“As long as the public did not know or understand, there was no problem.”
- Richard Werner
In an excellent central-market-planning history book, Princes of The Yen, Werner wasn’t talking about Crypto in that quote. He was explaining how 13th century goldsmiths thought about committing fraud.
Newsflash: they thought about it the same way.
Now that both the summer and July’s classic-bear-market-bounces in everything from Burning Yens and Crashing Cryptos (and stocks) is over, how are you thinking about your hard earned capital today? I’m thinking Global #Quad4 Recession.
Back to the Global Macro Grind…
Welcome to the start of a new week @Hedgeye where the measuring and mapping starts with what just happened A) week-over-week within B) the context of both The Cycle and @Hedgeye TRADE and TREND Signals.
Let’s start with the raging #Quad4 Recession signals in the Global Currency market:
- US Dollar Index was up for the 3rd straight week and remains our #1 Global #Quad4 Asset Allocation at +14.5% YTD
- EUR/USD was down another -0.1% last week to -12.5% YTD, testing two-decade lows at Bearish TRADE and TREND
- Yen got smoked for another -1.8% loss vs. USD last week and continues its Global #Quad4 Crash at -17.9% YTD
- GBP/USD got belted for another -2.0% loss last week to -14.9% YTD and also remains Bearish TRADE and TREND
- South Korean Won’s #Quad4 Crash continued, down -2.3% vs. USD last week as they tighten into a slowdown
- South African Rand was down another -2.6% vs. USD last week, crashing -10.6% in the last 3 months of its TREND
If you thought NEGATIVE REAL INCOME for the American Consumers was bad (“Multiple Job Holders” hit a RECORD high in last week’s LABOR report – The People need multiple jobs to pay their multiplying bills)…
Try having the Real Cost of Living pressure of The People in a country whose currency is crashing. No worries, the Princes of The Yens came out with a “verbal intervention” overnight … and the Yen made a new 24yr low vs. USD!
Back to the Asset Allocation playbook – who gets you #out of Commodities, as an Asset Class, during a #Quad4 Recession?
- CRB Commodities Index was down another -4.9% last week and remains Bearish TRADE and TREND
- OIL (WTI) was down another -6.7% last week taking its TRENDING 3-month crash to -20.2% = Bearish TREND!
- Copper got cranked for another -7.7% loss, taking its TRENDING 3-month crash to -25.3% = Bearish TREND
- Aluminum deflated -8.1% last week, taking its TRENDING 3-month decline to -15.8%
- Lumber deflated another -3.8% last week, taking its TRENDING 3-month crash to -23.6%
- Cotton got clipped for a -12.3% loss last week, taking its TRENDING 3-month decline to -14.1%
“But, but… KM… you shouldn’t look at the CRB Index, Copper, or Oil.” Huh?
I try not to look at anything or “feel” anything. I just see numbers, not narratives. If you really need a narrative and the “why, why, why” Oil and Gas aren’t ripping this morning post Putin and OPEC’s cut here are 5 words:
QUAD FOUR RECESSION IN DEMAND
While positioning remains far too bullish (NASDAQ has a net LONG position of +25,904 non-commercial CFTC contracts and net SHORT VIX was the biggest consensus move into the end of July), there’s a recession in demand for GROWTH Stocks:
A) NASDAQ was down another -4.2% last week taking its Full Investing Cycle #Quad4 Crash to -27.8%
B) TOP 25% SALES GROWTH (SPX Factor Exposure) was -3.8% last week to -20.2% YTD
And it’s not just Storytelling and sexy #BubbleCap GROWTH that got smoked, it was CYCLICAL GROWTH (which you should also be short/underweight in #Quad4): Basic Materials Stocks (XLB) were -4.9% to -15.0% in the last 3-months.
And how about Global Cyclicals? Many Indexes are loaded with Financials, Industrials, and Semis don’t forget:
A) POLAND (EPOL) was down another -5.0% for us on the short side, taking its TRENDING 3-month loss to -13.2%
B) TAIWAN (EWT) was down -4.7% for us on the short side, taking its TRENDING 3-month loss to -12.2%
While there are a LOT of places in macro to make up narratives, there have been more places to make money. Personally, I couldn’t care less about what someone thinks about me being short Poland (EPOL) in the PA. It’s making money.
High Yield (US and Europe) Credit Shorts have been printing money for us since we went bearish on The Cycle back in January. US High Yield OAS Spread widened a big +41 basis points last week to +493bps over Treasuries.
And it would be nice to start making money on the long side of longer-term Treasuries (IEF) if/when the long-end of the curve sees what we see with 4 STRAIGHT #Quad4s and both a US and Global Recession. But sometimes something nice waits.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 3.15-3.40% (bullish)
UST 10yr Yield 2.96-3.27% (neutral)
UST 2yr Yield 3.26-3.54% (bullish)
High Yield (HYG) 73.40-75.99 (bearish)
SPX 3 (bearish)
NASDAQ 11,407-12,263 (bearish)
RUT 1 (bearish)
Tech (XLK) 130-141 (bearish)
Utilities (XLU) 73.86-77.43 (bullish)
DAX 12,505-13,243 (bearish)
VIX 21.87-28.84 (bullish)
USD 107.69-109.98 (bullish)
EUR/USD 0.991-1.008 (bearish)
USD/YEN 137.03-142.09 (bullish)
GBP/USD 1.142-1.184 (bearish)
Oil (WTI) 85.04-93.51 (bearish)
Gold 1 (bullish)
Copper 3.33-3.61 (bearish)
Bitcoin 19,271-22,139 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
