“As a kid growing up in South Africa, Elon Musk knew pain and learned how to survive it.”
-Walter Isaacson
In every book I read, I underline the opening sentence of the book. Why? If the author is good, it often sets the tone. I started reading Elon Musk, by Walter Isaacson this weekend. It’s a hard book to put down. So far, the tone is from victim to genius bully.
“When he was 12, he was taken by a bus to a wilderness survival camp, known as veldskool. It was “a paramilitary Lord of The Flies”, he recalls… bullying was considered a virtue – the big kids quickly learned to punch the little ones in their face and take their stuff.”
“The second time Elon went to veldskool, he was about to turn 16. He had gotten much bigger, bursting up to six feet with a bear like frame, and had learned some judo. “I realized that if someone bullied me, I could punch them very hard in the nose”… “ (pg 2)
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where whoever chased the uniquely American US stock market bubble (again) in July of 2023 is getting punched in the nose. Oil is up again and that means Dollar Up, Rates Up, Stocks Down (again).
I’ve been punched in the face many times in my life. I’ve been kicked in the head (with cowboy boots). I’ve had my head bounced off a sewer drain in a back alley (and my buddies from Thunder Bay call me Splinter The Sewer Rat from time to time since!)…
I’m not crying victim though. I am who I am and I am accountable to that. While I was getting my brains squeezed in at the #MOAB (Mother of All Bubble) Bear Market Lower-Highs of July of 2023, my haters left me for dead.
But I didn’t die.
No matter how hard The Game (or life) gets, I continue to grind. Staying with our Full Investing Cycle and risk management #process has paid off, big time, since July. And #HedgeyeNation has been generating serious alpha for the last 7 weeks.
Let’s start with one of our biggest contrarian alpha generators: Long US Dollars vs. the Global Currency Market:
- US Dollar Index was up for the 5th straight week, taking its TRENDING (3-months or more) return to +3.1%
- EUR/USD (Core Short) was down -0.1% to -2.8% in the last 3 months and remains Bearish TRADE and TREND
- Japan’s Yen (Core Short) was down -0.2% vs. USD to -3.6% in the last 3 months and is Bearish TRADE and TREND
- GBP/USD blew up post signaling Bearish TREND @Hedgeye and was down another -1.1% last week
- Canada’s Dollar was +0.5% vs. USD moving back to Bullish TRADE but is still inside of @Hedgeye TREND resistance
After leaving South Africa in 1989, did you know that Elon moved to Canada and eventually spent his 1st two years of college there? Yep, like the US Dollar Bears getting mauled from July 2023 to last week’s highs, #TrueStory.
What’s also true (as opposed to PE Powell’s lies) is that US Inflation Expectations have been #accelerating since early July:
A. CRB Commodities Index corrected -1.2% last week but is +7.6% in the last 3 months and remains Bullish TREND
B. Oil (WTI) didn’t correct last week and has INFLATED +13.5% and +29.6% in the last 1 and 3 months respectively
C. Natural Gas is now playing catchup with Oil, inflating +8.9% last week to +12.5% in the last month
The Bond Market knows the #TrueStory about sequentially #accelerating US INFLATION inasmuch as the Currency Market does:
A. UST 2yr Yield was up another +6 basis points (bps) last week to new #Quad3 Cycle Highs
B. UST 10yr Yield was up another +10 basis points (bps) last week to new #Quad3 Cycle Highs
C. Both Junk (JNK) and High Yield (HYG) got smoked last week with the HY OAS Spread widening 10bps
While some people in Old Wall Media think it’s kind of “cool” and/or “clever” for some of the “rich” people they worship to lie (fascinating true stories about Elon lying and/or accusing others of lying in the book!), my #timestamps don’t do that.
We’ve been short Junk and High Yield for 403 days. That’s not being a “day trader.” That’s being a patient Full Cycle Investor.
We’ve been short the Russell 2000 for 388 days and not waivered, once, on the broad definition of US Stocks being in a Bear Market:
A. Russell 2000 (IWM) was down another -3.8% last week to -4.0% in the last month
B. Russell 2000 (IWM) is in the midst of a nasty -11.1% DRAWDOWN since July 2023’s chart chase
C. Russell 2000’s (IWM) Full Investing Cycle Crash is back down to -27.3% from its #MOAB Cycle Peak
No worries though, IWM is “up” a whopping +0.9% “year-to-date.”
Unlike the Russell, I didn’t stay short SPY the whole time. I had the patience and process to add SPY back to the Short Side of ETF Pro on AUG 1 alongside Germany (EWG) and France (EWQ):
A. SPY was down for the 3rd straight week (-2.9% wk/wk) taking its correction to -5.7% since AUG 1
B. EWG (Germany) is -7.6% since AUG 1 and down another -0.9% this morning making a fresh 5 month-low
C. EWQ (France) is down -6.8% since AUG and also down another -0.9% today
Does timing matter? A: not if you’ve never been punched in the face.
So, for all those geniuses who were kicking me into the curb in July (they didn’t own US Stocks in 2022 and went to an 80% Asset Allocation to QQQ on DEC 31, 2022!), here are some brave new realities to deal with from a Factor Exposure perspective:
A. SMALL CAP Factor Exposure is down -11.8% in the last month alone
B. HIGH SHORT INTEREST Factor Exposures is also down -11.8% in the last month alone
C. HIGH BETA Factor Exposure is down -12.6% in the last month alone
*Mean performance of Top Quintile vs. Bottom Quintile, S&P 500 Companies
While I know pain and have learned how to survive it. Thankfully, our subscribers haven’t had to endure that kind of drawdown pain.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.36-4.61% (bullish)
UST 10yr Yield 4.26-4.51% (bullish)
UST 2yr Yield 4.98-5.18% (bullish)
High Yield (HYG) 73.62-74.69 (bearish)
SPX 4 (bearish)
NASDAQ 13,074-13,693 (bearish)
RUT 1 (bearish)
Tech (XLK) 162-169 (bearish)
Energy (XLE) 88.65-93.54 (bullish)
Utilities (XLU) 62.01-64.98 (bearish)
Nikkei 32,157-33,608 (bullish)
DAX 15,375-15,817 (bearish)
VIX 14.60-18.50 (bullish)
USD 104.56-105.96 (bullish)
EUR/USD 1.060-1.076 (bearish)
USD/YEN 147.05-148.97 (bullish)
GBP/USD 1.218-1.248 (bearish)
CAD/USD 0.736-0.746 (neutral)
Oil (WTI) 88.15-91.39 (bullish)
Oil (Brent) 90.98-94.61 (bullish)
Nat Gas 2.55-2.99 (bullish)
Gold 1 (bullish)
MSFT 311-329 (bearish)
AAPL 170-178 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
