Global #Quad4 Recession, #Reiterated

“Lying to oneself destroys the very possibility of learning.”

-Matthew Syed

Imagine you thought you saw the Ethereum “chart breaking out”, like 6 times this year? Worse, imagine you were pumping it at 4600 at this time last year (ETH’s Mother of All Bubble peaks was 4644 on NOV 12^th, 2021) alongside a bunch of Crypto Frauds?

As Syed reminds us in a great #behavioral book titled Black Box Thinking, what he calls “Intellectual Distortions” are made for Old Wall Street, Rear-Vision, etc. They reveal “a subtle difference between external and internal deception…”

“A deliberate deception (a lie or a fraud) has at least one clear benefit. The person doing the deceiving will, by definition, recognize the deceit and will inwardly acknowledge the failure…”

“Self-justification is more insidious. Lying to oneself destroys the very possibility of learning. How can one learn from failure if one has convinced oneself – through endlessly subtle means of self-justification, narrative manipulation, etc. – that a failure didn’t actually occur?” (pg 95)

Think about that. Think about all of the narratives you’ve read in the last 12 months. Think about all of the click-bait-ad-revs you generated for the self-justified and their unaccountable compensation schemes.

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where we’re measuring and mapping numbers instead of weaving narratives. A Global #Quad4 Recession is a mathematical reality in Q4 of 2022. It’s when GROWTH, INFLATION, and PROFITS are #slowing.

Let’s start with where the “charts” people got sucked in, once again, in the last 2 weeks – the Global Currency market:

1. US Dollar Index finished UP +0.6% last week to +11.8% YTD after holding @Hedgeye TREND support
2. EUR/USD was down -0.2% last week after failing @Hedgeye TREND resistance = -9.2% YTD
3. Japanese Yen fell -1.1% vs. USD last week, taking its 2022 Currency Crash to -18.0% YTD = Bearish TREND
4. GBP/USD was +0.5% last week to -12.1% YTD but failed @Hedgeye TREND resistance as well
5. Argentina’s Peso continued to crash, -1.6% vs. USD last week, crashing -17.6% in the last 3 months alone
6. Colombia’s Peso continued to crash, -3.7% vs. USD last week, crashing -11.9% in the last 3 months alone

Yep, a crashing currency is what many Emerging Markets get when the US Dollar is in #Quad4. As you can see on slide 38 of last week’s Mid Quarter Macro Themes update deck:

A) We call this Our Currency, Your Problem: US Dollar Doom Loop
B) Fed tightens, Dollar Rises, and there’s Exported Inflation to countries with Crashing Currencies

In a more stylized or “proper” #Quad4 Recession you also get Commodities Crashing:

1. CRB Commodities Index was down another -3.3% last week and remains Bearish on both TRADE and TREND durations
2. Oil (WTI) continued to see demand crash in #Quad4 with WTI down another -10.0% last week = Bearish TREND
3. Copper was down -6.7% last week and remains Bearish TREND as well
4. Coffee was down another -7.7% last week taking its TRENDING crash (3-months) to -25.3%
5. Cotton was down another -3.0% last week taking its TRENDING crash (3-months) to -23.7% 

Oh, but no worries, all good. This means the Fed is going to “pivot” dovish because any one of these chart monkeys should be able to see that US INFLATION (CPI) peaked with the Commodities Index almost 20% higher back in JUNE of 2021. LOL

The narrative manipulation is quite comical when you think about it. At the beginning of 2022, Telecom Tom Lee (he earned that nickname during the 1 bubble) was bullish on stocks “because inflation is quite additive to profits…”

Now, he’s all about buying stocks because… “inflation is coming down and the Fed…”

Back to reality. It’s pretty clear that Tom is stuck on 1982 whereas I’m helping you risk manage the big things (like the Yield Curve) that happened BEFORE 1982 during the Volcker/Reagan Regime Shift in Rates:

1. UST 2yr Yield pivoted alright, HIGHER by 20 BASIS POINTS last week and remains Bullish TRADE and TREND
2. UST 10yr Yield was +2bps last week to 3.83% after holding @Hedgeye TREND support of 3.57%
3. Yield Curve (10s minus 2s) collapses to a bone-chilling -71 BASIS POINTS of inversion

Yep, it’s now WORSE than the #Quad4 Recession Signal of 1, so I AM GOING ALL CAPS on Telco-T this morning!

“Oh, but Keith you have to admit, China is reopening and Brazil’s election was bullish for Commodities.” Uh, no I don’t:

A) China’s stock market (Shanghai Comp) was down for the 4^th straight session last night and Commodities got smoked
B) Brazil’s stock market was down another -3.0% last week to -5.9% in the last month and their currency is bearish too

“But, but… KM, you have to admit that US stocks act better lately.” No I don’t. Some did and some don’t:

A) Consumer Staples (XLP) were up another +1.6% last week to only -3.2% in the last 3 months (they act better!)
B) Consumer Discretionary (XLY) stocks were down another -2.8% last week taking their TRENDING 3-months to -17.6%

Yes, that’s how you play that Yield Curve and US Consumer Recession Signal: Long Staples (XLP) and Healthcare (XLV = +1.1% last week to +1.5% in the last 3 months) vs. Short Consumer Discretionary and all of their Crypto Frauds and Profitless Tech Bubbles.

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

UST 30yr Yield 3.78-4.42% (bullish)
UST 10yr Yield 3.60-4.26% (bullish)
UST 2yr Yield 4.28-4.81% (bullish)
High Yield (HYG) 71.69-74.75 (bearish)            
SPX 3 (bearish)
NASDAQ 10,314-11,382 (bearish)
RUT 1 (bearish)
Tech (XLK) 119-134 (bearish)
Consumer Staples (XLP) 70.70-74.99 (bullish)
Healthcare (XLV) 131-136 (bullish)                                 `              
Shanghai Comp 3004-3151 (bearish)
VIX 22.01-27.06 (bullish)
USD 105.11-112.92 (bullish)
EUR/USD 0.976-1.042 (bearish)
USD/YEN 137.00-148.75 (bullish)
GBP/USD 1.119-1.193 (bearish)
Oil (WTI) 78.98-89.12 (bearish)
Nat Gas 5.65-6.80 (bearish)
Gold 1 (bullish)
Copper 3.52-3.90 (bearish)
Bitcoin 15,036-18,420 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer