“Maestro di color che sanno…” (the master of those who know…)
- Dante, Inferno
If you think #Quad4 Disinflation is a “buy signal” for GROWTH, Crypto, and/or Profitless Tech (because headline inflation has peaked), I think you need to ask those who know about The Quads. QUAD FOUR is very bearish for Corporate Revenue and Cash Flow GROWTH.
The aforementioned quote came from a very interesting chapter in WASPS – The Splendor and Miseries of an American Aristocracy about the history of both Harvard and George Santayana.
“He deplored a university growing ever more multifarious and more chaotic” (pg 91). I’m just a former low-SAT-scoring Yale guy, but if we’re talking about economic nowcasting and risk management, I deplore what we’re seeing from establishment Econs these days.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! So you’re saying “the charts” say there’s a chance, eh? Gotta love short-term price momentum and the games it plays on the Non-Full-Cycle-Investing minds. We have far less company in The #Quad4 Bear camp now.
As a matter of process, we don’t wake up reading Old Wall Talking Points and/or pay them via clicks on their one-dimensional bait. Nope, we’re not silly Tourists. We’re measurers and mappers of both the #VASP and The Quads.
Let’s start with what the Global Currency market was signaling last week:
A) QUAD FOUR Disinflation
B) US Dollar Index resumed its #Quad4 Bullish TREND with a +0.7% week, taking our #1 Asset Allocation to +11.4% YTD
C) EUR/USD was down another -0.4% as the European economy slows into a #Quad4 Recession = -10.4% YTD
D) Yen was down -1.3% vs. USD after a volatile week of head-fakes (still signaling Bearish TRADE and TREND at -14.7% YTD)
E) GBP/USD was down another -0.8% post the BOE rate hike and remains Bearish TRADE and TREND as well at -10.8% YTD
In a proper #Quad4, it’s US Dollar UP, Commodities Down, don’t forget:
A) CRB Commodities Index was DOWN another -3.8% last week, taking its 3-month TREND to DOWN -10.5%
B) Oil (WTI) was DOWN another -9.7% last week, taking its 3-month TREND to DOWN -13.4%
C) Copper was DOWN another -0.6% last week, taking its 3-month TREND to DOWN -17.3%
D) Corn was DOWN another -1.6% last week, taking its 3-month TREND to DOWN -17.4%
E) Lumber was DOWN another 9.1% last week, taking its 3-month TREND to DOWN -42.7%
Apologies for the obnoxious use of ALL CAPS this early in the week, but for people who have neither called for nor made money during developing QUAD FOUR Recessions, I’m competing for their attention this morning (US Equity Futures are GREEN!).
Dollar UP, Commodities DOWN, and 5 of 11 US Equity Sector Styles DOWN (huh? But you see GREEN!):
A) Energy Stocks (XLE) got smoked for a -6.8% loss last week, taking their 3-month TREND to DOWN -9.2%
B) Basic Material Stocks (XLB) were down another -1.3% last week, taking their 3-month TREND to DOWN -10.1%
You know when pundits talk about “better than expected earnings season”, what they’re really talking about is Energy Earnings (22 of 23 SP500 Companies have reported) being +308% year-over-year pre Oil’s price crashing -28% from its Inflation Cycle peak, eh?
Materials Companies (XLB) who are reporting old Peak Inflation (in their REVENUES) “news” have Earnings Growth of +13.3% year-over-year vs. Tech (XLK) at 0.27% growth. I know, I know, Telecom Tom and the bulls were calling for that Tech slowdown 6 months ago, eh?
Looking at the “Beat/Miss” daily returns, this is a big reason why companies with down earnings who have “beats” vs. beaten down expectations are going up (very short-term) whereas some legit year-over-year accelerations are going down on the news…
I know, I know… but Tech was up +1.9% last week to +3.7% in the last 3 months.
But, did you know that my wild and exciting Long Utilities (XLU) position is up +3.6% in the last 3-months too? With Utilities, I don’t have to tell myself stories about it being 1982 and/or that REVs and Earnings are going to be fine for FOUR straight QUAD FOURS!
What other big things happened in Global QUAD FOUR terms last week?
A) USA’s Yield Curve got smashed to a new CYCLE LOW at -41 basis points on 10s minus 2s
B) Russia’s stock market resumed its #Quad4 Crash, down another -5.0%
C) China’s stock market confirmed its Bearish TREND reversal, down another -0.8%
With TRENDING (3-months or more) returns in Europe still negative where we’re most bearish (despite the bear market bounces last week, Germany and Italy are both -2.4% in the last 3 months), you really gotta believe in AAPL and Mr. Softie to believe US Tech here.
It’s a good thing those two US stocks aren’t widely held and that Microsoft’s (MSFT) fanciful guidance is going to have to traverse FOUR straight QUAD FOURS… before you can believe whatever “multiple” you’re putting on multifarious GDP, REV, and EPS expectations.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 2.57-2.91% (bearish)
UST 2yr Yield 2.80-3.30% (bullish)
High Yield (HYG) 74.99-79.05 (bearish)
SPX 3 (bearish)
NASDAQ 11,529-12,797 (bearish)
RUT 1 (bearish)
Tech (XLK) 134-150 (bearish)
Utilities (XLU) 70.10-76.21 (bullish)
Shanghai Comp 3140-3286 (bearish)
DAX 13,005-13,799 (bearish)
VIX 20.32-25.76 (bullish)
USD 105.15-108.12 (bullish)
EUR/USD 1.010-1.028 (bearish)
USD/YEN 130.80-137.65 (bullish)
GBP/USD 1.196-1.227 (bearish)
Oil (WTI) 86.75-98.01 (bearish)
Gold 1 (bullish)
Copper 3.25-3.61 (bearish)
MSFT 253-287 (bearish)
AAPL 151-170 (bullish)
Bitcoin 20,096-24,809 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
