This note was originally published at 8am on July 11, 2014 for Hedgeye subscribers.
“Who wouldn’t invest in that?”
That’s what Matt Taibbi (of Rolling Stone fame) asked about incarcerated Americans. I read his recent rant of a book, The Divide, while I was on vaca last week and he made an interesting point: “the very brokest people in America, Hispanic immigrants, are one of America’s last great cash crops” (pg 217).
Long Big Government via the slammer? It’s actually an epic growth chart if you look at it from 1920-2014. If you don’t want to be long what’s born out of central-planning-policies-to-inflate (Slow-growth bonds, utilities, REITS, etc.), it’s just another way of being downright bullish on the bearish realities of America.
On that score, alongside my six man Jedi Macro Team, I’ll be presenting our Q314 Macro Themes of #Q3Slowing, #DollarDevaluation, and #Volatility’sAsymmetry at 11AM EST today. Ping our email@example.com team if you’d like access to the slide deck and conference call. I’m inviting Ed & Nancy.
Back to the Global Macro Grind…
With Utilities (XLU) up to +13.7% YTD in a sea of mo bro red yesterday, those who are long of US domestic consumption growth (from an investment style factoring perspective) have been incarcerated by beta again. After dropping -4% this week, the Russell 2000 is down YTD. Not a bull market.
In all seriousness, I should probably have Christian Drake write the Early Looks for the rest of the year, because I’m running out of both Fed jokes and investment ideas. If I couldn’t get you to buy Gold Bond on any of its down days for the last 6 months, I’m probably not going to get you to buy it this morning.
Actually, you shouldn’t buy Gold or Bonds or anything equities that looks like a slow-growth #YieldChasing bond this morning anyway. On a relative basis to both beta (Russell 2000) and volatility (front month-VIX), the Gold Bond trade is as immediate-term TRADE overbought as the VIX is.
To review this week’s slammer move:
- VIX crashed to the upside (+24% in a straight line) after holding a line (10) that it’s never held below, sustainably
- Russell 2000 backed off like Brazilian ballers from its all-time-bubble-high of 1208 (March 4th, 2014)
- Gold broke out above our long-term TAIL risk line of $1324 (intermediate-term TREND support = $1272)
- Bond Yields resumed their bearish TAIL risk (for a US growth breakdown) after failing at 2.81% TREND resistance
- US Consumer (XLY) stocks moved back to flat YTD; Financials (XLF) and Industrials (XLI) broke my TRADE support lines
Sure, away from US momentum stocks getting put back in jail on Mon-Tue (i.e. the days Portugal wasn’t the latest weather excuse) there were some other things going on in the world. Japan, which has incarcerated its people with centrally-planned stagflation, was down every day this week.
But this sounds way too bearish for a man in a room who wants you to be right bullish on the bearishness of it all. Remember, if I am right, and US growth slows from Q2 throughout Q3, there is a ton to do on the long side:
- Buy Fixed Income
- Buy Foreign Currencies vs Burning Bucks
- Buy #InflationAccelerating via Gold, Oil, Energy Stocks, etc.
Heck, you can even probably think about buying Malaysian Equities (EWM) at this point! (*Emerging Markets do wonderfully when America is burning its currency credibility at the global stake – see 2011 for details)
Instead of putting me in commission jail (we don’t have a trading desk) for being bullish on bearishness, let me cherry pick some good news for you this morning instead of poking Portugal (pathetic bounce for the Portuguese PSI 20 this morning btw, still bearish TREND @Hedgeye):
- Malaysia was the 1st country in Southeast Asia to RAISE rates in 2014
- Malaysia hasn’t raised rates for their hard working Savers in 3yrs, so this is #cool for consumers
- Malaysia’s stock market only pulled back 0.5% on that, which looks like a buying opportunity
Newsflash to the US politicians who have incarcerated your savings and paid themselves in size with your tax dollars: when a country has the spine to raise rates, it gets ole school Ben Franklin frugality savers paid. And when we Can-Am ole school guys get paid on our savings, we can do crazy stuff like invest, hire, etc.
Yep. If you want me to get downright bearish on Gold, Bonds, etc. like I was last year – get your unelected gravity bending agency to raise rates. Dollar Up, Rates Up, Hiring Up, Capex Up – 1980s and 1990s style America. Who wouldn’t invest in that?
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.49-2.59%
BSE Sensex 25034-26170
WTI Crude 101.76-104.31
Best of luck out there today – and go #Argentina!
Keith R. McCullough
Chief Executive Officer