“Celtic-Gaelic culture in Ireland was distinguished by a passionate appreciation of individualism and a deep-seated distrust of centralized authority.”
- Philip Thomas Tucker
Do I distrust that an unelected and generally inaccurate US Federal Reserve is going to get this right? Obviously, yes. And I will do everything in my firm’s individual power to help preserve & protect the hard earned wealth of The People during #Quad4.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye. I hope you all enjoyed your long weekend. Let’s get back into the measuring and mapping of it all as the #Quad4 in Q2 Real Growth & Corporate Profit slowdown continues.
Let’s start with the Global Currency market which continues to explicitly signal #Quad4 in both Europe and the USA:
- US Dollar Index was up another +0.7% last week to a nice +5.0% YTD and remains our #1 Asset Allocation
- EUR/USD was down another -0.6% last week to -5.3% in the last 3 months and remains Bearish @Hedgeye TREND
- Japanese Yen continues to get smoked vs. USD, down another -1.7% last week to -9.7% in the last 3 months
- GBP/USD bounced +0.3% last week but should be sold as it remains Bearish on both TRADE and TREND durations
- Taiwan’s Dollar was down another -0.8% vs. USD last week to -5.3% in the last 3 months = Bearish TREND
- Sri Lanka’s Rupee continued to crash, down another -2.1% vs. USD last week to -37.5% in the last 3 months
Yes, my #VASP (Volatility Adjusted Signaling Process) signaled that something very bearish was going on in Sri Lanka without knowing anything about Sri Lanka (they defaulted on their external debt last week). Is it signaling some geopolitical risk on China/Taiwan?
I don’t know (= 3 most important words in my process). But someone always knows something. And, knowing that I know nothing, you know that I know that I am not buying the damn dip in either Taiwan’s stock market or currency this morning.
I’m not buying Chinese Stocks either. Both the #VASP and Quads have been signaling SELL China now for more than 16 months. The Shanghai Composite Index was down another -1.3% last week and remains Bearish on both my TRADE and TREND durations.
We’re not buying what have NOT been dips (they are developing Bear Markets) in Core #Quad4 US Equity Shorts either:
A) US Tech (XLK) was down another -3.8% last week taking its TRENDING (3 month) drawdown to -11.5%
B) US Financials (XLF) were down another -2.6% last week taking their TRENDING drawdown to -9.6%
That’s right. Despite bond yields rising (UST 10yr Yield was +13bps last week to 2.83%), being long money center Bank stocks and/or XLF has been a disaster. Why? JPM’s earnings were down -42% year-over-year. In REV/EPS “Pod” terms, that’s DEEP #Quad4.
On the other side of those Sector Style Shorts and our Long Gold (up another +1.5% last week) vs. Short QQQ Core positions:
A) Consumer Staples (XLP) were UP +0.2% last week taking their TRENDING (3 month) return to +2.3%
B) Energy Stocks (XLE) were up another +0.4% last week taking their TRENDING return to +23.8%
I sold all my Energy and bought REITS (XLRE) mainly because Oil continues to signal lower-highs and REITS (XLRE), like Staples (XLP), recently moved back to Bullish @Hedgeye TREND on my #VASP Signal.
With Oil (WTI) reflating another +8.8% last week, Energy Stocks caught a bid into week’s end alongside bond yields. I don’t think the market trading these 2 immediate-term TRADE correlations this way is wrong btw (I always think the market score is right):
A) Dollar Up = SPY (QQQ, IWM, etc.) Down
B) Oil Up = Bond Yields Up
In fact, the only easier immediate-term TRADE correlation to see this morning away from SPY vs. USD at -0.89 is Bitcoin trading with a POSITIVE +0.95 TRADE correlation to SPY. So much for Crypto being an “uncorrelated asset.”
Back to the relationship between real-time and key Commodity Correlations to US Treasury Yields, Corn is clearly the strongest right now in terms of how my #VASP scores “Signal Strength”:
A) Corn inflated another +3.0% last week taking its TRENDING (3 month) price inflation to +32.1%
B) Lumber DISINFLATED another -6.4% last week taking its TRENDING disinflation to -26.4% in the last week
Combined with my analyst’s (REIT Rob Simone) view on the Pods (rate of change of Revenues and Cash Flows), this disinflation of Lumber is why we signaled SELL on Weyerhaeuser (WY) last week. The CUT (ETF) is another way to think about that.
Despite consensus screaming bloody murder about inflation last week, our short position in Coffee (JO) continued to pay the bills. Coffee prices were down another -3.4% last week taking their 3-month disinflation to -6.2%.
The Perma Bulls can get mad at me and hate on Hedgeye all they want. The People are much angrier that this unelected Federal Reserve had a heavy-central-planning-hand that perpetuated these levels of asset inflation through their inaction last year.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 2.42-2.90% (bullish)
UST 2yr Yield 2.32-2.57% (bullish)
High Yield (HYG) 79.07-81.41 (bearish)
SPX 4 (bearish)
NASDAQ 13,004-13,907 (bearish)
RUT 1 (bearish)
Tech (XLK) 143-153 (bearish)
Gold Miners (GDX) 38.21-41.92 (bullish)
Utilities (XLU) 74.55-77.91 (bullish)
REITS (XLRE) 48.09-49.98 (bullish)
Shanghai Comp 3123-3276 (bearish)
VIX 19.33-26.27 (bullish)
USD 98.80-100.77 (bullish)
EUR/USD 1.077-1.098 (bearish)
USD/YEN 123.12-126.95 (bullish)
GBP/USD 1.298-1.313 (bearish)
Oil (WTI) 92.04-108.38 (bullish)
Gold 1 (bullish)
Silver 24.37-26.55 (bullish)
Bitcoin 38,009-43,605 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
