This note was originally published at 8am on June 17, 2013 for Hedgeye subscribers.
“None of them are easy.”
Making money in Global Macro markets hasn’t been easy for the last 6 months. It hasn’t been easy for the last 6 years either. I doubt the next 6 weeks will be any different. None of this is easy.
Justin Rose turned pro in 1998 and won his first Major Championship golf tournament yesterday. Rose is still only 32 years old but he is a veteran of the game. He is a South African born Brit who lives in the US. He is highly respected by his peers. He is a grinder.
Usually it takes a while, but eventually most grinders in both this business and in life find a way to win. Progressively building a repeatable process that you can evolve is the key. There are no easy wins. You have to keep learning.
Back to the Global Macro Grind …
Getting out of the way on the long side of both the US Dollar and the US stock market last week was another win for us. Today, with the Dollar and US Equity Futures up, we’ll probably get tagged with a loss.
But what is it that we do when we have a bad day? Do we fold on the process or do we embrace its challenges. Justin Rose was the 1st British player to win the US Open since Tony Jacklin (1970), and he won by shooting over par. Winning is always a challenge.
One day obviously doesn’t a TRADE never mind a TREND make – so today will be a critical one to test if it ultimately refutes or confirms what’s been developing out there in Global Macro for the last few weeks. This is all relatively new (and bearish for US stocks):
- US Dollar Index snapping $81.21 TREND support
- USD/YEN breakdown below 96.31 TREND support
- US Equity Volatility (VIX) breakout above immediate-term TRADE support of 14.52
Not unlike the greens at Marion Golf Club in northwest Philadelphia, there are plenty of elements striking down on us all at the same time out here. Whether it’s overnight buy-and-hope from Japan or gusts of wind slowing Chinese growth (Singapore Exports -4.6% y/y for May), it’s all out there. There’s No Easy Money.
At the same time as Down Dollar drove Up Oil (bearish for consumption) last week, we have a Syrian conflict to consider. We also have The Bernank’s almighty central planning to deal with this week. The latter scares me more than the former. Bernanke can, at any time, directly confiscate my ball and #StrongDollar theme. The dudes in Syria would at least need some lightning to get me off the course.
So what will our anti-free-market overlord say? Or better yet, what will he do? Will he say he will taper the green? Or will he allude to his Caddy Shack style gopher “communication tools” that can appear and disappear with a whisper of a Washington “consultant”?
Who knows (some in the aristocracy of connections actually do), but into Ben’s decision, here’s the bond market’s setup:
- US Treasury Yields (10yr) have bullish immediate-term TRADE support at 2.06%
- US Treasury Yields (10yr) have bullish intermediate-term TREND support at 1.83%
- Immediate and intermediate-term resistance for the 10yr are 2.27% and 2.41%, respectively
In other words, after another outstanding US weekly Jobless Claims report and US Retail Sales #GrowthAccelerating last week, economic gravity is pushing bond yields higher and Bernanke thinks he has to try to “smooth” that.
But how does a man bend and smooth gravity? And what would it mean, God forbid, if he just stopped with the nonsense of it all and just got out of the way? We are half a decade past the pin on an economic crisis that will only re-appear without tapering.
If he pushes out the tapering – he’s going to push down the Dollar. If he pushes down the Dollar, he is going to press oil and commodity prices higher. If commodities re-flate, real (inflation adjusted) US Consumption growth is going to stop accelerating.
But you already know that …
#StrongDollar is the path of least resistance to a sustained US economic growth recovery. And it’s getting less easy for Bernanke to spin the ball away from gravity’s hole using his anti-dog-eat-dogmatic government driver.
Our immediate-term Risk Ranges for Gold, Oil, US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1361-1412, $105.84-108.66, $80.09-81.21, 93.56-96.31, 2.06-2.27%, 14.52-18.67, and 1605-1651, respectively.
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer