This note was originally published at 8am on February 17, 2015 for Hedgeye subscribers.
“Exposing what is mortal and unsure…”
That’s from Act IV, Scene 4 of Hamlet, where Shakespeare goes on to question the motives of Norwegian crown prince, Fortinbras, who was marching his army into Poland to conquer an “eggshell.”
“Rightly to be great, is not to stir without great argument,
But greatly to find quarrel in a straw
When honor’s at the stake.”
That’s also a passage Peter Thiel effectively cites in chapter 4 of Zero To One, titled “The Ideology of Competition.” And I’m reminded of it this morning, after getting beat up by Mr. Macro Market last week.
Back to the Global Macro Grind…
To be beaten, or not to be beaten (by the market): that is the question. What makes me mortal certainly makes me unsure. And when the market goes against my preferred position, my mind stirs with great argument!
What happened in Global Macro last week was more of the same for the month of February to-date – a counter-TREND move. If you did the opposite of what worked in January, you’ve killed it in the last two weeks.
After Retail Sales, Jobless Claims, and Consumer Confidence (University of Michigan reading) missed, the US Dollar Index declined, and everything inversely correlated with Down Dollar ripped. Here’s how that looked, in rate of change terms, week-over-week:
- US Dollar Index -0.6% on the week (-0.7% for FEB to-date) to $94.16
- EUR/USD +0.6% week-over-week (still -5.9% YTD)
- CRB Commodities Index (-0.97 correlation to USD on a 90-day duration) = +1.9% on the wk
- Oil (WTI) was +1.7% wk-over-wk to $52.55 (90-day inverse correlation -0.89)
- SP500 +2.0% wk-over-wk, erasing its negative YTD return to +1.9% for 2015
- Argentina’s stock market +6.1% on the wk
Don’t cry for me Mucker? Or is that Argentina? You’re telling me you weren’t levered long Argentine inflation expectations and/or the Brazilian stock market last week? What is wrong with you?
Setting aside what would have been violently wrong with your returns for the last 3-6 months if you were long inflation instead of hedged vs. Global #Deflation, being long commodity levered and debt ridden nations last week was mint:
- Brazil’s stock market was +3.8% on the wk, erasing 2015 losses, taking it to +1.3% YTD
- Greek stocks were +11.3% on wk-over-wk, putting them back in the black at +8.3% YTD
- And the Ruskies crushed it, seeing the Russian Trading System Index +10.6% on the wk to +15.6% YTD
And, by the looks of it, Consensus Macro positioning (in CFTC non-commercial futures/options terms) got that right too:
- Crude Oil net LONG positioning was +7,938 contracts last wk to a total net LONG position of +335,998
- SP500 (Index + Emini) net LONG position was +7,396 contracts to a total net LONG position of +96,734
- Treasuries (10yr) net SHORT position dropped -66,223 contracts to a net SHORT position of -83,800
That’s the other thing I got wrong last week – long-term rates went up another 8 basis points wk-over-wk on the 10yr UST Yield to 2.04%. The short-end of the curve (2yr UST Yield) was flat wk-over-wk at 0.64%.
But, with the 10yr Yield down -13 basis points YTD, Oil -2.1% YTD, and Dr. Copper -7.9% YTD, what is the #truth about the Global #Deflation TREND vs. the shorter-term FEB to-date TRADE?
Was Oil Volatility (OVX) down -8.7% last week a new intermediate-term TREND, or does the +223% ramp in Oil’s emotional state (OVX) in the last 6 months have something to do with what may be pending if Russia doesn’t bailout Greece? Or something like that…
“And let all sleep?
The imminent death of twenty thousand men,
That, for a fantasy and trick of fame,
Go to their graves like beds, fight for a plot
Whereon the numbers cannot try the cause?”
Though this macro uncertainty may be madness, there is method in’t.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.69-2.09%
Oil (WTI) 48.01-53.90
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer