The Short Happy Life

This note was originally published at 8am on March 27, 2015 for Hedgeye subscribers.

“You know, I’d like to try another lion.”

-Macomber

 

That was a Hemingway metaphor for married-middle-aged-men conquering their fears in a short story called “The Short Happy Life of Francis Macomber.” It’s a story about a man and his adulterous wife on a safari hunt in Africa.

 

Right before she kills him, Macomber says: “I’m really not afraid of them now. After all, what can they do to you?

 

Well, evidently, she (and/or a lion) can do a lot to you! And it made me think about the confidence I am building in risk managing this macro tape. Buying US Dollars, Stocks, and Bonds on dips – Shorting Commodities on rips. Feels like a short happy life, for now…

 

The Short Happy Life - 56

 

Back to the Global Macro Grind

 

But, as any battle tested hunter of the Alpha knows, what we “feel” about markets doesn’t matter. In fact, fading our most immediate-term fears tends to be where we make the best short-term-happy buy/sell decisions.

 

Whether I’ll prove to be right on this or not for more than today is the ultimate Global Macro question right now (it’s been the same question for 6 months), but this morning it’s back to business with what I think is the best way to be positioned right now:

 

  1. Long US Dollars (UUP)
  2. Long long-term Treasuries (TLT)
  3. Long US Housing (ITB)
  4. Long US Consumption and Healthcare stocks (XLY and XLV)
  5. Short Commodities and their related stocks/bonds (OIL and XOP)

 

Ultimately this is the long and short of being positioned for our top Global Macro Theme in Q1 of 2015, Global #Deflation (yes, there are plenty of ways to be uber LONG of the bearish theme – because it’s only bearish for those who are long inflation expectations).

 

Not to be confused with Global #GrowthAccelerating, #Deflation is Mr. Macro Market’s message when:

 

  1. The World’s Reserve Currency (Cash) is in high demand vs. other countries who are burning theirs
  2. Both US and Global Interest Rates are falling

 

Anyone who has studied economic and market history knows that interest rates don’t fall unless the rate of change in GROWTH is slowing. When the rate of change in GROWTH was accelerating (USA in 2013), both the US currency and US rates rose, in tandem.

 

#StrongDollar and #RatesRising was the macro center-piece of the 1993-1999 real US economic consumption expansion (sub $20 Oil) too. Unfortunately, today is not the 1990s (perma growth bulls note this week’s capex cycle chart, which is slowing, faster, now).

 

What could change my mind on this?

 

That’s easy – reversing everything that’s been priced into macro markets for the last 6 months, for more than a 2-3 day trade.

 

What do I mean by that? For intermediate-term risk managers, here’s a list of 10 TREND levels to watch:

 

  1. UST 10yr Yield = 2.39% resistance
  2. US Dollar Index = 93.20 support
  3. EUR/USD = $1.16 resistance
  4. YEN (vs USD) = 117.09 resistance
  5. CRB Commodities Index = 235 resistance
  6. WTI Oil = $57.79 resistance
  7. Copper = $2.99 resistance
  8. Housing (ITB) = $25.01 support
  9. Healthcare (XLV) = $70.05 support
  10. Oil & Gas Stocks (XOP) = $54.39 resistance

 

In other words, my short happy life of the last 6 months is all one macro view. It’s by no means a permanent macro view. As most of you who have followed me for a long time know, I have no problem reversing the entire thing and doing the opposite.

 

But, as promiscuous as I can be with macro trends, is as wedded I am to my process.

 

And for now, you know, the #process is telling me to try another lion.

 

Our immediate-term Global Macro Risk Ranges are now as follows (with our intermediate-term TREND views in brackets):

 

UST 10yr Yield 1.83-2.02% (bearish)
SPX 2049-2080 (bullish)

RUT 1223-1250 (bullish)
DAX 11705-12140 (bullish)
EUR/USD 1.05-1.10 (bearish)
YEN 118.62-121.69 (bearish)
Oil (WTI) 41.93-51.96 (bearish)
Natural Gas 2.63-2.79 (bearish)
Gold 1140-1208 (bearish)
Copper 2.56-2.85 (bearish)

 

Best of luck to our Bulldogs in Blue this afternoon at the NCAA Hockey Tournament vs. Boston University,

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Short Happy Life - 03.27.15 chart


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