“There was never a show of panic or any inclination to abandon the game plan.”
-John Wooden
That’s how one of the greatest coaches in human history described his 1st NCAA Championship team. “Each team I ever coached has it’s own particular character… this was a team of tremendous courage and poise…
“They were never rattled when they were behind. I’m certain that thoughts of defeat never entered their minds.” -They Call Me Coach, pg 15
Thanks, Coach. The lessons of patience and #process are timeless. While I’ll admit that I expect to have losing days in bear markets, the thought of NOT having a US Credit Event during #Quad4 never entered my mind.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where there is no panic. There was proactive preparation, for going on 15 months now. Today is just another day to execute on the process.
Let’s start with contextualizing the Global Currency Market’s signals:
- US Dollar Index was up +0.1% last week and up for the 5th week in the last 6 = Bullish TREND @Hedgeye
- EUR/USD bounced +0.8% last week but remains Bearish on both our TRADE and TREND durations
- Yen bounced +1.5% vs. USD last week and also remains Bearish on both TRADE and TREND durations
- GBP/USD bounced +1.0% last week and remains Bearish TRADE and TREND
- Argentina’s Peso was down another -1.6% vs. USD, crashing -15.4% in the last 3 months
- Aussie Dollar was -1.7% vs. USD last week to -4.2% in the last month after breaking bad to Bearish TREND
“But, but, Coach… why is the Dollar Down this morning.”
Stop it. Play your game and buy-more. The Dollar is down because it was up. That’s what things do AFTER they go to the TOP-end of my Risk Ranges. They go down.
On a TRENDING basis in #Quad4, it’s Dollar Up, Commodities Down (hard) as Demand Slows:
- CRB Commodities Index was down another -3.7% last week to new Cycle Lows
- Oil (WTI) was down another -3.8% last week, crashing -38% since The Inflation Cycle Peaked
- Copper was down another -0.9% moving from Bullish to Neutral TREND
- Corn was down another -3.5% last week to -9.3% in the last month and remains Bearish TREND
- Cotton (BAL) disinflated -7.1% last week to -8.6% in the last month and remains Bearish TREND
- Palladium (PALL) was down another -6.0% last week, crashing -30.8% in the last 3 months
Why do we care about Palladium? A: because we’re short it in PALL terms.
Gold, of course, is not a Commodity. It’s a Global Currency with much lower Volatility than Cotton and Corn. Amidst the panic in less liquid investment options (Small Caps), Gold’s Liquidity is a major benefit too:
A) Gold was +0.7% last week to +2.4% YTD
B) Russell 2000 (Smaller Than #BubbleCap Index) was down -8.1% to +0.7% YTD
From here, what would you rather be long, Gold or a bunch of smid-cap US Bank stocks?
Much Larger Cap Financials (XLF) don’t like #Quad4 US Profit Recessions and Bank Runs, fyi. While Ackman whines about not getting his money out of some cool VC ideas in California, think about what’s going on here…
A) Financials (XLF) were down a big -8.5%, leading Sector Style Losers last week
B) Basic Materials (XLB) were the 2nd worst Sector Style at -7.6% last week
Thinking like a Full Cycle Investor:
A) XLF: You know how Credit Event Risk gets priced into bank earnings, right?
B) XLB: You know how Peak Pricing gets priced out of Materials earnings, right?
“But, but, Coach… they said the bank stocks were cheap!”
Yep, anything can be called “cheap”, if you use the wrong numbers. And now we’re finally seeing a proper #Quad4 reality manifest in the Bond Market with:
A) Long-term Yields (10, 20, 30yr) breaking @Hedgeye TREND supports … and
B) High Yield Spreads busting a Credit Risk move to the upside
UST 10yr Yield was down -27 basis points last week with @Hedgeye TREND support of 3.65% snapping this morning and High Yield OAS Spreads widened +53 basis points last week to +450bps over Treasuries.
Oh snap! This isn’t our first Bear Market Championship we’re playing for. Stay with the process. Patience pays you, especially when the other Macro Unaware teams are panicking.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.60-4.05% (neutral)
UST 10yr Yield 3.51-4.10% (neutral)
UST 2yr Yield 4.19-5.06% (bullish)
High Yield (HYG) 72.44-74.89 (bearish)
SPX 3 (bearish)
NASDAQ 10,990-11,521 (bearish)
RUT 1 (bearish)
Tech (XLK) 132-141 (bearish)
Defense (ITA) 112-118 (bullish)
Shanghai Comp 3 (bullish)
VIX 20.23-26.96 (bullish)
USD 103.55-105.95 (bullish)
EUR/USD 1.050-1.071 (bearish)
USD/YEN 133.02-137.60 (bullish)
GBP/USD 1.179-1.210 (bearish)
Oil (WTI) 74.70-79.42 (bearish)
Gold 1 (bullish)
Copper 3.92-4.14 (neutral)
TSLA 164-192 (bearish)
Bitcoin 19,604-22,972 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
