#Gravity Is Back: Markets Getting #Quad4'd, Again

“So do not be afraid of them, for there is nothing concealed that will not be disclosed, or hidden that will not be made known.”
-Matthew 10:26 

Yes, I’m a Canadian-Irish Catholic who doesn’t believe in Astrological Charting. Please don’t cancel. The aforementioned quote was actually used by Richard Werner in a good book I’ve finally been able to read over family vacation called Princes of The Yen.

For those of you who have friends who worship at the alter of The Fed or BOJ (Bank of Japan), it’s a good challenge to your premise. I don’t “believe” in either the premise or process of central economic planning or forecasting. I believe in gravity.

During a particularly important market moment (short-covering panic) early last week someone on Twitter asked me what my “catalyst” was for #Quad4 to start paying out again. My answer: gravity. 

Back to the Global Macro Grind… 

Welcome to another gorgeous Macro Monday @Hedgeye on Lake Superior where the sun is rising and my kids are sleeping! Every year I ask myself why not retire to a life like this. My answer: gravity. 

Thanks to all of you, I’m not alone. My passion and profession is to live a transparent and accountable life in markets. Never have there been so many narratives that are not supported by numbers. We are here to serve and protect #HedgeyeNation’s hard earned capital. 

Other than the Old Wall, its conflict of interest clickbait-media (which now includes Real (or no) Vision becoming the CNBC of Crypto, or Old Wall 2.0) and consensus chart chasers, who are we playing against? 

“The single most important – and sinister – TREND in the 20^th century has been that of the centralization of power. This has accelerated in the 21^st century… Central banks should not be given a monopoly over the creation or allocation of money.” -Werner (Princes of The Yen)

Oh, and the storytellers of the Crypto click-bait space (Raoul Pal) now need the Fed to ease to get their bubbles back!

Enough wasting your precious life and Cycle-Time on these Perma Bulls marketing their ad-revenue models, let’s get right back into measuring and mapping both the economic data and market signals within the context of the FULL INVESTING CYCLE. 

Starting with the steadiest (and least manipulated) of Global #Quad4 Recession Signals = The Global Currency Market: 

1. US Dollar Index had a BIG #Quad4 week of +2.4% taking its Full Investing Cycle YTD Return to +13.1%
2. EUR/USD was down another -2.2% last week getting the #Quad4 European Recession Bears paid
3. Yen was down a BIG -2.6% last week vs. USD, resuming its Bearish TRADE and TREND Signals
4. GBP/USD was down another -2.6% last week, crashing -12.6% YTD, with UK Consumer Confidence at ALL-TIME LOWS
5. Chilean Pesos lost -7.1% of their “value” vs. USD last week, crashing -11.2% in the last 3 months
6. Polish Zloty’s lost -4.0% of their “value” vs. USD last week and we remain short of Poland in EPOL terms 

So, you were either chasing the Rug Pal Ethereum to the moon narrative (and just lost another 20% in a week from that Bear Market lower-high in #ETH), or you were buying the damn #Quad4 dip in what’s been our #1 Asset Allocation all year long (USD). 

Good news: neither NASDAQ nor Bitcoin was as bad as Ethereum or Shiba Inu Coin during last week’s #Quad4 reversal. Bitcoin was only down -12.2% on the week and QQQ -2.6%, both resuming their #Quad4 Full Investing Cycle Crashes.

I know, I know. If you missed calling for all of these market crashes in #Quad2 Beta back in JAN 2022, you just gotta spend your every waking hour trying to tell yourself “positioning is too bearish”… or something like that (when it’s your YTD return that’s bearish!). 

If you are in the business of chasing short-term price momentum, I get it. That doesn’t mean that’s going to work though. 

Q: If you absolutely had to be long the Best 1-month US EQUITY SECTOR Price Momentum in the last month what would it be?
A: Utilities (XLU) 

Yep, it really doesn’t matter what you thought or “felt” like at the peak of the panic-short-covering in BBBY last week or in GROWTH, HIGH BETA, etc. Factor Exposures as they were making Bear Market lower-highs.

It’s what The Score of The Game says that matters: 

1. Utilities (XLU) were up another +1.3% last week to +12.2% in the last month alone and +8.6% YTD
2. Basic Materials (XLB) led losers down -2.4% last week to -6.4% in the last 3 months and -12.6% YTD 

If The Score surprises those who don’t do numbers and look at short-term “charts” and narratives, that’s on them, not us. 

The only thing that should matter to us (i.e. our hard earned net worth) is: 

A) Where did our pile finish the #Quad2 Cycle (NOV of 2021)?... and
B) Where is our pile going during 4 straight #Quad4s in this part of The Cycle 

One of the best/biggest Asset Allocation decisions you and #HedgeyeNation made in #Quad4 was SELLING Commodities: 

1. CRB Commodities index was down another -0.5% last week taking its TRENDING Return (3 months) to -6.9%
2. Oil (WTI) got #Quad4’d for another -1.4% week taking its TRENDING Crash to -27% form its Cycle Peak
3. Copper was down -0.4% last week, taking its TRENDING 3-month collapse/crash to -14.4%
4. Corn’s Crash continued, down another -3.0% for the home team last week (down -15.3% on the last 3 months)
5. Lumber’s #Quad4 Crash in Housing Demand continued, down another -11.7% last week alone
6. Oats Crashing another -9.4% last week to -33.6% in the last 3 months isn’t a narrative – it’s The Score

 And, again, if someone chasing a SPY chart into an epic bubble of $2.1 TRILLION of US Equity Options expiring is what they did, let them eat Uninformed Volume cake. We are selfish capitalists who need the other side to “believe” in order to save and make money. 

Unlike the US Yolo Options Bubble Market (which was born and bred during the Growth, #BubbleCap, SPAC, Crypto/Credit, etc. Bubble markets of #Quad2 in 2021), the High Yield market isn’t as short-term manipulated by The House.

High Yield OAS Spreads continued to widen, on a TRENDING Full Investing Cycle basis last week, widening another +23 basis points to +149 basis points for 2022 YTD. Like The Profit Cycle Slowing (for at least the next 3 quarters), The Credit Cycle is still in #EarlyInnings. 

But if you are them (those playing against us), you are in the #LateInnings of 2022. You really can’t afford for The Thunder Bay Bear on Lake Superior to be right again from last week’s lower-highs in Crypto or Equity Beta Chasing.

That’s probably why they just need to believe in The US Equity Volatility Suppression that The House perpetuated into both March and August monthly Options Expirations at VIX 19.  Beware of their belief-systems (especially if you believe in The Gravity).

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

UST 10yr Yield 2.71-2.99% (neutral)
UST 2yr Yield 3.18-3.33% (bullish)
High Yield (HYG) 76.33-78.90 (bearish)
SPX 4092-4311 (bearish)
NASDAQ 12,108-13,178 (bearish)
RUT 1 (bearish)
Tech (XLK) 140-151 (bearish)
Utilities (XLU) 74.04-78.97 (bullish)
DAX 13,116-13,925 (bearish)
VIX 19.01-23.10 (bullish)
USD 105.11-108.42 (bullish)
EUR/USD 1.000-1.032 (bearish)
USD/YEN 132.01-137.26 (bullish)
GBP/USD 1.180-1.221 (bearish)
Oil (WTI) 85.96-94.75 (bearish)
Nat Gas 7.82-9.92 (bullish)
Gold 1 (bullish)
Copper 3.46-3.71 (bearish)
Bitcoin 20,690-23,590 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer