Another #Quad3 Stagflation Week

“We all must suffer from one of two pains: the pain of discipline or the pain of regret.”
-Jim Rohn

Does that quote sound familiar? It should. It’s the same thought as the quote I used from Alabama’s OG football Coach, Nick Saban, earlier this month.

OG NFL D-Back, Malcolm Jenkins, used Rohn’s quote to introduce a chapter he titled “Discipline” in his new #behavioral book: What Winners Won’t Tell You.

Any winner who has played this game successfully for multiple Full Investing Cycles can tell you this: if you don’t have a deliberate and disciplined #process that’s repeatable, someone else does. And over the long-term, they’re going to beat you.

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where the measuring and mapping process doesn’t change; what headline Macro Tourists are jumping to does!

Before I get into recapping my weekend research grind, I want to say that my thoughts and prayers are with everyone at home or in the Middle East who has been affected by this human tragedy.

My deliberate and disciplined study of PRICE, VOLUME, and VOLATILITY across my TRADE, TREND, and TAIL durations usually starts where Tourists don’t #PayAttention = The Global Currency Market:

1. US Dollar Index was up for the 7^th week in the last 8, taking its TRENDING 3-month return to +6.9% (big move)
2. EUR/USD was down another -0.3% last week and remains Bearish on both our TRADE and TREND durations
3. Japanese Yen was down another -0.2% last week, taking its TRENDING 3-month loss to -7.7% = Bearish TREND
4. GBP/USD was down another -0.4% last week and remains Bearish on both our TRADE and TREND durations
5. New Zealand’s Kiwi was down -1.0% vs. USD last week, taking its TRENDING 3-month loss to -7.7%
6. Aussie Dollar was down -0.9% vs. USD last week, taking its TRENDING 3-month loss to -8.7%

Whether you have experience analyzing Global Currency markets across multiple Cycles or not, these are monster FX moves by any historical measure. How do they resolve themselves into a “bear case” for the US Dollar? I don’t know.

Reiterating our Core Asset Allocation to the US Dollar today (currently ranked #4 in our new weekly Portfolio Solutions product).

How about that Stag part of the #Quad3 Stagflation? Here’s what Commodities did last week:

1. CRB Commodities Index inflated another +2.6% and remains Bullish on both TRADE and TREND durations
2. Oil (WTI) inflated another +5.9% last week, recapturing Bullish TRADE support, after holding TREND support
3. Copper had another big #divergence, down another -1.6% last week, and remains Bearish TRADE and TREND
4. Rubber inflated +4.6% last week, taking its 3-month return to +10.5% = Bullish TRADE and TREND
5. Orange Juice inflated another +2.3% last week, taking its 3-month return to an eye-watering +42.3%!

Yep. There’s the OG, then there’s the OJ. That Fed Head dude Waller evidently doesn’t support my kids drinking Orange Juice.

Can you believe that un-elected Fed guy said “the last 3 months of inflation data have been very good”? I can. These guys have been clueless since they originally called inflation “transitory” years ago.

You can call these Fed Heads ignorant, incompetent… or just dead wrong. Both the Global Currency and Bond Markets have been telling them that since US headline inflation (CPI) bottomed sequentially in June.

Old Wall Media didn’t highlight Friday’s US economic data, but that doesn’t mean it wasn’t reported:

A) Consumer Confidence #slowed to 63 in OCT vs. 67.5 “expected” by Old Wall economists
B) US Consumer 1-year INFLATION Expectations #accelerated to +3.8% from +3.1% prior

And, with that, Bond Yields are straight back up this morning after signaling #BHLs (big higher-lows) in my model, daily:

A) UST 2yr Yield up another +4 basis points this morning to +5.07% remains Bullish TRADE and TREND
B) UST 10yr Yield up another +7 basis points this morning to 4.69% remains Bullish TRADE and TREND

This US Consumer #slowing as INFLATION expectations accelerate dynamic played out in US Sector Styles last week too:

A) US Consumer Discretionary Stocks (XLY) led losers, down -1.0% on the week, taking their 3-month loss to -8.9%
B) US Energy Stocks (XLE) led gainers, up another +4.5% on the week, taking their 3-month return to +7.1%

Whoever didn’t have the discipline to stay with their Full Investing Cycle #process is getting the best education that losing money can buy: Russell 2000 down another -1.5% last week, taking its DRAWDOWN to -14.1% since AUG 1, 2023 (that’s a lot).

Don’t tell anyone who doesn’t do Cycle-to-date #CTD, but for the “year-to-date” the Russell is now DOWN -2.4%.

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

UST 30yr Yield 4.69-5.02% (bullish)
UST 10yr Yield 4.54-4.86% (bullish)
UST 2yr Yield 4.97-5.17% (bullish)
High Yield (HYG) 72.00-73.41 (bearish)          
SPX 4 (bearish)
NASDAQ 13,004-13,658 (bearish)
RUT 1 (bearish)
Energy (XLE) 85.12-90.92 (bullish)
Utilities (XLU) 55.34-60.09 (bearish)
VIX 16.15-20.62 (bullish)
USD 105.35-107.02 (bullish)
EUR/USD 1.043-1.064 (bearish)
USD/YEN 148.07-150.12 (bullish)
GBP/USD 1.204-1.233 (bearish)
Oil (WTI) 82.21-89.99 (bullish)
Oil (Brent) 84.35-91.99 (bullish)
Nat Gas 2.91-3.60 (bullish)
Gold 1 (bullish)
Copper 3.51-3.68 (bearish)
Silver 20.62-23.02 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer