“To be a leader, it is not enough to just do your job.”
- LT. General Robert Caslen (RET.)
That’s a simple but important leadership quote from General Caslen’s The Character Edge where he explains the importance of sports teams, military units, etc. having principles that perpetuate the organization’s culture.
“In sports, as in other walks of life, we depend on our teammates to support and nurture us… and to help us fulfill our potential. Fans of all teams know well the deep impact that both good and bad role models have on team morale and performance.” (pg 23)
While I’ll often get credit for “calls” our Macro Team makes, the reality is that I have a deep bench of players on this team (Jonesy, Steiner, Drake, Drago, Ricci, etc.) who support and strengthen me as a leader. None of this happens without the team.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where leading you through the depths of #Quad4 in Q2 is our job. For those of you who are new to our proprietary Multi-Factor, Multi-Duration Risk Management Process, welcome to a #BetterWay.
Let’s start this week’s measuring and mapping with the Global Currency market which is screaming Global #Quad4:
- US Dollar Index was up another +0.7% last week to new #Quad4 Cycle Highs and remains our #1 Asset Allocation
- EUR/USD was +0.1% last week (presenting another selling opportunity) and remains Bearish TRADE and TREND
- Japanese Yen was down another -0.6% vs. USD last week taking its TRENDING crash to -11.7% in 3 months
- GBP/USD got gouged for a -1.8% loss last week and remains Bearish on both our TRADE and TREND durations
- South Africa’s Rand was -1.1% vs. USD last week to -8.2% in the last month and remains Bearish TRADE and TREND
- Norway’s Krone was -1.0% vs. USD last week to -7.2% in the last month and remains Bearish TRADE and TREND
Anyone can lead you into an Asset Class or some cool Crypto “idea”, but who gets you out? That’s leadership and getting you #OUT of Foreign Currencies (and the Equity markets of those countries) is critical during Global #Quad4.
In addition to their Currencies melting down vs. US Dollars, here’s how some of our Global Equity Shorts did last week:
- France’s CAC40 was down another -4.2% last week taking its TRENDING (3-months) drawdown to -10.0%
- Germany’s DAX was down another -3.0% last week taking its TRENDING (3-months) drawdown to -9.4%
- Hong Kong’s Hang Seng dropped another -5.2% last week taking its TRENDING (3-months) drawdown to -18.6%
While we went bearish on ALL of European Equities in January, our initial projection wasn’t for Europe to enter #Quad4 until Q3. My #VASP (Volatility Adjusted Signaling Process) front-ran Europe entering #Quad4 in Q2. It’s only going to get worse in Q3.
Initially we had Russia, South Korea, and the USA in #Quad4. Obviously staying with those Russian and South Korean Equity Shorts has worked out better than the average Long/Short Fundamental Hedge Fund being down -15% YTD.
And I do take pride in my team’s perf. The Game isn’t easy. If my team was down -15-25%, all of Twitter would be invading us!
On the USA side, our favorite US Equity Index & ETF Shorts continued to crash last week:
- NASDAQ was down another -1.5% taking its #Quad4 crash to -24.4% from #Quad2 Cycle Peak
- Russell 2000 was down another -1.3% taking its #Quad4 crash to -24.7% from its #Quad2 Cycle Peak
- Consumer Discretionary (XLY) was down another -2.9% last week to -12.3% in the last month alone
Some (not all) former #Quad4 Leaders did ok last week (on a relative basis they did great):
A) Utilities (XLU) were UP +1.3% last week taking their TRENDING (3-months) return to +5.4%
B) Gold corrected -1.5% last week taking its TRENDING (3 months) return to +4.0%
C) REITS (XLRE) were DOWN -3.9% last week breaking bad to Bearish @Hedgeye TRADE and TREND
WHEN you get out of something matters more than writing a dissertation on why. WHEN something breaks my TRADE and TREND Signals, that means the TRENDING Volatility of that something is breaking out. That’s when I get out.
High Yield (HYG) and Junk (JNK) broke bad months ago with High Yield OAS Spreads widening. That’s a classic #Quad4 Risk Signal. HY OAS Spreads widened another +23 basis points last week to +402 basis points over Treasuries…
And the Fed is going to keep tightening (7 or 8 more hikes?) into this? Good luck with that, PE Powell. His Policy Mistake should A) keep getting us paid on the short side and B) keep breaking new things week-over-week.
On that score, there are plenty of Commodities that are breaking bad to Bearish @Hedgeye TREND:
A) Copper disinflated another -3.2% last week to 10.1% in the last month and is Bearish TRADE and TREND
B) Aluminum disinflated another -7.3% last week to -18.0% in the last month and is Bearish TRADE and TREND
C) Palladium disinflated another -12.3% last week to -7.4% in the last month and is Bearish TRADE and TREND
These are all Industrial metals so #FOBS (Fed Operation Break Sh-t) is working. If Powell wants to be the leader known for breaking the foundations of the markets and bubbles that the Fed perpetuated, he’s doing the job on that front.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 2.76-3.19% (bullish)
UST 2yr Yield 2.51-2.82% (bullish)
High Yield (HYG) 77.23-79.41 (bearish)
SPX 4025-4288 (bearish)
NASDAQ 12,003-12,914 (bearish)
RUT 1 (bearish)
Utilities (XLU) 69.69-74.17 (bullish)
DAX 13,505-14,098 (bearish)
VIX 25.19-37.47 (bullish)
USD 101.60-104.61 (bullish)
EUR/USD 1.041-1.069 (bearish)
USD/YEN 127.55-131.96 (bullish)
GBP/USD 1.227-1.271 (bearish)
Oil (WTI) 98.67-110.92 (bullish)
Gold 1 (bullish)
Copper 4.10-4.51 (bearish)
Bitcoin 32,903-39,513 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
