“It is not worthwhile to try to keep history from repeating itself, for man’s character will always make the preventing of the repetitions impossible.”
-Mark Twain
Full Cycle Investors (who get that cycles eventually cycle) should enjoy that Twain quote. My Partner and Hedgeye Demography Sector Head, Neil Howe, used it to introduce chapter 4 of The Fourth Turning Is Here: “Seasons Of American History.”
But have no fear, a 4th Turning dude named McCarthy is here! And the United States of America has “avoided” another Government Shutdown, for now… by kicking the Old Wall deficit spending and debt balloon cans down the road.
In other news, its US Dollar Up, Rates Up (with Inflation Up) on that as Smile Direct files for bankruptcy. Oh, and Europe’s Recession was reported (again) this morning with a 43 reading for their September PMI. It’s only Monday, smile for The Cycle eh!
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where the Old Wall’s narratives come and go, but the ROC (rate of change) numbers don’t. That’s the fractal beauty of Cycles. Once the numbers are reported, they are economic history. They aren’t subject to debate.
As a matter of measuring and mapping #process, we like to start our weekly review of economic and Global Macro market gravity with an analysis of what most uniquely American Stock chart monkeys don’t – the Global Currency Market:
- US Dollar Index was up +0.6% last week and UP FOR THE 6th STRAIGHT WEEK
- Yes, I just went ALL CAPS on you. It’s Monday. It’s Game Time. Let’s go!
- EUR/USD was down another -0.7% last week and we remain Short of it in FXE terms
- Yen was down another -0.8% vs. USD last week and it also remains Bearish TRADE and TREND (like FXE)
- Mexico’s Peso was down -1.5% last week to -2.9% in the last month (that’s a lot) and remains Bearish TREND
- Russia’s Ruble was down another -1.7% vs. USD last week and remains in Crash Mode, -10.5% in 3 months
You’d need a much larger brain than mine to know everything about the Global Economy, Soft or “no” Landings, Inflation’s ROC, etc., without having a weekly, TRENDING, and Full Investing Cycle view of FICC (Fixed Income, Currencies, Commodities)…
But if you really want/need those narratives… CNBC, Bloomberg, etc. can get you some any time you want.
In the meantime, we’ll just do our job and remind you that Commodity Inflation continues to #accelerate (since June):
A) CRB Commodities Index corrected -0.5% last week, but is +9.8% in the last 3 months (that’s the TREND)
B) Oil (WTI) didn’t correct last week – it inflated another +0.8%, taking its 3-month TREND to +29.8%
C) Orange Juice inflated another +2.4% last week, taking its 3-month TRENDING Inflation to +34.6%
Oh, they don’t want me to talk about Orange Juice? They want me to only focus on “JOLTS”? Ok, bud. Let’s keep playing The Game.
The real score in The Game = Dollar Up, Rates Up … because… Inflation has been Re-Accelerating:
A) UST 2yr Yield is up +7 basis points this morning after trying to correct -6bps last week into a #GovernmentShutdown
B) UST 10yr Yield is up +5 basis point this morning AFTER being up another +14bps last week!
C) High Yield OAS Spread WIDENED +17bps last week and our HYG and JNK Core Shorts continue to get us paid
So, the Bond Market is crashing, the US Dollar is breaking out to new TRENDING highs and what about “St-ah-kks!?”
A: Down for 4 straight weeks on “seasonality.” Ok, bud.
Uh, no. While it’s been nice to have added SPY to the Short Side of our ETF Pro product on AUG 1 (it’s down 300 handles, or -6.5%, from that #MOAM, Mother of All Month-End Markups, in July), what’s been #RealNice has been being Short Rate Sensitivity:
A) Short Utilities (XLU) was down a nasty -6.9% last week to -7.7% in the last month alone
B) Short Real Estate (XLRE) was down another -2.3% last week to -8.5% in the last month alone
C) Long Energy (XLE) was up another +1.2% last week to +12.1% in the last month alone
So… no matter what the narrative on “Presidential Cycles” or lunch at the Four Seasons or whatever… the bottom line is that, for the last 2-3 months, you’ve been crushing your competition if you are A) Long Inflation and B) Short Rate Sensitivity.
Gold doesn’t like that. It was down -4.0% last week taking its TRENDING 3-month return to -3.1%. So it is a good thing my #VASP (Volatility Adjusted Signaling Process) had me A) take that Asset Allocation to my MINIMUM prior to the decline …
And B) get me #out of Silver (SLV) in my Canadian accent, eh. You’ll never nail everything. But you can risk manage it.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.45-4.86% (bullish)
UST 10yr Yield 4.36-4.70% (bullish)
UST 2yr Yield 5.00-5.17% (bullish)
High Yield (HYG) 73.19-74.44 (bearish)
SPX 4 (bearish)
NASDAQ 12,819-13,531 (bearish)
RUT 1 (bearish)
Tech (XLK) 159-168 (bearish)
Energy (XLE) 88.51-92.99 (bullish)
Utilities (XLU) 57.66-62.51 (bearish)
DAX 15,098-15,635 (bearish)
VIX 15.58-19.91 (bullish)
USD 104.80-106.93 (bullish)
EUR/USD 1.049-1.071 (bearish)
USD/YEN 147.62-150.30 (bullish)
Oil (WTI) 88.12-93.35 (bullish)
Oil (Brent) 91.07-94.96 (bullish)
Nat Gas 2.72-3.01 (bullish)
Gold 1 (neutral)
Silver 21.76-23.41 (bearish)
Bitcoin 25,405-28,577 (neutral)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
