1st of 4 #Quad4s Is In The Books

“I don’t see any changes this week.”
- Bill Belichick

I don’t see any changes to our outlook for 4 straight quarters of #Quad4 either.

The aforementioned quote was what Belichick said after losing a regular season game to the St. Louis Rams in the 2001-2002 season. It’s when he decided to go with Brady instead of Drew Bledsoe (who’d recently returned from injury).

He sat down with both quarterbacks and said “we’re going to go with Tom… he’s going to get all the reps. And he’s going to play” -Dynasty, pg 194. Ultimately, they won their 1^st Super Bowl that year (beating the Rams in Super Bowl XXXVI).

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where I’m not concerned with anything other than the next series of plays and games that we’ll have to play out during the 2^nd straight quarter of Global #Quad4.

As always, let’s start with the Global #Quad4 Recession Currency market signals:

1. US Dollar Index had a Counter @Hedgeye TREND correction of -1.0% last week to +17.2% YTD
2. EUR/USD bounced off its recent lows +1.2% last week and remains Bearish on both TRADE and TREND durations
3. Japanese Yen weakened another -1.0% vs. USD taking its 2022 Crash to -20.5% YTD
4. GBP/USD bounced off its recent lows +2.9% last week but also remains Bearish TRADE and TREND
5. Canadian Dollar was down another -1.7% vs. USD last week to -5.3% in the last month = Bearish TRADE and TREND
6. Russia’s Ruble dropped -3.5% vs. USD last week taking its TRENDING 3-month decline to -9.5%

Whether it’s the Ruble or the Colombian Peso (down another -3.4% last week, taking its TRENDING 3-month smackdown to -9.7%), it’s The People of these countries that pay for it in local currency (Inflation) terms.

Yes, central banks from the UK to South Korea and Thailand are panicking on their FX devaluations. There isn’t much that they can do about that and/or The Gravity of The Cycle.

A Down Dollar week didn’t help “Stah-kks!”, but it arrested parts of the #Quad4 Commodities Crash:

1. CRB Commodities Index was down -0.1% last week to -8.6% in the last month alone (still Bearish TREND)
2. Oil (WTI) bounced +1.0% last week to -12.8% in the last month (and remains Bearish TREND)
3. Copper bounced +2.1% last week to -3.9% in the last month so we were adding to that short position
4. Corn was +0.1% last week to 0.0% in the last month and is one of the few Bullish TRADE and TREND signals
5. Cotton was down another -7.8% last week, crashing -24.0% in the last month alone
6. Lumber was down another -2.9% last week and remains in #Quad4 Demand Crash mode as well

Some bear market bounces come and go (Copper is down -1.5% this morning) and some bear markets just rage on (Lumber’s 3-month TRENDING Crash is currently at -33.5%!).

It’s staying on the right side of the Full Investing Cycle TRENDs that puts you in a position to have a Championship Season.

In US Equity Sector Style terms, one of the best signals we respected and executed on was RATE SENSITIVITY (having sold all our REITS, Utes, etc.) with Bond Yields breaking out on both a TRADE and TREND basis:

A) Utilities (XLU) led Sector Style losers down -8.7% last week to -12.7% in the last month alone
B) Tech (XLK) was down another -4.0% last week to -13.0% in the last month as well

Who gets you out? My #VASP Signal did in this case. The consensus #Quad4 playbook was to stay long of Drew Bledsoe. The dynamic and data driven read was to play Brady and bench Utilities.

In Global Equities, the Global #Quad4 read remains very obvious:

A) Emerging Markets (MSCI Index) were down another -3.3% last week to -11.8% in the last month
B) Hang Seng continued to crash, down another -4.0% last week to -13.7% in the last month
C) Spain and Germany were down another -2.9% and -1.4%, respectively = Bearish TRADE and TREND

In both Global Bond Yield and High Yield Credit #VASP Signal terms, it’s still Global Tightening (ex-Japan and China) into a #Quad4 in Q4 slowdown. US High Yield OAS Spread WIDENED another +40 basis points last week alone.

If and when I see myself making changes, I’ll be the first to let you know.

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

UST 10yr Yield 3.46-4.02% (bullish)
UST 2yr Yield 3.92-4.38% (bullish)
High Yield (HYG) 70.03-73.12 (bearish)            
SPX 3 (bearish)
NASDAQ 10,418-11,193 (bearish)
RUT 1 (bearish)
Tech (XLK) 117-124 (bearish)
Utilities (XLU) 64.74-70.81 (bearish)
DAX 11,802-12,351 (bearish)
VIX 27.05-34.45 (bullish)
USD 110.41-114.99 (bullish)
EUR/USD 0.951-0.984 (bearish)
USD/YEN 142.40-145.75 (bullish)
GBP/USD 1.053-1.134 (bearish)
CAD/USD 0.718-0.740 (bearish)
Oil (WTI) 76.03-84.98 (bearish)
Nat Gas 6.34-7.76 (bearish)
Gold 1 (bearish)
Copper 3.21-3.48 (bearish)
Bitcoin 18,108-20,290 (bearish) 

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer