“It’s all one whether we’ve experienced forty years or an Aeon. What more is there to see?”
-Marcus Aurelius
This is my 3rd major economic and market cycle. How many have you survived? Like us, cycles don’t live forever. They cycle.
As Ryan Holiday goes on to remind us in The Daily Stoic for December the 12th, no matter where you’ve been this year or how you’ve done, here you are. “The Beat Goes On.”
“All things die. Not just people, but companies, kingdoms, and ideas. The Roman Republic lasted 450 years. The longest recorded life of a human being is 122 years. The average life expectancy in the United States is a little over 78 years” (pg 368). Make today a good one.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where we will stoically measure and map both the economic and market cycle like we do every single day and week. The ROC (Rate of Change) is the only way to contextualize it all.
Let’s start with the Global Currency market:
- US Dollar Index made another higher-low for The Cycle +0.3% last week at +9.6% YTD and remains Bullish TREND
- EUR/USD was +0.1% last week at -7.3% YTD and is currently signaling Bullish TRADE, but Bearish TREND
- Japanese Yen was down -1.6% vs. USD last week and remains Bearish on both our TRADE and TREND durations
- Canadian Dollar was down -1.3% vs. USD last week and also remains Bearish TRADE and TREND @Hedgeye
- Norway’s Krone was -2.3% vs. USD last week and is Bearish TRADE and TREND (like Oil is)
- Mexican Peso was -1.9% vs. USD last week and is Bearish TRADE and TREND @Hedgeye as well
While the Long Euro vs. Short USD trade remains THE MOST CONSENSUS (in non-commercial CFTC Futures & Options terms) in all of Global Macro, Big #Quad4 Recession Signals continue to manifest in everything from Oil to Canadian, Mexican, and Norwegian currency.
Why is there a 140,886 Net LONG (in contracts) position in The Euro that registers 2.36x on a 1-year z-score? I don’t know. It’s not my position! But if I had to make an educated guess, every Macro Tourist on the planet is betting/hoping for a “lower CPI” tomorrow.
That bet is, of course, a Perma Bull one that doesn’t get what a #Quad4 Recession is. Here’s Energy getting #Quad4’d:
A) Oil (WTI) down -11.2% last week and -16.4% in the last month alone
B) Energy Stocks (XLE) down -8.5% last week, leading losers on a big down week for US stocks
US stocks were down for the 8th day in the last 10 on Friday after the hope-trade didn’t play out in PPI terms:
A) Russell 2000 was down -5.0% last week, taking its Full Investing Cycle Crash to -26.5% from NOV 2021
B) NASDAQ was down another -4.1% last week, taking its Full Investing Cycle Crash to -31.5% from NOV 2021
Never have so many who didn’t make the Full Investing Cycle turn (from Bullish on Growth at this time last year to Bearish) been in such a panic to call for a “bottom.” It is what it is. It wouldn’t be a narrative if we didn’t come from The Mother of All Bubbles.
In the meantime, there are plenty of things to buy in a Proper #Quad4. What’s a proper Quad Four?
A) When Long-term Bond Yields go down on a TRENDING basis as The ROC of GROWTH does
B) When you can buy Sector Styles and Factor Exposures that are not HIGH BETA, SMALL CAP, GROWTH, etc.
Two examples of US Equity Sector Styles that we were LONG last week:
A) Healthcare (XLV) corrected -1.3% last week to +5.0% in the last month
B) Utilities (XLU) corrected -0.3% last week to +7.7% in the last month
Yep, both Sectors were down last week. But they were down less than being long QQQ, IWM, or XLY (-4.5% last week).
Two more examples of Asset Allocations that we’re long with Longer-term Bond Yields falling:
A) Silver (SLV) was up another +2.0% last week to new #Quad4 Cycle Highs and +10.0% in the last month
B) Platinum (PPLT) was up another +0.9% last week to +3.9% in the last month and Bullish TRADE and TREND
Gold (GLD) and Gold Miners (GDX) remain Core Asset Allocations as well. Gold itself was only +0.1% last week, but it beats being long something like Silvergate (SI), a FTX #CryptoFraud, or any no-more-liquidity Allocation where the Manager is throwing up their gates!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.32-3.81% (bearish)
UST 10yr Yield 3.36-3.76% (bearish)
UST 2yr Yield 4.20-4.52% (bullish)
High Yield (HYG) 73.57-75.77 (bearish)
SPX 3 (bearish)
NASDAQ 10,706-11,329 (bearish)
RUT 1 (bearish)
Tech (XLK) 126-135 (bearish)
Consumer Staples (XLP) 75.16-77.60 (bullish)
Healthcare (XLV) 135-141 (bullish)
Defense (ITA) 108-114 (bullish)
Utilities (XLU) 69.29-72.10 (bullish)
Nikkei 27,502-28,246 (bullish)
VIX 19.82-25.08 (bullish)
USD 104.05-108.26 (bullish)
EUR/USD 1.017-1.061 (bearish)
USD/YEN 134.13-140.70 (bullish)
CAD/USD 0.727-0.749 (bearish)
Oil (WTI) 70.03-80.38 (bearish)
Gold 1 (bullish)
Silver 21.17-24.15 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
