“In truth, the Bears would live hand-to-mouth.”
-George Halas

I hear you, Halas! And may the man they called “Papa Bear” rest in peace. When I think about having the patience and discipline to invest across the Full Investing Cycle, I think of all the great brands and businesses that have come before the one we’re building.

If staying with our #process was easy, everyone would have a Hedgeye. Good news: we’re coming off the most epic Consensus Perf Chase of the modern era with YTD US Hedge Fund Short Covering in the 99.8th percentile on a 10 YEAR look back.

With “Retail” Investor Skew (Buying Calls vs. Puts) exceeding the Meme Stock chase of JAN 2021, what could possible go wrong for the bulls, never mind Da #Quad4 Bears! Hat tip to John Eisenberg’s The League for teaching me about Halas, Mara, Rooney, etc.

Da Bears! #Quad4 Curve Inversion - 02.03.2023 Powell Fed Vacuum cartoon

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where the Yield Curve is back to where it was when the Chicago Bears won their last Super Bowl (1980s). Only if you’re a #Quad4 Bear this morning is that a good thing!

As a matter of #process, let’s start with measuring and mapping Global Currency Market Signals:

  1. US Dollar Index had a big week from a big spot (long-term TAIL support), closing up +1.0% to $102.92
  2. EUR/USD was -0.7% last week and remains Bullish TRADE, but Bearish TREND and long-term TAIL
  3. Japanese Yen was -1.0% vs USD last week but remains the one big Bullish TRADE and TREND Signal in FX
  4. British Pound was pounded for a -2.6% loss last week back to Bearish on both TRADE and TREND durations
  5. Norway’s Krone lost -3.2% vs. USD last week and remains Bearish TRADE and TREND
  6. Pakistan’s Rupee continued to crash vs. USD, -9.0% last week to -17.6% in the last month alone

That’s right, if you look at USD-ex Euros and Yens (you really can’t though), you can see that The People in Pakistan and Argentina (Peso has crashed -16% in the last 3-months) are getting pounded by the worst kind of Local Inflation: Crashing Currencies.

Norway has an Oil Currency, so that’s #NotGood, especially when Commodities are getting #Quad4’d (in Demand terms):

  1. CRB Commodities Index was down another -4.1% last week, probing new Cycle Lows (Commodities peaked JUN 2022)
  2. Oil (WTI) was down another -7.9% last week and has crashed -41% from its #Quad3 Inflation Cycle Peak
  3. Corn was down -3.9% last week and is now testing a #Quad4 @Hedgeye TREND breakdown

I know, with some people still chasing the “Inflation Peaked” narrative that got them body bagged from the AUG lower-highs in everything from TSLA to QQQ, maybe they should think about what that means for being long something like Energy (XLE)…

Energy Stocks (XLE) were down -5.8% last week and are down -4.8% in the last 3 months. Who gets you #out?

With SPX Energy and Industrials Earnings still +68% and +41% year-over-year, respectively, in Q422 reports, what do you think the ROCs (rates of change) of those Earnings are going to look like when they have to lap Q1 and Q2 PEAK INFLATION in PRICING?

Now you’re doing some numbers instead of narratives, eh!

It wasn’t just Energy, Ag, and Brazil (stock market down -3.4% last week remains Bearish TREND @Hegdeye) last week:

A) Gold finally corrected -3.6% from its #Quad4 Cycle High to +18.7% in the last 3 months
B) Silver corrected -5.2% last week to +14.4% in the last 3 months

That mostly came on Friday’s Jobs Report because it was a big Rates Up, Dollar Up day and:

A) Gold no likey Real Rates Up on the Long-end of the Yield Curve
B) Up another +6 basis points this morning to 3.60%, the UST 10yr Yield is near the Top-End of my Risk Range

So, with that, Gold became my #1 Asset Allocation, after buying-MORE on Friday. Silver is smaller because both it’s Beta and Volatility are higher (and I always Vol Adjust position sizing). Gold Volatility (GVZ) went out at 15 on Friday. I like that.

Gold peaked in the early 1980s when the Yield Curve was even worse than it is this morning. Think about why. If the Fed is going to keep pressuring the short-end of The Curve and the long-end stops going up as the Recession hits, voila. It’s a Tim Mara Trifecta!

You know that some of the NFL’s Founders (Mara and Rooney in particular) made their initial pile betting on the ponies, right? It’s kind of like the guys betting on 0DTE Call Options today. Those guys are just killing it!

And whoever is betting on a “Yield Curve Steepener” is getting killed (again) this AM with 10s minus 2s probing their Cycle Lows at -81 basis points. That’s a level last seen in early December when the Consensus Chase Crowd was caught Long Tech and TSLA.

I’m old enough to remember December 28th of 2022, when QQQ was at it’s Cycle Lows. I can remember watching Raiders of The Lost Ark in 1981 (man Gold was bullish back then!) and the 1st DeLorean Back to The Future car. I can’t remember its market cap.

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

UST 30yr Yield 3.53-3.72% (bearish)
UST 10yr Yield 3.36-3.62% (bearish)
UST 2yr Yield 4.09-4.44% (bullish)
High Yield (HYG) 74.98-77.28 (bearish)            
SPX 3 (bearish)
NASDAQ 11,031-12,221 (bearish)
RUT 1 (bearish)
Tech (XLK) 129-144 (bearish)
VIX 17.71-21.04 (bullish)
USD 101.11-104.65 (bullish)
EUR/USD 1.076-1.097 (bearish)
USD/YEN 128.41-131.75 (bearish)
GBP/USD 1.201-1.241 (bearish)
Oil (WTI) 72.49-78.19 (bearish)
Nat Gas 2.26-3.11 (bearish)
Gold 1 (bullish)
Copper 4.00-4.34 (bullish)
Silver 22.25-24.53 (bullish)
TSLA 127-200 (bearish)
Bitcoin 20,302-23,973 (bearish)

Best of luck out there this week,

Keith R. McCullough
Chief Executive Officer

Da Bears! #Quad4 Curve Inversion - Monday