Global #Quad4 Recession

“All I do is stay in my same routine.”
-Tiger Woods

Whether you’re playing professional golf at the highest level or trying to do the same, successfully, in Global Macro markets… you better have a repeatable risk management #process that has a routine.

As Woods went on to explain in Fearless Golf: “There’s no change. I think that’s probably one of the biggest keys. That’s what Nicklaus was so good at. You could time him. Every routine he had was exactly the same.” (pg 49)

Pre-market and in-game. Routine. Routine. Routine. If you want to audit my daily process, you may not always see me make birdies. But you will see a repeatable routine. There’s nothing anyone can say or do to change it either.

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye! It’s 6:19AM ET. I’ve been up since 4:30AM. I’ve measured and mapped all of the incoming economic data and market moves within the context of both my #VASP (Signal) and The Quads.

What may or may not be interesting to you about that is I read nothing other than numbers. I have no life or cycle-time to waste in the morning on other people’s narratives or how they want/need me to think about playing my game.

If you want to spend time on what other players think they see this morning, that’s cool. My teammates and I appreciate you taking the time to consider The Cycle that we’ve seen coming for the past 7 months.

Let’s start with the Global Currency market:

1. US Dollar Index was down for the 2^nd week -0.8% to +10.7% YTD and is right where you should be buying more
2. EUR/USD barely bounced +0.1% last week and remains Bearish TRADE and TREND with Europe entering a recession
3. Yen had a big +2.1% Counter @Hedgeye TREND bounce vs. USD last week (that means it remains Bearish TREND)
4. GBP/USD bounced +1.4% last week and also remains Bearish @Hedgeye TREND ahead of a BOE decision this week
5. Russia’s Ruble was down another -6.2% vs. USD last week, crashing -15.0% in the last month back to Bearish TREND
6. Pakistan’s Rupee continued to crash, down another -4.4% vs. USD, taking its 3-month crashing TREND to -22.3%

Whether it was in Pakistan or Sri Lanka (both currencies have crashed in #Quad4)… or WHEN it becomes readily apparent to all Macro Tourists that both Russia and Europe have entered a Deep #Quad4 Recession this winter… no one should be surprised.

No one who reads and/or applies our research to their process, that is…

And if you’re reading narratives about this being like 1982 and/or are emotionally triggered by a “Fed pivot”, that’s totally on you. Like the wind changing, all I’m going to do is adapt to the opportunities the Global Macro course presents this morning.

While 1982 was fun for the 49ers, who knows what a long Global #Quad4 Recession looks like in the 2^nd half of 2022?

A) Are you going to short Commodities?
B) Are you going to short European Equities?
C) Are you going to short Cyclical and/or Unprofitable US Growth?

Let’s take those in ABC order and start with what Commodities did last week (they get smoked in a Global #Quad4 Recession):

1. CRB Commodities Index had a Counter @Hedgeye TREND bounce of +3.9% last week to -5.3% in the last 3-months
2. Oil (WTI) had a Counter @Hedgeye TREND bounce of +4.1% last week to -7.8% in the last month (-0.1% in 3-months)
3. Copper had a Counter @Hedgeye TREND bounce of +6.7% last week to -19.0% in the last 3-months
4. Corn had a Counter @Hedgeye TREND bounce of +9.9% last week to -17.5% in the last 3-months
5. Lumber had no bear market bounce at down another -9.9% last week, crashing -38.7% in the last 3-months

Not that their month-end markup narrative matters, but think about it for 2 more seconds this morning. If, in fact, Powell is going to pivot to dovish and devalue the US Dollar (from here), what did that do to the inflation of things last week?

European Equities also had Counter @Hedgeye TREND bounces towards the top-ends of their Risk Ranges last week:

1. EuroStoxx600 was +3.0% to -2.7% in the last 3-months
2. Germany’s DAX only bounced +1.7% to -4.4% in the last 3-months
3. Italy’s MIB Index bounced +5.6% to -7.6% in the last 3 months

Unless you’re a panic-stricken-short-term “investor” who needs to print Full Cycle Returns every single week while missing the Full Investing Cycle (3-months or more) TRENDs, last week’s selling opportunities were obvious by week’s end.

1. US Energy Stocks (XLE) were up a big +10.5% last week to +4.4% in the last 3-months
2. US Consumer Discretionary (XLY) stocks got squeezed for a +5.2% move to 0.0% in the last 3-months
3. US High Yield OAS Spread was down -21 basis points to +90 basis points in the last 3-months

Since I covered my Consumer (XLY) earlier in the week (see Real-Time Alerts), I enjoyed re-shorting that Core #Quad4 Short on Friday. I haven’t shorted Energy (XLE) yet because I wanted to see what the stocks did on their Friday EPS reports.

So you’re saying that with Energy Earnings being +300% year-over-year that the stocks got marked-up into month-end on the “Q2 news”? In 2-months we’ll be in Q4. Prepare for the sequential decel in those earnings from here.

And how about that UST Yield Curve’s Signal last week?

1. UST 2yr Yield was down -9 basis points to -15 basis points in the last month but remains Bullish TREND
2. UST 10yr Yield was down -10 basis points to -44 basis points in the last month moving to Bearish TREND
3. Yield Curve (10s minus 2s) inverted another -2 basis points to -29 basis points in the last month

I know, I know… the last time the Yield Curve inverted like this was coming out of the 1 US Growth Bubble when Greenspan was RAISING rates.

Never mind “pivoting” to less hawkish, do you know what stocks did once he started cutting rates? Hint: growth stocks kept going down as revenue and profit growth kept decelerating.

Back out the short-term performance panic and noise. Stay with your ROC (Rate of Change) measuring and mapping routine.

Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets

UST 30yr Yield 2.91-3.17% (neutral)
UST 10yr Yield 2.56-3.01% (bearish)
UST 2yr Yield 2.77-3.30% (bullish)
High Yield (HYG) 74.11-78.45 (bearish)            
SPX 3 (bearish)
NASDAQ 11,362-12,471 (bearish)
RUT 1 (bearish)
Tech (XLK) 131-145 (bearish)
Utilities (XLU) 69.43-74.45 (bullish)                                  `              
Shanghai Comp 3 (bearish)
DAX 12,917-13,560 (bearish)
VIX 21.01-26.31 (bullish)
USD 105.57-108.16 (bullish)
EUR/USD 1.005-1.027 (bearish)
USD/YEN 132.19-139.33 (bullish)
GBP/USD 1.189-1.224 (bearish)
Oil (WTI) 93.18-101.04 (bearish)
Gold 1 (bullish)
Copper 3.20-3.59 (bearish)
Bitcoin 19,994-24,798 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer