This note was originally published at 8am on July 16, 2013 for Hedgeye subscribers.
“I’m whatever I need to be.”
-Gemma (Sons of Anarchy)
Sons of Anarchy is not Married With Children; and Gemma Teller Morrow is not Peggy Bundy. Katey Sagal won a deserved Golden Globe in 2011 for portraying pretty much everything you probably aren’t married to.
Probably is the right word to use there – because you never know. There are some unique characters on Old Wall and I’ll never rule never out of the question. There’s always a chance!
There’s also a chance that you are feeling the market’s love right about now. After 8 consecutive up days for the SP500 and yet another all-time closing high, I think it’s time we start calling Mr. Market. Mrs. Gemma would like that.
Back to the Global Macro Grind…
USA style Charming, CA. Yep. Not only is that the name of the fictional town in Sons of Anarchy, it’s also what Mrs. Market has delivered you, on no-volume, for July to-date:
- SP500 and Russell2000 closing at all-time highs of 1682 (+18% YTD) and 1043 (+23% YTD), respectively
- Consumer Discretionary (XLY) and US Financial (XLF) stocks lead at +25.6% and +25.2% YTD, respectively
- US Equity Market Volatility (VIX) to 13.79, which is -23.5% YTD
You can twist it, whine about it, love it, kiss it, and/or yell about it – this USA stock market move is whatever she wants to be. Despite US Equity volume being down -31% versus my TREND based average yesterday (that’s bad), you have to deal with the game that’s in front of you. There is a real-time score.
On yesterday’s Q3 Global Macro Themes conference call (ping sales@Hedgeye.com if you’d like the replay), I focused a lot on the flow. No, I don’t mean Charlie Hunnam’s flow (he’s the buff blond who plays Jax Teller in Sons). I mean Mrs. Market’s flow.
If you didn’t know that capital flows, now you know. Capital flows chase performance both ways too – that’s why we call them inflows and outflows. One of the main assets Mrs. Market (USA Equities) has going for her now is that capital is running out of places to go.
Since our Top 3 Macro Themes for Q312 are:
Our New Haven, CT club’s strategy suggests you should not be flowing fresh assets into:
- Commodity Bubbles
- Sovereign Debt Bubbles (USA, Japan, Namibia, etc.)
- Asian Equities (ex-Japan)
And we aren’t particularly keen on buying anything (currencies, stocks, or bonds) in Europe right now either.
So… where does the flow go?
Yep, right back into the mother’s milk of all things liquidity:
- US currency
- US stocks
Now don’t get me wrong here - there are plenty of dysfunctional (and illiquid) equity markets out there in this world that are performing marvelously YTD. Check out the ghost of Chavez’ devalued peso past – Venezuelan stocks are +165% YTD, baby!
I know, you like it when Mrs. Market talks perf to you like that, don’t you bros. So why not chase some of the mo mo and triple down on the 3x Abu Dhabi ETF or something like that too? Dubai and Abu Dhabi are ripping, +47% and +44% YTD, respectively!
#kidding (not on the illiquid equity market performance part though)
2013 Reality Flow Show: there are only two really deep and liquid markets that are really ripping:
And in a world of #RisingRates, #DebtDeflation, and #EmergingOutflows – don’t let anyone from b-school teach you otherwise bros - size and liquidity definitely matters right now.
So where do you go from here? Stay with the process and wait for the next pullback to immediate-term TRADE supports for both the SP500 and the Russell 2000 (and probably the #WeimarNikkei too).
While chasing markets up here isn’t my style, I always need to remind myself that Mrs. Market doesn’t particular care about anyone’s style. Her rules are simple – and everyone eventually needs to be whatever her performance chasing year-end bogeys become.
Our immediate-term Risk Ranges are now as follows (we also have 12 daily Global Macro ranges in our new Daily Trading Ranges product, fyi):
UST 10yr yield 2.45-2.76%
Brent Oil 107.04-110.29
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer