Bill Gross may not like it, US stock market bears may not like it, but #StrongDollar + #RisingRates are still tattooing Treasuries, Gold and Emerging Markets.
Meanwhile, US stocks are still ripping higher with the Russell 2000 notching another new all-time high today up almost 20% YTD. Yes - we’ve been calling for this all year long.
We don’t fear growth here at Hedgeye. We know a lot of other folks do. But to paraphrase FDR, what people should really be afraid of is … fear itself. It has been on sale all year.
Just look at Gold (and its levered brethren gold miners) cratering, along with Volatility and Treasuries. The fact is being short fear has been and remains the best place to be positioned.
It’s all about the TRIFECTA (Employment, Housing and Consumption Growth in the U.S.) The trifecta has been our pointedly non-consensus, time stamped call all year. When you get it, the US Dollar responds. Strongly. You want to be long growth in Financials and Consumer Discretionary.
I’ve said it before and I’ll say it again: You should be avoiding commodities like the Bubonic plague. I don’t know how else to put it. Gold, Copper, Silver—they all look like hell. I don’t know why anyone would buy them.
That said, we’re keeping a close eye on Brent Oil. It’s the biggest risk to U.S. Consumption growth. Oil has been diverging due to Middle East unrest. If it shoots up to $112, that would be terrible for U.S. consumption growth.
Look, consumption growth happens to a point. But everything that really matters happens on the margin. So if Brent goes above our long term TAIL line that would be bad news. It makes the game a little bit tougher in here.
Getting Global Macro right has been relatively easy this year. It has had many simple, but moving, parts. In the end it’s all correlated and it’s all about having a proven process. Bottom line is a pervasively strong US Dollar has far reaching global macro implications. You get the USD right, you get a lot of other things right.
(This is a brief excerpt of Hedgeye Risk Management CEO Keith McCullough's morning conference call. If you would like additional information on our products and services please click here.)