“We must think about capital in a new way, as a verb, not a noun.”
- Mark Spitznagel
The aforementioned quote is a good one, particularly when you think about capital as a #process. It comes from a good book that one of our subscribers, Kevin Gatsby, sent me titled The Dao of Capital.
“Indeed, capital is a process, or a method or a path – what the ancient Chinese called the Dao.”
Spitznagel, who runs a hedge fund called Universa Investments, went on to remind readers that “we tend to see the destination, but somehow often miss the path.” If you see #Quad4, don’t do that. Stay with the process.
Back to the Global Macro Grind…
Welcome to Macro Tuesday @Hedgeye where Macro Monday was a market “day off” for all of you who live in the USA. If you live somewhere else but are Long of China, well done. That’s a #Quad2 path that the market is starting to see more clearly.
As always in our week-over-week review of the Price, Volume, and Volatility path of macro markets, let’s start with Global FX:
- US Dollar Index was up for the 3rd straight week = +0.5% to +9.4% YTD and remains an obvious Global #Quad4 Signal
- EUR/USD corrected -0.2% last week to -7.7% YTD and remains Bearish on both our TRADE and TREND durations
- Yen was down another -0.4% vs. USD taking its 3-month TRENDING crash to -12.1% = Bearish @Hedgeye TREND
- GBP/USD was down -0.6% last week to -9.5% YTD and remains Bearish TRADE and TREND
- Norwegian Krone was down -2.9% vs. USD taking its 3-month TRENDING crash to -11.9%
- Aussie Dollar was down -1.8% vs. USD last week and remains Bearish on both TRADE and TREND durations as well
Norway’s currency crash is an interesting one that was perpetuated by Oil finally correcting from its Cycle Highs last week. Commodities overall (CRB Index) have now corrected -6.1% from the CRB’s Cycle High of 329:
- CRB Commodities Index was -5.1% last week moving it to Bearish TRADE (but still Bullish TREND)
- Oil (WTI) disinflated -9.2% last week moving it to Bearish TRADE, but still Bullish TREND as well
- Copper continued its TRENDING Disinflation, down another -6.5% to -14.0% in the last 3 months
- Natural Gas crashed through @Hedgeye TREND support with a -21.5% disinflation last week!
- Aluminum disinflated another -6.9% last week taking its TRENDING Disinflation to -26.5%
TRENDING Disinflation = 2 words describing a cyclical and mathematical path that we call #Quad4. Prior to last week’s Oil correction (and Nat Gas crash) there was plenty of DISINFLATION across both “Softs” and Industrial Metals, don’t forget.
The market finally went after some of those consensus Energy and Basic Materials EQUITY Longs last week too:
A) Energy (XLE) got hammered for a -17.6% weekly loss taking its TRENDING (3-month) Return to -0.6%
B) Basic Materials (XLB) deflated another -8.3% last week taking their TRENDING (3-month) Return to -12.5%
Obviously being down -0.6% in the last 3-months (or +13.0% like WTI is in the last 3-months, inclusive of last week’s correction) is a walk in the park on the long side compared to our Top US Equity Index and Sector Shorts:
A) Russell 2000 was down another -7.5% last week, taking its Full Investing Cycle Crash to -31.8% from its #Quad2 Peak
B) NASDAQ was down another -4.8% last week, taking its Full Investing Cycle Crash to -32.8% from its #Quad2 Peak
Consumer Discretionary (XLY) and Tech (XLK) both lost another -5.8% and -4.9%, respectively, last week alone.
Full Investing Cycle Crash = 4 words describing a cyclical and mathematical path that we call coming off the TOP of The Cycle’s Sine Curve. Spitznagel says this is what he looks for (“TAIL RISK” events with rising probabilities), so I hope he nailed this one.
Staying with the process means that you understand how to go the other way from the BOTTOM of a Sine Curve. That’s when the path of economic GROWTH #accelerates sequentially from its Cycle Lows. That’s China:
A) China’s Shanghai Composite Index pounded US Equity Indices again last week with a +1.0% absolute gain
B) China’s Shanghai Comp is now up +7.2% and +3.2% in the last 1 and 3 months, respectively
If you knew the path of #Quad2 was coming (we’ve been highlighting that all year), all you had to do was A) wait for my TRADE and TREND Signals to give you the green light and B) not be a Macro Tourist and “Buy Copper” on a Long China (KWEB) view!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 3.03-3.57% (bullish)
UST 2yr Yield 2.84-3.58% (bullish)
High Yield (HYG) 71.75-76.74 (bearish)
SPX 3 (bearish)
NASDAQ 10,161-11,619 (bearish)
RUT 1 (bearish)
Tech (XLK) 117-134 (bearish)
Shanghai Comp 3 (bullish)
VIX 26.74-36.52 (bullish)
USD 102.50-106.10 (bullish)
EUR/USD 1.032-1.063 (bearish)
USD/YEN 131.41-136.20 (bullish)
GBP/USD 1.194-1.245 (bearish)
Oil (WTI) 106.92-126.72 (bullish)
Nat Gas 6.28-8.19 (bearish)
Gold 1 (bullish)
Copper 3.94-4.30 (bearish)
Bitcoin 16,807-25,368 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
