“The grit that matters most is learning to be your best when you’re at your worst.”
- Josh Waitzkin
In years past I’ve cited Waitzkin’s evolution into an elite-performance polymath and coach. He was, of course, a child chess prodigy (Searching For Bobby Fischer). He also wrote The Art of Learning, which is a great book.
On Waitzkin’s definition of grit, Steven Kotler cites it in The Art of Impossible (lots of art this AM!): “This is really the difference between elite-level performers and everyone else – you have to train this kind of grit on its own.” (pg 90)
In our profession, the best way to go from being at your worst to your best is often by having the humility (lack of ego) to say you’re wrong and re-position. With the US economy being in #Quad2 in Q4, there are still plenty who need to do that.
Back to the Global Macro Grind…
Welcome to a beautiful Macro Monday @Hedgeye! As a matter of gritty process, on the first day of the week we measure and map all of Global Macro market moves within the context of both The Cycle and my TRADE/TREND/TAIL Signals.
As usual, let’s start with the Global Currency market:
- US Dollar Index was down for the 3rd straight week (-0.3%) after consensus called it a “breakout” 3 weeks ago…
- EUR/USD was +0.4% last week and remains Neutral TREND (i.e. nothing to do there)
- Yen was +0.7% vs. USD last week and remains Bearish @Hedgeye TREND
- GBP/USD was flat last week but remains Bullish on both my TRADE and TREND durations
- Swiss Franc was +0.8% vs. USD last week and moved from Bearish back to Neutral @Hedgeye TREND
- Norwegian Krone appreciated another +0.8% vs. USD last week and remains Bullish TRADE and TREND
Why Norway’s currency? I could have put Canada or Russia’s currency in that slot and it would make the same point. The closer some of these countries are to being long of Natural Resource Inflation, the stronger their currencies vs. USD.
While I sometimes get accused of being “shorter-term” (which is fine, sometimes one needs to make short-term pivots!), Dollar Down, Commodities Up has been our Full Cycle Investing view since June of 2020:
- Oil (WTI) inflated another +2.5% last week, taking its TRENDING (3-month) return to +20.7%
- Rubber inflated +2.7% last week, taking its immediate-term TRADE momentum to +12.7%
- Oats inflated another +1.1% last week, taking its 1 and 3 month returns to +19.6% and +48.0%
Who’s writing about Rubber and Oats this morning? Personally I don’t wake up wanting to write about anything unless it either amplifies (or might change) my positioning. The BROADENING of inflation is the point of Rubber and Oats here.
Even Janet Yellen (weekend pivot, she made) is agreeing with us on that now, which is nice to see, because both the stock and bond market clearly see #Quad2 in Q4 as well:
A) UST 10yr Yield was up another +6 basis points last week, taking it to +33 basis points in the last month alone
B) Financials (XLF) were up another +2.8% last week, taking their 1-month return to +9.5%
Yes, get #Quad2 Rates right and you get Long Financials vs. Short defensives like Staples (XLP) right. “Defensive” Consumer Staples (XLP) stocks were only +0.7% last week to only +1.4% in the last month vs. SPY +3.4%.
Why use 1-month on the Equity Sector Styles instead of TRENDING (3-month) returns? That’s easy. Our Asset Allocation pivot from #Quad3 (where we were long Utes and Short Financials) only happened 1-month ago on SEP 23rd.
What were you doing on SEP 23rd?
A) Raising Cash at VIX 28… or
B) Getting Long of #Quad2?
Alongside long Financials (XLF) at +9.5% in the last month, Energy (XLE) is in my Top 3 in terms of US Equity Sector Risk Range™ Signal Strength (Tech is ranked #3).
If you positioned for “deflation” 1-month ago, I assume you shorted Energy (XLE). Its 1-month return = +18.7%. US Equity Volatility (VIX) has crashed -26% over that same 1-month timeline. It’s been an obvious #Quad2.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.53-1.72% (bullish)
UST 2yr Yield 0.34-0.49% (bullish)
SPX 4 (bullish)
RUT 2 (bullish)
NASDAQ 14,422-15,429 (bullish)
Tech (XLK) 152.18-162.26 (bullish)
Utilities (XLU) 63.88-67.76 (bearish)
Energy (XLE) 55.93-59.72 (bullish)
Financials (XLF) 38.85-41.81 (bullish)
VIX 13.47-18.92 (bearish)
USD 93.01-94.15 (bearish)
EUR/USD 1.154-1.169 (neutral)
USD/YEN 112.38-114.89 (bullish)
GBP/USD 1.357-1.389 (bullish)
CAD/USD 0.799-0.815 (bullish)
USD/CHF 0.914-0.931 (neutral)
Oil (WTI) 79.93-85.15 (bullish)
Nat Gas 4.90-5.91 (bullish)
Bitcoin 54,691-67,188 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
