“You are judged by the company you keep, good or bad.”
- LT. General Robert Caslen
What would the 59th Superintendent of West Point know about leading and winning with integrity? A: LOTS. The aforementioned quote comes from a chapter in The Character Edge that he titled “It’s Not Just About You.”
Tomorrow at 11AM ET we’ll be hosting our flagship Q3 Macro Themes show LIVE @HedgeyeTV (if you’d like access to the presentation and/or slide deck, ping ).
Since Hedgeye is going on 15 years old, I’ve done LOTS of these. Since we do Mid-Quarter Update presentations now, we do 8 of these per year. And when I say we, I mean WE. It’s a big team effort getting all of the data, slides, and cartoons together.
Back to the Global Macro Grind…
One of the most frequent Institutional Client question we get is, What Are Bond Yields Signaling?
Regardless of what economic Quad we are heading into, if you’re investing in any Asset Class or security, you should know the answer to that question. The answer is the answer. It’s just math.
Currently this is what US Treasury Yields are signaling, across the curve:
- UST 2yr Yield = Bullish TRADE and TREND with a Risk Range™ Signal = 2.91-3.44%
- UST 10yr Yield = Bullish TRADE and TREND with a Risk Range™ Signal = 3.07%-3.51%
- UST 30yr Yield = Bullish TRADE and TREND with a Risk Range™ Signal = 3.17-3.50%
For those of you who are new to a Full Investing Cycle #process that doesn’t just look at a 50-day #MovingMonkey of SPY or Bitcoin, “Bullish TRADE and TREND” on Bond Yields = Bearish TRADE and TREND on those Bonds.
*Note: the question isn’t WHY are they signaling that? It’s WHAT are they signaling.
That said, on the WHY, I spend LOTS of time on those Institutional Client calls… and while I can’t capture all of the thoughtfulness embedded in these real conversations… I’ll try to summarize WHY people think Bond Yields keep signaling bullish TREND:
A) The Fed is hawkish and tightening
B) The Fed doesn’t understand the liquidity side of QT (Quantitative Tightening)
C) The Fed will keep tightening until inflation slows
Of A, B, and C only A) is 100% factual.
That’s why I spend a LOT less time debating WHY and more time just listening to (and acting on) my #VASP (Volatility Adjusted Signaling Process). Having tried to buy bonds 2x this year, my signaling process has stopped me out twice.
I currently have ZERO exposure to Fixed Income, mainly because of aforementioned points 1, 2, and 3.
What makes the conversation about Bond Yields and the 1970s or how the 17th century’s Tulip Bubble was also perpetuated by The People and their Dutch “coins” interesting… is that anything can be interesting when speaking with intelligent people.
I speak to LOTS of intelligent people. Not LOTS of them are making money this year.
And, of course, I could waste your precious life and Cycle Time just writing more and more words without numbers this morning. They may or may not be interesting. Selfishly, I just want to tell you more about what markets are signaling and get on with my day!
Rarely do US Equity only people ask me about What Bond Yields Are Signaling, Globally. But here’s the critical answer on that:
- Germany 10yr Bund Yield = Bullish TRADE and TREND with a Risk Range™ Signal = 1.37-1.87%
- UK 10yr Gilt Yield = Bullish TRADE and TREND with a Risk Range™ Signal = 2.23-2.71%
- Japan 10yr JGB Yield = BEARISH TRADE and TREND with a Risk Range™ Signal = 0.14-0.35%
That said, SOME of our Institutional Clients ask me about this math all of the time. And SOME were very interested in that JGB (Japanese Gov Bond) yield spike in the middle of this month.
This is a good example of super “smart” people on the Old Wall telling our clients stories about things that don’t manifest (“Japan losing control”, for example), and me having to answer questions about it with math instead of narrative.
WHY are JGB’s still signaling Bullish (Bond Yields Bearish)? Because the BOJ (Bank of Japan) just bought a RECORD 14.8 TRILLION (in Yen) worth of bloody bonds in the month of June alone!
I know, I know. When you’re committed to burning your currency at the stake in order to protect The House (JGBs), a TRILLION isn’t what it used to be (14.8 TRILLION = $110 BILLION USD), but that’s commitment and leadership!
No, I didn’t say it was “good or bad” culture or leadership. It’s just integrity in what the BOJ has messaged to Global Macro markets. They will CTRL + Print to infinity and beyond. This has been great for our Long US Dollar vs. Yen Short. So keep it up JGB boys!
You know who else is committed to stimulating? A: China. Unlike the USA, Europe, Australia, etc., China issued a RECORD 1.5 TRILLION in Local Government Bonds in June. That’s $225 BILLION in USD.
We remain Long of Chinese Equities (vs. Short European Equities). We’ll review that position on the Q3 Macro Themes call too.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 3.17-3.50% (bullish)
UST 10yr Yield 3.07-3.51% (bullish)
UST 2yr Yield 2.91-3.44% (bullish)
High Yield (HYG) 72.30-75.87 (bearish)
SPX 3 (bearish)
NASDAQ 10,418-11,700 (bearish)
Shanghai Comp 3 (bullish)
DAX 12,807-13,491 (bearish)
VIX 26.01-34.87 (bullish)
USD 102.91-105.48 (bullish)
EUR/USD 1.038-1.063 (bearish)
USD/YEN 132.50-137.56 (bullish)
Oil (WTI) 101.20-113.08 (bullish)
Nat Gas 5.92-7.60 (bearish)
Gold 1 (bullish)
Copper 3.61-4.15 (bearish)
Bitcoin 18,980-22,963 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
