“No schooling was allowed to interfere with my education.”
-Grant Allen
I left home when I was 16 and ended up going to 4 public highs schools. My real life education started early. I’ve spent a lot of time teaching myself by both playing The Game and reading other people’s books.
I often get asked if there is a “book one can read to help understand the Hedgeye process.” Maybe I’ll find the time to write that one day. In the meantime, I write a lot of Early Looks!
The aforementioned quote comes from Adam Grant’s Think Again. It’s from a great chapter that he titled “Rewriting The Textbook.” From The Signals to The Quads, I’ll do my best to keep coaching people through the #process every day.
Back to the Global Macro Grind…
I hope you all enjoyed your Halloween. The four McCullough kids did! Welcome back to another Macro Monday at Hedgeye. Let’s get right into it and grind through the measuring and mapping of it all. Let’s start with the Global Currency market:
- USD Index popped on Friday to close up +0.5% for its 1st up week in the last 4 (still Bearish @Hedgeye TREND)
- EUR/USD corrected -0.7% last week and remains Neutral TREND @Hedgeye
- Japanese Yen was down another -0.5% vs. USD last week and remains Bearish TRADE and TREND
- GBP/USD corrected -0.5% last week and remains Bullish @Hedgeye TREND alongside the UK 10yr Yield
- Swiss Franc was up +0.1% vs. USD last week to +2.1% in the last month and back to Bullish TREND
- Indonesia’s Rupiah was up another +0.2% vs. USD last week to +1.2% in the last month and is also Bullish TREND
So it’s not just the Commodity Currencies (like Canada, Norway, and Russia) that are strengthening vs. USD at this stage of The Cycle. It’s economies like Indonesia’s (IDX) that are #accelerating into their own #Quad2.
*Indonesia (which remains in our Top 6 EM Equity Longs) saw its PMI #accelerate to 57. 2 in OCT vs. 52.2 in SEP.
As a reminder, #Quad2 is when both real GROWTH and INFLATION are #accelerating at the same time. With Commodities inflating, big time again in October, last week’s minor correction in Oil did not change the obvious Global Inflation TREND:
- CRB Commodities Index was flat last week and has inflated +4.5% in the last month
- Oil (WTI) corrected -0.2% last week and has inflated an impressive +12.2% in the last month
- Corn inflated +5.6% last week taking its OCT #inflation to +5.4%
- Wheat inflated +2.2% last week taking its OCT #inflation to +8.8%
- Cotton inflated +4.7% last week taking its OCT #inflation to +10.4%
- Oats inflated +9.4% last week taking their OCT #inflation to +24.9%
Oh, I know – the linear-econs (they love being called that) who were using the Old Wall textbooks on inflation for the past 6-18 months are finally coming around to the ragingly ROC (rate of change) obvious.
I don’t waste much of my remaining life and Cycle Time arguing about words like transitory when the only thing that really matters for preserving capital and compounding returns are my TRENDING Signals & Quads.
On the US Equity side of that TRADE, the @Hedgeye TRENDs in October were clearly #Quad2 in Q4:
A) Consumer Discretionary (XLY) stocks ramped +4.4% last week to +10.2% in the last month
B) Tech (XLK) stocks were up another +2.0% last week to all-time highs and +7.4% in the last month
C) Energy Stocks (XLE) corrected a whopping -0.8% last week +10.3% for the month of October alone
Those 3 Sector Styles are textbook Top 5 (back-tested against The Quads) that you want to be long in #Quad2 against your Treasuries (across the curve), Gold, and rate sensitive “defensive” shorts.
Yes, we will have a correction in US Equities again. Bull markets always correct from the top-end of my Risk Range™ Signal. For now, my math says the next one will only be a 2-3% one from the 60th all-time closing SPY high of 2021.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.52-1.72% (bullish)
SPX 4 (bullish)
RUT 2 (bullish)
NASDAQ 15,001-15,561 (bullish)
Tech (XLK) 157.13-162.44 (bullish)
Energy (XLE) 56.37-59.84 (bullish)
VIX 14.13-17.56 (bearish)
USD 93.09-94.20 (bearish)
Oil (WTI) 81.72-84.98 (bullish)
Gold 1 (bearish)
Bitcoin 58,406-67,228 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
