“Leaders are responsible for the output of the individuals on their team.”
-Jocko Willink
While there is little to no debate on what this Global #Quad4 Slowdown and Industrial Recession “looks like” in either ROC (Rate of Change) economic data and/or Currency, Commodity, or Credit markets, there’s still plenty of FOMO out there.
Especially if your job is to not only be pressured by trivial durations like month or “year to date”, the epically concentrated “YTD” returns of SPY or QQQ can blind you to this thing called The Economic Cycle, or Cycle-To-Date #CTD.
That makes coaching hard for me. That said, I’m willing to do hard things. As Willink reminded me in The Dichotomy of Leadership, “not every person on a team will be suited for a particular job… the dichotomy in this situation is balancing between taking care of individuals by keeping them around even if they lack the skill set to do the job properly… and protecting the team by removing people from positions where they negatively impact the team and the mission.” (pg 96)
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where my mission remains to help you preserve & protect your hard-earned capital from not only epic drawdowns and crashes, but across the Full Investing Cycle.
What a difference a week made. It’s a good thing many of you stayed with the process when it was a “hard thing” to do.
Let’s start with the obvious Global #Quad4 Slowdown that’s presenting itself in the Global Currency market:
- US Dollar Index was up another +0.7% last week and remains Bullish on both our TRADE and TREND durations
- EUR/USD was -0.4% last week and is currently Bullish TRADE, but Bearish TREND
- Japanese Yen was down another -1.6% vs. USD and remains Bearish on both our TRADE and TREND durations
- GBP/USD corrected -0.8% last week but remains Bullish TRADE and TREND
- Norway’s Krone was -2.8% vs. USD last week to -5.3% in the last 3 months = Bearish TRADE and TREND
- South Korean Won was -2.5% vs. USD last week to -2.0% in the last 3 months = Bearish TRADE and TREND
‘But, KM, why, why, why – and where do you see #Quad4?’
If you can’t “see” it, I think you should ask yourself a simple question: WHEN YOU look at Global Macro markets, economic data, etc., WHAT DO YOU see?
A) In Norway, I see a hawkish central bank raising rates (last week) into a #Quad4 Oil Crash and European Recession
B) In South Korea, I see a border-line dovish central bank considering no-more-hikes into a #Quad2 Acceleration
That’s “why” I started buying South Korean Equities (EWY) on red last week. That’s why I’ve been shorting Norway (NORW) any time it has a bear market bounce to A) Lower-Cycle Highs and B) towards the TOP-end of my Risk Range.
I obviously don’t always get it “right”, but WHEN I do, there’s a ROC (rate of change) reality to it.
On my client calls, there’s zero debate amongst our Institutional Subscribers as to whether or not both Commodities, as an Asset Class, or Oil (WTI) in particular “sees” a Global #Quad4 Recession in Industrial Demand:
- CRB Commodities Index was down another -2.9% last week, crashing -21% from its Inflation Cycle Peak
- Oil (WTI) was down another -3.9% last week, crashing -44% from its Inflation Cycle Peak
- Copper was down another -2.2% last week, crashing -22% from its Inflation Cycle Peak
What about US Real Estate and Energy Stocks?
A) Real Estate (XLRE) led US Equity Sector Style Losers, down another -4.5% last week
B) Energy Stocks (XLE) weren’t far behind Real Estate, down another -4.3% last week
‘Oh, I see that KM. I’m not long those things though. My boss was into “year-end” last year, but I’m long AI.’
Cool. Because it’s not just in the mainline, that is Oil and/or Energy Stocks, that one can “see” #Quad4:
A) Palladium got pounded for a -9.2% loss last week to -11.6% in the last month alone
B) Coffee prices collapsed -8.8% last week to -12.1% in the last month alone
I get it. Most amateurs can tell you where the TSLA Weekly Call Option bubble is trading … but may not know where to get a live quote on Coffee prices or be able to define the Yield Curve. Let’s do that for you this morning:
A) Curve: 10yr minus UST 2yr Yield re-inverted another -5 basis points last week to -38 basis points in the last month
B) Curve: at -101 basis points of inversion that’s the worst since entering the 1981 US Recession
What else did you see alongside that #Quad4 Shaping of The Curve?
A) Longest of the Long End (30yr UST Yield) was DOWN -4 basis points last week after breaking @Hedgeye TREND
B) Short-end of The Curve (2yr UST Yield) was UP another +3 basis points last week to +40bps in the last month!
That’s The ROC right there. The Rate of Change of the US economy “sees” the Long-end (30yr) DOWN -13bps in the last month whereas the Short-end “sees” the fed RAISING RATES (again) into a #Quad4 Slowdown.
European Yield Curves “see” the same because the ECB is going to do the same thing! Our best performing European Country Short was Finland (EFNL) at down -5.8% last week.
For those of you who not only understand the Full Investing Cycle #process but execute on it when you should, you were making money last week after saving a LOT of money in the last 19 months since the US Cycle Peaked in #Quad2.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.75-3.92% (bearish)
UST 10yr Yield 3.62-3.84% (neutral)
UST 2yr Yield 4.55-4.81% (bullish)
High Yield (HYG) 73.98-75.01 (bearish)
SPX 4 (bearish)
NASDAQ 13,170-13,821 (bullish)
RUT 1 (bearish)
Industrials (XLI) 99.99-105.50 (bearish)
Financials (XLF) 32.47-33.51 (bearish)
Defense (ITA) 112-117 (bullish)
Shanghai Comp 3130-3251 (bearish)
Nikkei 32,601-33,889 (bullish)
VIX 13.11-18.46 (neutral)
USD 101.62-103.90 (bullish)
EUR/USD 1.071-1.101 (bearish)
USD/YEN 139.29-144.31 (bullish)
GBP/USD 1.259-1.285 (bullish)
Oil (WTI) 66.48-71.19 (bearish)
Nat Gas 2.21-2.89 (bullish)
Gold 1 (bullish)
Copper 3.65-3.94 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
