“He was introducing generations of students to the wonders of price theory.”
-Jennifer Burns
That’s from a chapter in Milton Friedman: The Last Conservative that Burns titled “Conquering Cowles.”
“In fact, the departure of Cowles marked a major step in Friedman’s ascent within the Chicago universe and his effort to reconfigure the world he had known as a graduate student… he had taken the senatorial courtesies of Knight to another level, proving himself the better tactician and street fighter.” (pg 161)
Imagine we had someone running the Fed like Milton Friedman? Nah, better to have a lawyer who realizes everything about real world price inflation on a 3–12-month lag to Macro Markets.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where the measuring and mapping of real-world price inflation has already been done within the context of our multi-factor, multi-duration, Full Investing Cycle framework.
As a matter of #process and deliberate study, I like to start with the Global Currency Market:
- US Dollar Index corrected small (-0.2%) last week and remains Bullish on our TRADE and TREND durations
- EUR/USD was +0.1% last week and remains Bearish on both our TRADE and TREND durations
- Japanese Yen got smoked for a -3.8% loss vs. USD last week and remains in Crash Mode!
- GBP/USD was +0.2% last week and remains Bearish on both our TRADE and TREND durations
- Canadian Dollar was +0.3% vs. USD last week and also remains Bearish TRADE and TREND
- Brazilian Real bounced +1.7% to -4.1% in the last 3 months vs. USD and remains Bearish TREND
Why do we care about the Brazilian Real? A: We’re short of Brazilian Equities (EWZ) and have to measure and map the currency moves on both a TRADE (+1.7%) and TREND duration (-4.1%).
Why do I care about Canada? A: I am Canadian.
Canada has lots of Commodities that we remain long of. Here’s how that major Asset Class did last week:
- CRB Commodities Index corrected -0.4% to +8.5% in the last 3 months = Bullish TREND
- Oil (WTI) inflated +2.0% to +8.3% in the last 3 months (and remains Bullish TREND)
- Copper inflated another +1.7% to +18.7% in the last 3 months and remains a Core Asset Allocation
- Corn popped +1.6% and is finally back to Bullish TRADE and TREND
- Wheat really ramped +9.8% last week after its @Hedgeye TREND Signal went from Bearish to Bullish
- Nickel inflated another +4.0% last week to +15.1% in the last 3 months
Why do we care about Nickel? A: we’re long of NIKL.
We’re also long of Gold & Silver and we were able to buy-more of those Core Global #Quad2 Asset Allocations on a rare correction week with Gold & Silver down -2.2% and -5.5% on the week, respectively.
Oh, you have friends who aren’t long all of our Asset Allocations and are still long Tech (XLK) and the Russell (IWM)?
A) Cool, Tech (XLK) finally had an up week of +3.8%, taking its 3-month return to -1.0%
B) Russell 2000 bounced +2.8% last week, taking its 3-month return to +1.2%
I think I’m going to short both IWM and XLK today.
Why not? We have plenty of US Equity Exposure (XLE, XLB, IAK, etc.) and our European Equity Exposures have crushed the mainline and widely held XLK and IWM for the last 3 months:
A) Long Germany’s DAX was up +2.4% last week, taking its 3-month return to +7.1%
B) Long Dutch Stocks (AEX Index) was up +2.6% last week, taking its 3-month return to +7.9%
You could/should be long of India’s Stock Market (BSE Sensex) as well, which was up another +1.9% last week, taking its 3-month return to +7.5%. Outperforming by +600-900 basis points isn’t bad.
And being Long of both Global #Quad2 Equity Markets and Commodities is outperforming being “Long Duration” (Long-term US Treasury Bonds) by a LOT more than that!
With the UST 10 and 30-year Yields up another +5 and +8 basis points last week, we remain short of both the IEF and TLT US Treasury Bond ETFs. Why? A: Higher For Longer on both inflation and Bond Yields.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 4.67-4.84% (bullish)
UST 10yr Yield 4.54-4.73% (bullish)
UST 2yr Yield 4.90-5.05% (bullish)
SPX 4 (bullish)
NASDAQ 15,265-16,038 (neutral)
RUT 1 (bearish)
Tech (XLK) 191-203 (bearish)
Insurance (IAK) 109.04-114.93 (bullish)
Energy (XLE) 93.31-97.77 (bullish)
Basic Materials (XLB) 87.49-89.98 (bullish)
BSE Sensex (India) 72,403-74,908 (bullish)
DAX 17,624-18,398 (bullish)
VIX 14.12-19.94 (bullish)
USD 105.30-106.23 (bullish)
EUR/USD 1.060-1.074 (bearish)
USD/YEN 153.45-158.11 (bullish)
GBP/USD 1.235-1.256 (bearish)
CAD/USD 0.723-0.735 (bearish)
Oil (WTI) 81.06-85.54 (bullish)
Gold 2 (bullish)
Copper 4.30-4.65 (bullish)
Silver (SLV) 26.62-29.14 (bullish)
META 431-482 (bearish)
GOOGL 156-177 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
