“Stopped colder than I have ever been on an 8,000er – and intimidated, to boot.”
-Ed Viesturs
That’s what one of the greatest climbers in US history had to say about initially failing to summit Annapurna. “I never dreamed Annapurna would prove to be the hardest of all the 14 high summits for me to reach.” -No Shortcuts To The Top pg 208
Back to the Global Macro Grind…
It would be a stretch to say that any macro market “intimidates” me.
Plenty of them have frustrated me! And that’s precisely where I find myself this morning, unable to “make a call” for the all-clear to try to summit the equivalent of Annapurna’s 26,503 foot crest.
This is the 2nd time I have tried to summit, or “Buy Bonds”, in 2022:
- I went for it in January when I initially made the #Quad4 “call”… and failed
- I’ve been going for it again since early May… and I’m certainly not winning
Winning is what my #Quad4 Shorts (Tech, Consumer Discretionary, Crypto, Financials, High Yield, etc.) have been doing since January. Winning is what Gold did for me when I initially bought it alongside bonds in early January until mid-March.
Losing its gains, is what Gold did since then. Why? That’s obvious. A: Putin/Oil + re-accelerating headline INFLATION to Cycle Highs.
Yesterday, Oil’s price took a good hard look at its recent Peak Cycle Inflation print of $123/barrel. It’s backing off (small) this morning as both the price of Copper and Corn break bad, falling down the mountain, to Bearish @Hedgeye TREND.
This is precisely what makes going to the summit on Treasury Bonds so difficult:
- Short-term Bond Yields are trading (correlating) tightly with both Oil and the CRB Commodities Index
- Long-term Bond Yields are starting to trade (on and off) with Real Consumption and Industrial demand #slowing
And you know what? If history (i.e. our back-tests) is any world class Sherpa Guide, that’s the way it should be. Why?
- Oil and the CRB Index are the 2 heaviest weights in our proprietary headline US INFLATION (CPI) Nowcast
- Fed Rate Hike Expectations drive the short-end of the Yield curve; Real GDP #slowing drives the long-end
On that score, concomitant with Oil $123 and the CRB Index at 329 (new Cycle Highs):
- Fed Rate Hike Expectations for 2022 have shot up almost 1 FULL HIKE this week to 8.21x!
- Short-end of the curve: UST 2yr Yield has ramped right back up to its 2022 YTD highs at 2.78%
- Long-end of the curve: UST 10yr Yield is making a LOWER-high, but barely…
Staying with our mountaineering analogy, Part C) of those ABCs is like the last 350 feet to Summit Annapurna with no oxygen. We have basically no time left on the clock – tomorrow is it. Tomorrow is the CPI print for May and:
- UST 10yr Yield is flat this morning at 3.01%
- UST 10yr Yield has an immediate-term Risk Range™ of 2.69-3.13%
- UST 10yr Yield’s 2022 YTD Summit High was on May 9th at 3.17%
Yep, you remember my notes on this. It may seem like forever ago. But I reviewed the setup in my “Buying Bonds, Part II” note on Tuesday. And you know what I did yesterday? I sold some bonds!
If I really cared what people thought about me or how I make the “calls” I make, I’d have died in your inbox 15 years ago.
When we’re at an altitude like this and the weather changes (i.e. Oil shoots towards $123), I change. I don’t make a secret. I sent out a Real-Time (Coaching) Alert yesterday and also a note to our Macro Pro subscribers that I was taking T-Bonds to my MIN.
What’s my MIN? A: My minimum position.
I did the same with my Gold. So my exposure heading into the CPI print and a potential 70mph wind taking UST 10yr Yield > 3.13% has been reduced to 9% of Total Asset Allocation = 3% SHY, 3% TLT, 3% GLD.
My MAX for all of those positions is 10%. If Bond Yields fail (again) at not only the top-end of my Risk Ranges but vs. their Q4 of 2018 Cycle Peaks, you know what I am going to do with those positions? A: go for the Summit again!
Going to my MIN means I reduce the risk of dying (in YTD alpha generation terms). I get it – it’s a conservative, but risk managed decision, NOT to do what I thought I was going to do 48 hours ago.
If/WHEN I decide to summit, I can have my re-positioning readied within 1 minute, don’t forget. I am proactively prepared.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 2.94-3.25% (bullish)
UST 10yr Yield 2.69-3.13% (bullish)
UST 2yr Yield 2.42-2.87% (bullish)
High Yield (HYG) 76.05-79.62 (bearish)
SPX 3 (bearish)
NASDAQ 11,553-12,390 (bearish)
RUT 1 (bearish)
Tech (XLK) 134-144 (bearish)
VIX 23.15-29.41 (bullish)
USD 101.47-103.18 (bullish)
Oil (WTI) 112.33-122.88 (bullish)
Gold 1 (bullish)
Copper 4.17-4.53 (bearish)
Bitcoin 27,589-31,990 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
