair:
A) HIGH BETA, as a Factor Exposure, was +2.1% last week to +1.2% in the last month … versus
B) Consumer Staples (XLP) were down -1.0% last week to -1.9% in the last month
However my competition wants to “call for” a 20% correction and/or “get defensive.” That’s why I want them to execute on whatever it is that they see. We did the opposite. Because the process sees #Quad2 in Q4.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.32-1.49% (bullish)
UST 2yr Yield 0.22-0.29% (bullish)
SPX 4 (bullish)
RUT 2178-2277 (bullish)
NASDAQ 14,675-15,401 (bullish)
REITS (XLRE) 45.46-47.75 (bullish)
Tech (XLK) 151.87-159.47 (bullish)
Utilities (XLU) 64.14-67.01 (bearish)
Energy (XLE) 46.56-52.36 (bullish)
VIX 15.15-24.09 (bearish)
USD 92.36-93.56 (bearish)
EUR/USD 1.167-1.184 (bullish)
USD/YEN 109.10-110.99 (bullish)
CAD/USD 0.78-0.80 (neutral)
Oil (WTI) 70.38-75.51 (bullish)
Nat Gas 4.73-5.64 (bullish)
Gold 1 (bearish)
Copper 4.07-4.44 (neutral)
Bitcoin 40,998-49,705 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
