Another #Quad4 Week, It Was

“As leaders, we can engage in practices that build the virtue of courage in others.”
- General Robert L. Caslen

Going into our 1^st #HedgeyeLIVE event, I thought I knew what to expect. I was wrong - dead wrong, actually. The courage of the #HedgeyeNation community to be open and honest about everything that matters humbled me to my core. I loved it!

So, on behalf of all my teammates who made the event come to life, thank you. Thanks to all of you who participated.

The aforementioned quote comes from the #leadership book I’ve been citing lately called The Character Edge. When building your #process or what Caslen calls your “Gut Strengths”, here are some suggestions:

1. Know yourself
2. Practice courage
3. Look for and be a role model
4. Use social persuasion and feedback
5. Embrace stressful conditions
6. Surround yourself with courageous people

Back to the Global Macro Grind…

Especially if you were at the Hedgeye Gala Saturday night, you have to shake it off this morning and get to work. It’s Macro Monday @Hedgeye! Let’s get right into what’s in our notebooks.

Starting with the Global Currency market, another Global #Quad4 week it was:

1. US Dollar Index was up another +0.9% last week to +9.3% for 2022 to-date, screaming Global #Quad4
2. EUR/USD was down another -1.3% last week to new Cycle Lows and remains Bearish TRADE and TREND
3. Yen bounced +1.0% last week taking its crash to -10.7% in the last 3 months (short more)
4. GBP/USD was down another -0.7% last week and remains Bearish on both @Hedgeye TRADE and TRENDs
5. Norway’s Krone was down -2.9% vs. USD to -10.3% in the last month alone and remains Bearish TREND
6. China’s Yuan got smoked for a -1.8% loss last week taking its 1-month devaluation to -6.2%

China, of course, would never allow a proper Emerging Market #crash of its currency. Why? They have a closed Capital Account and they centrally plan it up/down as they tighten/ease. That said, for China, this is a major FX decline in a short-period of Cycle Time.

Economically, you know why. China remains in its nastiest #Quad3 Stagflation of the modern era with Industrial Production #slowing to -2.9% year-over-year in April (vs. +5.0% in March). Is it as bad as it can get? I don’t know, but:

A) The Shanghai Composite Index was UP +2.8% last week taking its Full Cycle TRENDING return to -10.9%
B) On the aforementioned “news”, stocks were only down -0.35% overnight

So, like every country in the world that my #VASP (Volatility Adjusted Signaling Process) measures and maps in conjunction with The Quads, I’ll keep you posted if China breaks out on either my TRADE or TREND signals. For now, they’re still bearish.

Emerging Markets ex-China were a bloody mess last week:

A) Emerging Markets (MSCI) were down another -2.6% taking their Full Investing Cycle 3-month return to -19.0%
B) Indonesia was down hard, -8.7% week-over-week, breaking both @Hedgeye TRADE and TREND signal supports

So I sold all my Indonesia (IDX) on that. I’d sold ALL my Emerging Market exposure prior to that on prior TREND breaks. When TRENDs break, I don’t waste time on WHY. I execute on WHEN because, over-time, it pays to.

Like EM ex-China, Commodities ex-Oil DISINFLATED last week:

1. CRB Commodities Index was down -0.9% last week to only +0.1% in the last month
2. Oil (WTI) inflated +0.7% last week, taking its 1-month price momentum to +6.5%
3. Copper disinflated another -2.2% last week, taking its 1-month price to down -11.7%
4. Silver disinflated another -6.1% last week, taking its 1-month price to down -19.6%
5. Aluminum disinflated another -1.9% last week, taking its 1-month price to down -14.3%
6. Lumber disinflated another -6.9% last week, taking its 1-month price to down -4.4%

In the last 3-months, Lumber’s TRENDING Full Investing Cycle 3-month crash has been -27.8%. What’s happening from both a US HOUSING and Global INDUSTRIAL Demand perspective is crystal clear. It’s called Global #Quad4.

Since many people consider Gold a Commodity, that’s partly why it has joined the TRADE and TREND breakdowns that I just listed. Gold was down -4.0% last week breaking its @Hedgeye TREND Signal Support level of $1826/oz, so we’ll see if that holds.

What Gold really needs is REAL Yields falling for real. Nominal Treasury Yields finally did that last week:

A) UST 2yr Yield was down -15 basis points last week to 2.58%
B) UST 10yr Yield was down -21 basis points last week to 2.92%
C) UST 30yr Yield was down -15 basis points last week to 3.08%

In conjunction with those more traditional #Quad4 Bond Yield declines, both High Yield (and Junk) Credit and US Equities did what they do in #Quad4 too:

1. High Yield OAS Spread WIDENED another +50 basis points last week to +98 basis points in the last month alone!
2. Consumer Discretionary (XLY) stocks continued to crash, down another -3.7% to -15.8% in the last month alone
3. NASDAQ continued to crash, down another 2.8% last week to -13.5% in the last month alone

Look on the bright side, if you had a 20-100% “Asset Allocation” to Crypto, it could have been worse (Bitcoin was down another -17.5% last week to -27.9% in the last month alone and Luna Coin traded at a negative price on Friday!).

But you’re not getting worse at this. You are getting better than both your former-self and the field. Stay with having the courage of executing on your process. This has clearly been the better way.

Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:

UST 30yr Yield 2.93-3.24% (bullish)
UST 10yr Yield 2.81-3.14% (bullish)
UST 2yr Yield 2.52-2.80% (bullish)
High Yield (HYG) 75.62-78.09 (bearish)          
SPX 3 (bearish)
NASDAQ 10,941-12,208 (bearish)
RUT 1 (bearish)
Tech (XLK) 127-140 (bearish)
Shanghai Comp 2 (bearish)
VIX 25.89-36.94 (bullish)
USD 102.60-105.18 (bullish)
EUR/USD 1.036-1.065 (bearish)
USD/YEN 128.01-131.37 (bullish)
GBP/USD 1.211-1.262 (bearish)
Oil (WTI) 99.20-112.75 (bullish)
Gold 1 (neutral)
Copper 4.03-4.38 (bearish)
Bitcoin 25,850-34,154 (bearish) 

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer