“You can be intelligent and knowledgeable but not possess perspective and wisdom.”
- General Robert Caslen
What would the 59th Superintendent of West Point know about “leading and winning with integrity”? A: a lot.
On both Main and Wall Street we’ve seen a lot of losing this year. That’s unfortunate. Next to one’s health, there are very few things worse than losing one’s wealth. Whenever we’re losing on that front, transparency and accountability define our integrity.
As Caslen reminded me in The Character Edge, it’s never just about how “smart” someone sounds. “The strengths of perspective and wisdom build through the complexity and richness of personal experience” (pg 76). Your #Quad4 experience is your own.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where helping you preserve and protect your hard earned capital remains not only our perspective, but our collective wisdom.
As usual, let’s start by contextualizing what is now Global #Quad4 within the lens of the Global Currency market:
- US Dollar Index had a Counter @Hedgeye TREND correction of -1.4% last week to +7.4% in the last 3 months
- EUR/USD was +1.5% last week taking its Full Investing Cycle Bearish @Hedgeye TREND to -6.7% in the last 3 months
- Yen bounced +1.1% vs. USD as well – it’s TRENDING 3-month Full Cycle Return is -10.0% inclusive of the bounce
- GBP/USD bounced +1.8% last week and remains Bearish on both out TRADE and TREND durations as well
- Turkish Lira was down -2.6% vs. USD last week taking its 3-month #crash to -14.1% vs. USD
- Russian Ruble was up another +5.4% last week taking its 3-month ramp to +26.3% vs. USD
No, that Ruble return isn’t a typo. These guys (yes, they’re all guys) get paid in Putin Petro terms, don’t forget. His centrally commanded stock market is also +36.6% in the last month.
What does it mean from a Global Macro perspective? Inflation is going to remain elevated for longer and the Fed is going to keep tightening into a nasty #Quad4 Real US Consumption slowdown.
Here’s how Global Commodities contributed to that last week:
- CRB Commodities Index inflated +1.3% to +1.8% in the last month and back towards its Inflation Cycle Highs
- Oil (WTI) inflated +1.5% last week to +8.8% in the last month and -11% from its Inflation Cycle Highs
- Copper reflated +2.4% last week to -8.6% in the last month and, unlike Oil, remains Bearish @Hedgeye TREND
- Corn corrected -0.3% last week to -3.9% in the last month and is Bearish TRADE but still Bullish TREND
- Lumber disinflated another -13.3% last week, crashing -29.1% in the last month, and remains Bearish TREND
- Cattle disinflated another -2.4% last week to -5.5% in the last month and remains Bearish TRADE and TREND
What does that all mean? Well, let’s start with the fact that most humans can’t eat Copper. Oil is the heaviest weight in our INFLATION Nowcast, so we’re expecting another monthly #Quad3 headline INFLATION report for the month of May.
Being intelligent and knowledgeable about the #Quad3 Stagflation in our model while positioning for #Quad4 means that you posses both the experience and wisdom of The #VASP Signal front-running the next Quad.
The Bond market has figured that out, big time, especially in the last 2 weeks:
A) UST 10yr Yield was down another -14 basis points last week, taking it down -35 basis points in the last 2 weeks
B) UST 30yr Yield was down another -9 basis points last week, taking it down -24 basis points in the last 2 weeks
C) High Yield OAS Spread WIDENED another +30 basis points last week, making it +80bps wider in the last 2 weeks!
Yep, no matter what the color of the US Equity Futures have been in the morning for the last 5-6 weeks:
A) SPY is down for 5 straight weeks (-3.1% last week to -12.5% in the last month)
B) NASDAQ was down another -3.8% last week to -15.6% in the last month (crashing -29.3% since NOV 2021)
C) Consumer Discretionary (XLY) got smoked for a -7.8% loss last week crashing -22.7% in the last month alone
So… you’re saying the “consumer is in great shape”…
Elon is. And Gold is (on a relative basis, to mostly anything US or European Equity you could have been long during #Quad4). Gold was +1.9% last week to up a whopping +0.7% for 2021 YTD vs. Bitcoin -37%.
We’re long Utilities (XLU) which have been like Gold (i.e. not destructing your net wealth like something Crypto) at +0.4% last week to -6.6% and +8.3% in the last 1 and 3 months, respectively.
Stay away from the “smart” sounding storytellers. Stay with your Full Investing Cycle #process.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 2.95-3.19% (bullish)
UST 10yr Yield 2.75-3.04% (bullish)
UST 2yr Yield 2.52-2.72% (bullish)
High Yield (HYG) 75.75-77.45 (bearish)
SPX 3 (bearish)
NASDAQ 11,108-11,999 (bearish)
Tech (XLK) 127-139 (bearish)
Utilities (XLU) 70.28-72.66 (bullish)
VIX 26.20-35.32 (bullish)
USD 102.38-105.16 (bullish)
EUR/USD 1.035-1.068 (bearish)
USD/YEN 127.10-131.02 (bullish)
GBP/USD 1.214-1.259 (bearish)
Oil (WTI) 100.02-116.06 (bullish)
Gold 1 (bullish)
Copper 4.08-4.35 (bearish)
Bitcoin 26,391-31,994 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
