Yo, FX Go!

This note was originally published at 8am on September 25, 2014 for Hedgeye subscribers.

“Listen: there’s a hell of a good universe next door; let’s go.”

-E.E. Cummings

 

With a body of work that included almost 3,000 poems, E.E. Cummings was one of the most prolific poets in America’s 20th century. If he was around today, he’d probably tell you the aforementioned quote was about centrally planned economies.

 

You got it, yo. It’s all about jamming our noses into 18th century export-models and burning the purchasing power of The People at the stake. Rip some lip. You know, bro – get those asset prices hooked and up and out of the water!

 

This is Master of The Universe type stuff. Janet, Mario, Haruhiko - God put you on earth to do this, yo. Let’s go!

 

Yo, FX Go! - 3gp

 

Back to the Global Macro Grind

 

As you can see, when left to my own 45 minutes of creative writing devices in the early morning, I get flashback moments to what my first English professor @Yale deemed “un-grade-able” work …

 

Getting back to where I have some competence - central questions about centrally planned currencies:

 

  1. Did the devalued currency model work for the Argentines or Japanese?
  2. What happens when all 3 of the major players in the FX War (Japan, Europe, USA) are at 0%?
  3. Coming off the all-time lows in FX, Fixed Income, Commodity, and Equity volatility, what could go wrong?

 

Answers:

 

  1. No
  2. They’ll tell you that 0 minus 0 is actually greater than 0
  3. Everything

 

No way. Everything?

 

Uh, yeah, yo. Let’s go there:

 

  1. When USD goes up or down, a lot, the machines chase this thing called the Correlation Trade
  2. In 2011, with Buck Burning to all-time lows, the Correlation Trade = Long Commodities, Gold, FX, etc.
  3. In 2014, with Euro and Yens Burning, the Correlation Trade = Short Commodities, Long Nikkei, etc.

 

Causality or correlation? Please. The causal factor that drives all of this are market expectations that central planners only do one thing when the economic data (always) misses their growth forecasts – they get easier…

 

Easier, as in dovish = devaluing…

 

At the first sniff of #EuropeSlowing (in May) Mario’s Italian and French bureaucrat buddies immediately focused on devaluing ze Euros. That gave the USD a surrender bid. Then, as the Abenomics experiment started to fail, the market started speculating that there were another 3-legs to the 3-legged Japanese devaluation stool.

 

That’s right – 0 minus 0 = moarrr than 0. And 3-legged central planning stools really have 6, or 10 legs. This is so ridiculous at this point that my jokes aren’t funny.

 

Moving along. If you are into the monthly performance chasing thing, here is the wood (6-week USD correlations):

 

  1. USD’s 6 week inverse correlation to Gold -0.95
  2. USD’s 6 week inverse correlation to Commodities (CRB Index) -0.93
  3. USD’s 6 week inverse correlation to Brent Crude Oil -0.92
  4. USD’s 6 week positive correlation to Japanese Stocks +0.89
  5. USD’s 6 week positive correlation to Swiss stocks +0.83
  6. USD’s 6 week positive correlation to Austrian stocks +0.82

 

In other words, as it became glaringly obvious that both Japan and Europe’s economies were slowing, you either bought the living daylights out of the Mother’s Index in Japan or something in Austria, and you crushed it.

 

“#Boom, crush. Night, losers. Winning. Duh!”

-Charlie Sheen

 

Oh, and what happens if and when my rates call plays out “fundamentally” – i.e. US #GrowthSlowing here in Q3 (then Q4) takes hold… the Fed freaks, and starts to devalue the Dollar again?

 

Bingo. This entire bongo board of Correlation Risk turns upside down and you do the opposite, fast.

 

As a result, volatility (across asset classes) is already signaling to me that we could very well see the mother of all historical volatility breakouts in FX, Commodities, and Equities. But no worries. For now, the central planners call this “price stability”, yo.

 

Out immediate-term Global Macro Risk Ranges are now:

 

SPX 1977-2011

RUT 1115-1144

VIX 12.91-14.98

USD 84.61-85.33

EUR/USD 1.27-1.30

WTI Oil 90.42-93.95

Gold 1209-1254

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Yo, FX Go! - Chart of the Day


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more