This note was originally published at 8am on June 25, 2013 for Hedgeye subscribers.
“As they have come, so shall they go.”
In one of the more interesting chapters (Chapter 26: The End of The Ottomans) of Paris 1919 – Six Months That Changed The World, I found that prescient Middle Eastern history quote by Mustafa Kemal (Ataturk).
“In 1919, few foreigners had ever heard of him; four years later he had humbled Britain and France and brought into existence the new nation-state of Turkey.” (Paris 1919, page 369)
Ultimately, Ataturk’s vision for a more stable state was based on a simple belief that people are more apt to trust what they know. As confidence falls, foreigners are often the first to flee. That’s no different for most Macro Tourists investing in Emerging Markets.
Back to the Global Macro Grind…
I think Kyle Bass coined the term Macro Tourist. It’s cute. I think he was alluding to people chasing Japanese Equities. It’s a clever term – it also annoys a lot of people who actually are what the term suggests.
Bass is a thoughtful guy, but since he only started investing on the buy-side in 2006, he’s hardly in a position to anoint himself the authority on all things Global Macro. So you can imagine why the prickly types like Dan Loeb felt pricked.
All personalities (including my own) aside, what Bass and Loeb are really calling attention to here is that we are all Global Macro Risk Managers now. If you believe in things like gravity, beta, and interconnectedness, that is…
The way we do Global Macro is A) as a team and B) from a math/theme perspective. At the top of every risk management morning, I’ll send the Top 3 Global Macro Risks that are trending in our model with some quant levels and thoughts.
Today’s Top 3 were China, FTSE, and Gold (I send this out at 6AM EST, every day):
1. CHINA – down hard, then rumor, then bounce – Bernanke/Draghi type playbook for the Chinese as the entire world attempts to watch what we cannot see; Shanghai Comp closes -0.2%, #oversold, but crashing – bouncing on rhetoric doesn’t solve the long-term issues; TREND resistance = 2192
2. FTSE – I learn the most during the bounces; this bounce in European Equities hasn’t seen 1 major index recapture any of my intermediate-term TREND lines; FTSE +0.8% to 6075, well below 6398 TREND resistance; DAX TREND line = 8014
3. GOLD – bear market bounce of +0.14%; that’s not going to get anyone excited; neither will a 10yr UST Yield of 2.5% and a US Dollar recapturing $81.21 TREND support. Gold is turning into a good proxy for deflation – deflating Bernanke Bubbles, that is
I do this to help our Institutional clients contextualize immediate-term market moves within intermediate-term TRENDs. Consider them headlights. Some clients trade futures on them. Some provide immediate feedback/thoughts. Some probably just #delete.
Tourist or Global Macro pro, the market doesn’t care what you are. Mr. Market is going to correlate and frustrate; and he is usually working on a way to impose the most amount of pain, on the most amount of people, at the most inopportune time. #consensus
That’s why we Embrace Uncertainty each and every Global Macro morning. After the market issues its signals, it’s a lot easier to make risk adjusted decisions within a multi-factor, multi-duration, framework than it is to space out and watch consensus TV.
Global Macro TRENDs matter, because they tend to trend. Here are 3 new ones trending now:
- US Equity Volatility (VIX) is bullish TREND for the 1st time since October 2012 (new TREND support = 18.98)
- US Equity (SP500) intermediate-term TREND support of 1592 is broken
- Japan’s #WeimarNikkei has snapped her intermediate-term TREND line of 13,619
Will US Equities recover TREND support? Will front-month volatility break down through 18.98 VIX again? Will she stay or will she go? Oh, and what will be the catalyst? In the US, both Durable Goods and New Home Sales “expectations” look a tad high this morning.
Gold, Treasuries, and Emerging Markets blowing up aren’t the new TRENDs @Hedgeye to worry about. These are the ones that we proactively positioned you for. The real pin action is in signaling the new stuff.
Since we hockey players aren’t that bright to begin with, what we do is hire football players. My left-tackle is Darius Dale, and he and I tend to keep it pretty simple. We try our best to front-run shifts in the slope of growth and inflation lines.
Here’s what I mean by that:
- Local inflation is rising in some countries (Japan, Venezuela, etc.) whose currency is being debauched
- Gold and Emerging Market Debt are deflating via #StrongDollar and #RisingRates
In other words, some of the older Global Macro TRENDs are bumping into the new ones now. Correlation Risk is starting to whip around and volatility is starting to breakout. Macro Tourist or not, this makes getting the day-to-day tougher out there. So our advice this morning is still what it’s been for the last 3-4 weeks. Sell on strength.
Our immediate-term TRADE Risk Ranges are now (TREND bullish or bearish in brackets):
UST 10yr Yield 2.31-2.61% (bullish)
SPX 1566-1592 (bearish)
Nikkei 12,408-13,619 (bearish)
VIX 17.98-20.97 (bullish)
USD 82.19-82.98 (bullish)
Yen 96.05-97.91 (bearish)
Oil (Brent) 100.02-103.64 (bearish)
Gold 1254-1336 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer