“Who can remain silent until the moment of action?”
- Wuwei
With bottom-picking becoming an increasingly oversupplied and stinky Old Wall Street business, Full Cycle Investors @Hedgeye continue to have major Asset Allocations to both #patience and US Dollars with the Euro crashing to its lowest level since 2003.
The aforementioned quote is all about what we coach: patience and process.
Do you have both? Spitznagel explains the importance of Wuwei in The Dao of Capital. “In Wuwei is the importance of waiting on an objective process, of suffering through loss for inter-temporal opportunities…” (pg 5).
Back to the Global Macro Grind…
Welcome to what is usually Macro Monday @Hedgeye. After yesterday’s celebration of the principles of the American Revolution and Independence from the shackles of big government, it’s Tuesday. And it’s still Global #Quad4 (ex-China).
While plenty of super-late-cycle people got plugged holding #Quad3 Commodity Bags at much higher prices, there’s been no clearer #VASP (Volatility Adjusted Signaling Process) Signal than #Quad4’s Cornerstone position = Long US Dollars:
- US Dollar Index was up for the 4th week in the last 5 = +0.9% week-over-week to +9.9% YTD
- EUR/USD moved towards crash mode, down another -1.3% last week, and down hard this morning
- Yen was flat 0.0% vs. USD last week and has also #crashed during #Quad4 in 2022 = Bearish TREND
- GBP/USD was down another -1.4% last week to -7.8% in the last 3 months and remains Bearish TREND
- South African Rand resumed its crash vs. USD, down -3.5% last week and -10.5% in the last month
- Chinese Yuan was -0.2% vs. USD, taking its 3-month Bearish @Hedgeye TREND to -5.1%
Yes, the Chinese are easing as the Europeans continue to tighten. There’s a big difference between a correction in a currency (CNY -5%) and a crashing currency (down -10% or more). Crashing currencies perpetuate local stagflation and further slowing.
That’s one of the big reasons why my VASP Signals have had me go from long (since June of 2022) to Short of Commodities, as an Asset Class. The stronger the US Dollar with #RecessionRisk Rising, the lower Commodities go:
- CRB Commodities Index disinflated another -2.3% last week to -11.4% from its Commodity Cycle Peak
- Oil (WTI) was the Bullish TREND outlier at +0.8% last week (but is -12.1% from its Cycle Peak)
- Nat Gas continued to crash, down another -8.9% last week to -34.0% in the last month alone
- Copper continued to crash, down another -3.8% last week and as of this AM is -29.1% from its Cycle Peak
- Nickel continued to crash, down another -2.7% last week to -22.5% in the last month alone
- Corn continued to crash, down another -9.9% last week to -12.1% in the last month alone
Yep, ex-Oil, it’s been happier hunting for #Quad4 Bears in Commodities in the last month than it has been in stocks (and that’s saying something!). In addition to our Core Short position in Corn (CORN) we made a pile signaling SELL in Soybeans intraweek.
Capital is a process. It moves with time and space. Our job is to, as Wuwei teaches, wait on it.
Now that every Macro Tourist in the Federal League was not only positioned for more “inflation” via Commodities and their related Equities, we can get on with #Quad4’s main event = #RecessionRisk Rising:
A) UST 2yr Yield dropped -23 basis points last week to +19 basis points in the last month
B) UST 10yr Yield dropped -25 basis points last week to -3 basis points in the last month
C) Yield Spread (10s minus 2s) flattened another -2 basis points last week to -22 basis points in the last month
That’s definitively what happens when the Bond Market signals to the Fed that it needs to catch up to economic gravity. Until Fed Policy goes dovish and drop-kicks the short-end of the curve (2s), the long-end (10s) falls faster, inverting the yield curve.
A) That’s why the 2yr Yield is currently Bearish TRADE but still Bullish TREND (2.51% TREND support)… and
B) The UST 10yr Yield is currently Bearish TRADE (3.12% resistance) but still Bullish TREND (2.77% support)
‘But, but, my boss, who doesn’t do macro says buy Tech and Growth when bond yields fall.’
Uh, nope. Definitely not during the #Quad4 #RecessionRisk Rising part of The Cycle (see 2001-2002 for details). As you can see, last week was a certified train wreck for whoever was long GROWTH or HIGH YIELD and/or HIGH BETA LEVERAGE:
A) Tech (XLK) and Consumer Discretionary (XLY) continued to crash, down another -4.5% and -4.8%, respectively
B) Top 25% SALES GROWTH (Factor Exposure) was down another -3.8% crashing to -20.1% in the last 3 months
C) High Yield OAS Spread WIDENED another +71 basis points to +177 basis points WIDER in the last month
Oh, but Powell and the Fed don’t think that the “shape of the yield curve matters” much or that the Credit Bubble that the Fed perpetuated can implode alongside their levered #BubbleCaps like TSLA and NOT perpetuate a recession via Wealth Effect…
Cool, linear-softly-landing-plane-Econ-guys of the establishment - like “transitory”, stay with it until it is way too late.
In other patient Global Macro Long/Short alpha generating news:
A) Chinese Stocks (Shanghai Comp) were up another +1.1% last week to +6.5% in the last month
B) Italian Stocks (MIB Index) were down another -3.5% last week to -12.1% in the last month
Stay with The Signal front-running The Quads.
We have China discounting #Quad2 in Q3 and Europe headed into a #Quad4 Recession in the 2H of 2022. We’ll see if the ECB is numb enough to repeat their policy mistakes of 2010 again or not. They don’t do Wuwei, eh.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 2.85-3.38% (bullish)
UST 2yr Yield 2.82-3.26% (bullish)
High Yield (HYG) 72.73-74.91 (bearish)
SPX 3 (bearish)
NASDAQ 10,632-11,539 (bearish)
RUT 1 (bearish)
Tech (XLK) 122-132 (bearish)
Shanghai Comp 3 (bullish)
DAX 12,603-13,238 (bearish)
VIX 26.02-32.39 (bullish)
USD 103.41-105.64 (bullish)
EUR/USD 1.027-1.056 (bearish)
USD/YEN 133.77-137.02 (bullish)
GBP/USD 1.202-1.230 (bearish)
Oil (WTI) 102.95-112.57 (neutral)
Nat Gas 5.38-6.91 (bearish)
Gold 1 (bullish)
Copper 3.41-3.96 (bearish)
TSLA 626-747 (bearish)
Bitcoin 18,455-21,780 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
