“If you can’t measure it, you can’t improve it.”
- Peter Drucker
As you continue to balance the opposing thoughts in your head this morning, try referencing Tony Robbins citing Peter Drucker… then think about something really bearish while being optimistic about life.
The aforementioned quote comes from a really good #behavioral book I just finished called Life Force. Chapter 32 focuses on new technologies that… wait on it… help measure and map diseases, diagnostically.
Not unlike using my #VASP (Volatility Adjusting Signaling Process) to diagnose the probability of #Quad4 Drawdowns of your capital, “advances in testing can help detect disease earlier, which leads to earlier treatment and better outcomes.” (pg 70)
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye as we near the end of what’s been #Quad4 Equity Volatility in Q122. While the US economic data ended up being a coin toss between #Quad3 and #Quad4, positioning for #Quad4 in Q2 is where we remain.
As usual, let’s start with the Global Currency market (which has clearly been signaling #Quad4 throughout Q1):
- US Dollar Index was up another +0.6% last week and remains Bullish on both our TRADE and TREND durations
- EUR/USD was down another -0.6% last week and remains Bearish TRADE and TREND (-2.5% in the last month)
- Japanese Yen continued to collapse vs. USD, down another -2.4% last week alone and -2.1% this morning!
- GBP/USD was flat last week but remains Bearish TRADE and TREND as well
- Brazil’s Real was up another +5.9% vs. USD last week putting on a +8.9% move in the last month (Bullish TRADE!)
- South Korea’s Won was down another -1.2% vs. USD last week to -2.3% in the last month = Bearish TRADE/TREND
Other than Japan going with the QE Infinity policy this morning (buying JGB 10yr Notes for as long as it takes), need a “narrative” on “why” Brazil’s currency strengthened and South Korea’s weakened? A: Commodities Exposures?
As most of you know by now, I don’t care much for narratives mainly because only the numbers ultimately define the true ones. There are plenty of new narratives Perma Bulls start telling themselves during Bear Market bounces.
While some Commodities bounced big last week, almost all of them are making LOWER-HIGHS from their #Quad3 Inflation Cycle Highs that Russia stimulated in FEB/MAR of 2022:
- CRB Commodities Index reflated +5.2% last week to close at a lower-high of 307 (the Cycle High was March 8th)
- Oil (WTI) reflated a big +10.5% last week but continues to DISNFLATE down -4% this morning to lower-highs
- Copper disinflated -0.9% last week after signaling lower-highs
- Lumber disinflated another -15.0% last week and has crashed -35% since January
- Cattle disinflated -1.3% last week to -3.1% in the last month and lower-highs for The Cycle
No, Disinflation Is NOT Deflation. That’s Macro Theme #2 for #Quad4 in Q2 and we’ll be hosting that Macro Themes presentation LIVE on @HedgeyeTV on Thursday. If you’d like access ping .
What this last geopolitical shock (Russia/Ukraine) did was keep The Inflation Cycle Peak higher for a little longer. But lower-highs into (big time) steepening base effects for headline (CPI) INFLATION = #Quad4 Disinflation in Q2.
The Yield Curve gets that, mainly because The Fed doesn’t (they’re late):
A) UST 2yr Yield (which tracks Fed policy) was up another +33 basis points last week to new Cycle Highs
B) Fed Rate Hike Expectations shot to a new Cycle High of 8.2x for 2022 on that move on the short-end
C) Yield Curve compressed towards new Cycle Lows at +20 basis points wide on 10s/2s
And the Yield Curve continues to collapse, down another -7 basis points from there taking 10s/2s (the UST 10yr Yield minus the 2yr Yield) to a new #Quad4 in Q2 Cycle Low of +13 basis points wide this morning.
No worries though. SPY was up for the 2nd week in a row, +1.8% on the week led by:
A) Energy Stocks (XLE) which inflated another +6.6% on the week to +14.3% in the last month … and
B) Utilities (XLU) which ramped another +2.8% to fresh YTD highs and +7.7% in the last month
Huh? Utilities (XLU)? Yep. Despite bond yields rising, Utes are discounting #Quad4 pending in Q2 inasmuch as Gold (up another +1.3% last week) is. Both our High Yield (HYG) and Junk (JNK) Shorts continue to signal a #Quad4 slowdown in earnings too.
In terms of US Equity Sector Styles Risk Range™ Signal Strength: Energy and Utes remain #1 and #2, followed by Gold Miners (GDX) at #3. We remain short of the Russell 2000 (IWM) which was actually down -0.4% last week to only +1.8% in the last month. We remain short of both Tech (XLK) and Consumer Discretionary (XLY) as well.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 2.04-2.52% (bullish)
UST 2yr Yield 1.78-2.39% (bullish)
High Yield (HYG) 79.99-82.56 (bearish)
SPX 4 (bearish)
NASDAQ 12,603-14,318(bearish)
RUT 1 (bearish)
Tech (XLK) 142-161 (bearish)
Energy (XLE) 69.50-79.39 (bullish)
Gold Miners (GDX) 36.20-39.32 (bullish)
Utilities (XLU) 69.56-72.98 (bullish)
VIX 19.91-30.46 (bullish)
USD 97.88-99.48 (bullish)
EUR/USD 1.086-1.111 (bearish)
USD/YEN 117.98-124.90 (bullish)
GBP/USD 1.299-1.328 (bearish)
Oil (WTI) 92.66-120.09 (bullish)
Gold 1 (bullish)
Bitcoin 38,508-47,295 (neutral)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
