“It was as if the mountain made the decision for me.”
-Ed Viesturs
When I backed off on Treasuries on Thursday (see my note “Backing Off The Bond Summit”), it was for explicit SIGNAL (#VASP was signaling higher Bond Yields) and FUNDAMENTAL (we were Nowcasting a Monthly #Quad3 CPI print for May) reasons.
As Viesturs explained when he backed off summiting Annapurna, “for me, turning back on Annapurna in 2002 was a disappointment, to be sure, but not a huge one… I was willing to let it go.” -No Shortcuts To The Top, pg 248
And, for all of us in #HedgeyeNation that summitted Mount #Quad2 in NOV of 2022, we know that being bulls on that run was optional. Making it down during #Quad4 of 2022, in Viesturs words, was always going to be “mandatory.”
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where other people, sadly, aren’t going to make it down #Quad4 Mountain. If they didn’t know you could have a Monthly #Quad3 for May CPI and stay with a #Quad4 Portfolio, now they know.
There’s no time for victory laps. We still need to make it down the mountain. So let’s start with Global Currencies:
- US Dollar Index had a BIG #Quad4 Mountain Ascent closing up another +2.0% last week at +8.9% YTD
- EUR/USD short was great, down another -1.9% last week to -7.5% YTD and remains Bearish @Hedgeye TREND
- Yen Short keeps working towards a 24 year-low, down another -2.7% taking its 3-month crash to -13.6% vs. USD
- GBP/USD pounded for another -1.4% loss last week and remains Bearish TRADE and TREND
- Chinese Yuan was down another -0.7% last week to -5.8% in the last 3-months and remains Bearish TREND too
- Turkish Lira’s crash continued, down another -3.9% vs. USD to -13.2% in the last 3-months = Bearish TREND
And you thought USA’s “inflation problem” was bad. Try living in Lira’s. Turkey’s CPI is +75%!
Meanwhile, while everyone talks about #InflationAccelerating (our call since June of 2020), we keep seeing more and more Disinflation of Commodities (and obviously crashing Equity and Credit prices) ex-Oil/Gas:
- CRB Commodities Index inflated another +0.8% to +11.8% in the last 3-months of its Full Investing Cycle TREND
- Oil (WTI) inflated another +1.5%, taking its 1-month price momentum to +22.6%, testing its March Cycle Highs
- Dr. Copper DISINFLATED another -4.0% taking its TRENDING (3-month) DISINFLATION to -7.5%
- Nickel disinflated another -3.1% taking its TRENDING (3-month) DISINFLATION to -43.3%
- Lumber deflated another -10.8% last week taking its crash to -47.2% in the last 3-months
No, those -43% and -47% crashes in Nickel and Lumber prices aren’t typos. They are what happens when macro markets start to price-in pending #Quad4s!
And no, not everyone who decides to climb macro mountains with me completely gets how the SIGNAL front-runs the QUADS. But, with more summits and descents, we’ll get them there.
Only 9.66 more RATE HIKES to go in 2022 and we’ll get there!
The Fed, of course, has completely lost control of markets at this point with both another Yield Curve Inversion on 1yr forward 10s-2s OIS and both High Yield and Junk (JNK) going no-bid into Corporate Buybacks blacking out mid-week.
After starting to price-in the Real GROWTH slowdown that we’re going to have with 3 STRAIGHT Quarterly #Quad4s, the last 2 weeks have seen the short-end of the Yield Curve explode to the upside with the Fed chasing yesterday’s inflation news:
- UST 2yr Yield was up an epic +41 basis points last week to 3.06% and its up another +14bps this morning!
- 10s-2s (Yield Curve) collapsed -19 basis points last week to +9bps over Treasuries and is heading for inversion
The good news (for us) with these explicit Credit Risk Signals is that we’re going to keep getting paid short Financials and HYG:
- Financials (XLF) led losers (in terms of US Equity Sector Styles) -6.7% last week to -11.3% in the last 3-months
- High Yield OAS Spread WIDENED another +20 basis points last week to +39bps wider in the last 3 months
Everyone, of course, had plenty of time on the mountain to see avalanche (#slowing PROFIT and CREDIT) conditions. By the time the beloved Fed sees what #HedgeyeNation sees, it will be too late.
For those of you with friends who thought they were buying dips in Crypto on #Quad4 Mountain, we recommend prayer.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 2.81-3.26% (bullish)
UST 2yr Yield 2.49-3.25% (bullish)
High Yield (HYG) 75.02-78.14 (bearish)
SPX 3 (bearish)
NASDAQ 11,006-12,016 (bearish)
RUT 1 (bearish)
Tech (XLK) 127-139 (bearish)
VIX 24.09-32.64 (bullish)
USD 101.36-104.96 (bullish)
EUR/USD 1.043-1.075 (bearish)
USD/YEN 128.99-135.98 (bullish)
GBP/USD 1.220-1.261 (bearish)
Oil (WTI) 113.49-123.71 (bullish)
Gold 1 (bullish)
Copper 4.10-4.46 (bearish)
Bitcoin 23,111-30,919 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
