“Take care of your people.”
-Rich Paul
Instead of starting this note with what “they” want (Down Dollar, Down Bond Yields = #COWBELL! from The Fed), I’ll start with what The People want: a good job, slowing inflation, and an opportunity.
The aforementioned quote comes from an important #behavorial book that people on Wall Street should read about Main Street: Lucky Me: A Memoir Of Changing The Odds, by the CEO and Founder of Klutch Sports Group, Rich Paul.
If I went to his people in the hoods of Cleveland and told them to “buy stocks!” because The People are going to lose their job as the cost of their daily living continues to accelerate, I’d probably be on leave (from my job) for a while.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where things are heating up in a hurry. After 3-straight down months for SPY (discounting a slowing US economy), we’ve had 5-straight up days with the Old Wall and its media celebrating recessionary data!
Lucky me: spending almost 25 years building my process and 15 years building my firm means I can fade a 5 day move. In the last week, my Long/Short Book has moved from -0.8% Net Short to -16.9% this morning.
Why? I don’t chase. Like Rich Paul, I can’t dunk. I’m 5’9 and play the fade.
Let’s start with the Global Currency Market where I didn’t start fading the Old Wall’s COWBELL until Friday (buying US Dollars and re-loading on the Short Side of Euros):
- USD Index was down hard on the “bad jobs” news, closing down -1.4% on the week, but still up for 8 of the last 11 weeks
- EUR/USD rallied +1.5% last week, moving back to Bullish TRADE but remains Bearish on our TREND duration
- Japanese Yen barely moved at +0.2% vs. USD and remains Bearish on both our TRADE and TREND durations
- GBP/USD had a Counter @Hedgeye TREND bounce of +1.9% last week and remains Bearish TRADE and TREND as well
- Canadian Dollar was +1.3% last week vs. USD and remains the same #VASP Signal as GBP/USD (bearish)
- South African Rand had a +3.2% Counter @Hedgeye TREND bounce and remains Bearish TRADE and TREND
When Wall Street begs for COWBELL, the entire world hears it. Many in their world are forced to chase it. Some of us fade it.
You see, the thing about the COWBELL (RATE CUTS) this time is that they aren’t getting those. Instead, they’re going to have to deal with another ROC (Rate of Change) #acceleration in the US INFLATION report next week.
In terms of Commodities, there was some disinflation last week that has since reversed (COWBELL does that too):
- Oil (WTI) dis-inflated -5.9% last week taking its 3-month TREND back to +0.5%
- Natural Gas INFLATED a meaningful +19.9%, taking it to +48.0% in the last 3-months
- Coffee INFLATED another +6.2% last week, taking it to +14.9% in the last month alone
You want your home heated for the winter? How about some hot coffee in the morning? The People do. There’s a price.
But the Bond Market was more focused on what The People don’t want (i.e. losing their jobs):
- UST 2yr Yield dropped -15 basis points last week after recessionary ISM and Labor data
- UST 10yr Yield dropped -30 basis points last week after recessionary ISM and Labor data
- That puts our Bond Yield Signals at Bearish TRADE but Bullish TREND
Another way to think about this (i.e. how both my #VASP Signals and I do) is:
A) #Slowing GROWTH data broke immediate-term TRADE (3 weeks or less) momentum of Bond Yields… but
B) #Accelerating INFLATION data will keep the intermediate-term TREND Bullish for Bond Yields
To put some key #VASP (Volatility Adjusted Signaling Process) Bond Yield Levels around that:
A) UST 2yr Yield TRADE resistance = 4.92% with TREND support down at 4.45%
B) UST 10yr Yield TRADE resistance = 4.71% with TREND support down at 4.40%
Looking at both our Quarterly and Monthly #QUAD models, these signals from the Bond Market make sense. We have the USA in #Quad3 STAGFLATION in Q4 of 2023 but morphing into a #Quad4 during Q1 of 2024.
That #Quad4 part is new. That’s what happens to our Nowcasts when nasty ISM and Labor reports like those are REPORTED!
As those of you who risk managed the last 2 US Recessions (2001 and 2008) know, the Old Wall and its media eventually got their COWBELL, but they also got it because we were entering those recessions.
My job remains to preserve & protect the hard-earned capital of our people as Wall St. figures out what that means for Main St.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.75-5.17% (bullish)
UST 10yr Yield 4.52-5.02% (bullish)
UST 2yr Yield 4.83-5.15% (bullish)
High Yield (HYG) 70.90-74.45 (bearish)
SPX 4060-4375 (bearish)
NASDAQ 12,395-13,562 (bearish)
RUT 1 (bearish)
Tech (XLK) 157-173 (neutral)
VIX 14.45-22.85 (bullish)
USD 104.75-107.31 (bullish)
EUR/USD 1.051-1.075 (bearish)
USD/YEN 149.01-151.41 (bullish)
GBP/USD 1.201-1.242 (bearish)
CAD/USD 0.718-0.735 (bearish)
Oil (WTI) 79.15-86.40 (neutral)
Nat Gas 3.20-3.71 (bullish)
Gold 1 (bullish)
Silver 22.43-23.56 (bullish)
MSFT 333-356 (bullish)
AAPL 165-178 (bearish)
Bitcoin 34,008-35,709 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
