“Wow, this is just insane – is this how banks think?”
-Elon Musk
Make no mistake, Elon’s TSLA remains at the heart of The #MOAB (Mother of All Bubbles). Post #MOAM (Mother of all Markups) into those BIG LOWER CYCLE highs for US stocks in July of 2023, I’m sure he still agrees that how Old Wall Street Bankers & Bulls think is insane!
For those of you who haven’t yet read Elon Musk, by Walter Isaacson, I’ll keep citing it for many years to come. In chapter 7 of the book, Isaacson recaps Musk going to Queens University in Canada and getting his first internship on the Old Wall at Scotiabank.
“He came away with the impression that the bank was a lot dumber than it was… but that was a good thing because it gave him a healthy disrespect for the financial industry” (pg 48). On that score, Elon and I see eye to Hedgeye!
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where risk already happened slowly, then all at once.
Having been on the right side of more bear markets than anyone you can read in the morning (send me a hero cookie for Halloween), nothing about The Bond Market Crash of 2023 or the rolling Bear Market in US Credit and Equities that started in Q1 of 2022 surprises me.
I won’t lack discipline today. After going to -14.7% Net Short in my Long/Short Book on OCT 12, 2023, I’ll cover-SOME on red and take my time buying-MORE of my Full Investing Cycle Longs.
I won’t get distracted by the Macro Tourist topics of the day. I’ll just stand at my desk and execute on the #process.
Let’s start with what’s still signaling the same TRADES and TRENDs from a Global Currency Market perspective:
- US Dollar Index corrected small last week taking its 3-month POSITIVE return to +5.2% and remains a Core Asset Allocation
- EUR/USD had a Counter @Hedgeye TREND bounce of +0.8% last week and remains Bearish on both TRADE and TREND
- Japanese Yen had NO BOUNCE and was down another -0.2% last week vs. USD to -6.4% in the last 3-months
- Canadian Dollar was down another -0.2% vs. USD last week and remains Bearish TRADE and TREND as well
- Mexican Pesos were down another -1.8% vs. USD last week taking their 3-month return to -8.0% = Bearish TREND
- Indonesia’s Rupiah was down another -1.2% vs. USD last week taking its 3-month bearish return to -5.6%
Be honest. If you could go back to JAN of 2022 and/or JUL of 2023 and protected your family’s hard-earned capital, you would have. Many of you did. I am proud of you for doing so and your families will thank you for it for many years to come.
Did you stay with the Core Asset Allocation that’s been fading “how banks think” about INFLATION? #WellDone:
- CRB Commodities Index was up another +0.7% last week to +4.1% in the last 3-months for those of you LONG INFLATION
- Oil (WTI) INFLATED another +2.0% last week to +17.7% in the last 3-months
- Corn started to join the reflation trade, up +0.5% after signaling BUY in our Asset Allocation Model
- Coffee INFLATED another +6.7% last week, after signaling Bullish TRADE and TREND
- Orange Juice INFLATED another +1.4% last week to +34.7% in the last 3-months
That’s right Old School Breakfast fans. You’re long of both Coffee and OJ and liking it while the US government and its establishment central bankers tell you “inflation has been improving for the last 3 months.”
#NOT. And this big thing called The Bond Market agrees with us (not them):
A) Short-End of The Curve (UST 2yr) was +4 basis points last week and continues to signal Bullish TRADE and TREND for Bond Yields
B) Long-end of The Curve was 29 and 31 basis points on the UST 10yr and 30yr Yields, respectively
C) High Yield OAS Spread WIDENED another +23 basis points last week to +66bps in the last month alone
So… if you’re positioned like we are in The MFO (Long Only) Asset Allocation Model and/or Long/Short Book:
A) Your recent Asset Allocation to a Bear Steepener (IVOL) crushed it last week with The Curve steepening another +16bps
B) Your long-term Full Investing Cycle Credit Shorts (HYG and JNK) went straight down again
And how about Energy Long vs. SMALL CAP Factor Exposure Short?
A) Energy Stocks (XLE) were +0.8% last week to +8.0% in the last 3-months
B) Russell 2000 (IWM) was down another -2.3% last week to -14.6% in the last 3-months
Chasing US Equity Factor Exposures in July like SMALL CAP, HIGH BETA, and HIGH SHORT INTEREST absolutely crushed portfolios:
A) HIGH SHORT INTEREST is down -13.7% in the last 3 months
B) HIGH BETA (US Equities) is down -12.7% in the last 3 months
And while it was all fun and games to put on the “haha to the Bears” trades for a while, now those positioned for Phase III of The Bear Market are feasting on their Full Investing Cycle gains.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.77-5.19% (bullish)
UST 10yr Yield 4.62-5.06% (bullish)
UST 2yr Yield 4.97-5.24% (bullish)
High Yield (HYG) 71.34-72.98 (bearish)
SPX 4179-4339 (bearish)
NASDAQ 12,891-13,417 (bearish)
RUT 1 (bearish)
Tech (XLK) 162-169 (bearish)
Energy (XLE) 86.47-92.98 (bullish)
Utilities (XLU) 56.16-59.90 (bearish)
Shanghai Comp 2 (bearish)
Nikkei 30,601-31,991 (neutral)
BSE Sensex (India) 65,301-66,712 (bullish)
DAX 14,709-15,317 (bearish)
VIX 16.65-22.98 (bullish)
USD 105.50-106.90 (bullish)
EUR/USD 1.049-1.064 (bearish)
USD/YEN 148.76-150.50 (bullish)
GBP/USD 1.205-1.232 (bearish)
CAD/USD 0.724-0.736 (bearish)
Oil (WTI) 83.32-90.11 (bullish)
Gold 1 (bullish)
Copper 3.46-3.66 (bearish)
AAPL 170-180 (bearish)
GOOGL 133-142 (bullish)
Bitcoin 27,037-31,137 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
