“An experience makes its appearance only when it is being said.”
- Hannah Arendt
I liked the deep simplicity of that quote. It came from a chapter in Coach The Person, Not The Problem that Marcia Reynolds titled “Active Replay.”
Her emphasis on using the replay to objectively analyze and improve performance was easy to understand. I use video replay to coach 10-14 year-olds hockey, never mind how to risk manage your hard earned net wealth.
“Using reflective statements (about your performance) acts as a dynamic mirror” (pg 63). Just telling markets what they should be doing based on your opinion and/or “valuation” framework isn’t the same as reflecting on what they are doing.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! Today’s measuring and mapping of last week’s Global Macro market moves tells you a few obvious things:
A) Despite a Dollar Up week, Commodity Inflation made new Cycle Highs
B) Despite a correction in US Stocks, “defensives” did not work
Let’s start with what was potentially a capitulatory move in the Global Currency market:
- US Dollar Index was +0.76% on the week signaling immediate-term TRADE #overbought at a big lower-cycle-high
- EUR/USD was -1.1% signaling immediate-term TRADE #oversold (on Thursday) and remains Neutral TREND
- Japanese Yen was -0.3% vs. USD and remains Bearish vs. USD on both our TRADE and TREND durations
- GBP/USD was -1.0% breaking down to Bearish @Hedgeye TREND again (but also signaled #oversold)
- Chinese Yuan was +0.3% vs. USD last week and remains Bullish TRADE and TREND
Do the Chinese understand that one of the ways to tone down their nasty #Quad3 Stagflation is to have a stronger currency that supports the purchasing power of The People?
Do the “charts” people who chased USD on Thursday know that Long USD is the most consensus net LONG position in Macro next to Long Cotton (CFTC futures & options positioning)? Who knows what our competition really knows.
If we’re still competing with people who haven’t been long Commodities, as an Asset Class, that’s pretty easy to win against. Last week saw a continued broadening of TRENDING Commodity Inflation:
- CRB Commodities Index inflated another +2.3% last week to +5.7% in the last month alone and new Cycle Highs
- Oil (WTI) inflated another +2.6% last week to +11.1% in the last month and new Cycle Highs
- Corn reflated +2.8% last week to +3.6% in the last month and recapturing @Hedgeye TRADE support
- Natural Gas inflated another +8.1% last week to +20.5% in the last month toward new Cycle Highs
- Coffee inflated another +5.0% last week, taking its #FullInvestingCycle Return to +28.1% in the last 3 months
- Cotton inflated another +8.9% last week, taking its #FullInvestingCycle Return to +21.7% in the last 3 months
I don’t think #HedgeyeNation subscribers who are long of Natty Gas (UNG), Coffee (JO), or Cocoa (NIB) think of their positioning as “defensive.” I think they’re probably asking why they aren’t long Cotton (BAL) too!
If all they did was Equities and call themselves “Global Macro” process people, I think they’d have to take some time to reflect on what they really do. That said, those reflecting on what US Equity Sector Styles did last week noticed that:
A) Non “defensive” Energy (XLE) stocks inflated another +5.8% last week to +12.9% in the last month alone
B) Non “defensive” Financials (XLF) and the Russell (IWM) were only down -0.3% last week, outperforming
C) “Defensive” Consumer Staples (XLP) stocks were down another -2.3% to -5.0% in the last month alone
D) “Defensive” Healthcare Stocks (XLV) were down -3.5% to -5.9% in the last month alone
If that doesn’t fit your narrative, it doesn’t matter. That’s the score inasmuch as Factor Exposures scored it the same way:
A) Non “defensive” HIGH LEVERAGE stocks were +1.7% on the week vs. SPY -2.2%
B) Non “defensive” HIGH BETA stocks were only -0.1% on the week as well
With the UST 10yr Yield up to 1.46% last week and up another +3 basis points this morning alongside Gold being down another -0.5%, those aren’t “defensive” moves either.
When markets are signaling #Quad3 or #Quad4, defensive Asset Allocations like Gold and Treasuries go up! Instead, looking at the week-over-week replay, our Long Bitcoin Asset Allocation was +12% on the week.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.38-1.63% (bullish)
UST 2yr Yield 0.23-0.33% (bullish)
SPX 4 (bullish)
RUT 2180-2290 (bullish)
NASDAQ 14,300-15,292 (bullish)
Tech (XLK) 147.80-158.40 (bullish)
Utilities (XLU) 63.12-66.09 (bearish)
Energy (XLE) 48.95-55.40 (bullish)
Financials (XLF) 36.58-39.21 (bullish)
VIX 16.42-25.59 (bearish)
USD 92.67-94.40 (neutral)
EUR/USD 1.555-1.179 (neutral)
Oil (WTI) 71.89-77.48 (bullish)
Nat Gas 5.04-6.25 (bullish)
Gold 1 (bearish)
Bitcoin 40,256-48,204 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
