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Stirring The Masses

This note was originally published at 8am on May 20, 2015 for Hedgeye subscribers.

“The men who have changed the world never succeeded by winning over the powerful, but by stirring the masses.”

-Napoleon Bonaparte

 

Like all of us, Napoleon obviously had his issues. Unlike most of us, he changed part of the world at a time when it needed changing.

 

In 1799, France was littered with a political elite (The “Directory”) that plundered its People with a Policy To Inflate. Most British historians of the Napoleonic era missed that part. That’s because they were writing from their own aristocratic perspective.

 

Ah, the historical perspective. If you want to stir the masses in America like JFK or Reagan did (or like Thatcher did in the UK), promote the truth about a #StrongCurrency. It ensures the purchasing power of the many, at the expense of the political few.

 

Back to the Global Macro Grind

Stirring The Masses - Draghi 09.04.2014

 

If only because the Eurocrats were Burning Euros yesterday, it was a great day for Americans who don’t get paid by the edifice of asset price inflation. On a US Dollar +1.1% day (EUR/USD was -1.5% at one point):

 

  1. The CRB Commodities Index (19 commodities) deflated -1.9%
  2. Oil (WTI) got tagged for a -3.7% loss on the day
  3. Coffee and Corn dropped -2.3% and -1.6% in price, respectively

 

I’m not sure what part of the world you grew up in, but I can tell you that crushing a long-term inflation expectations bubble in food and gas prices would go over quite well in my Canadian stomping grounds.

 

It wouldn’t go over particularly well in parts of Texas or Alberta, however:

 

  1. Oil & Gas Stocks (XOP) led losers at -2.9% on the day
  2. Energy Stocks at large (XLE) weren’t far behind at -1.4% (in a flat US equity market)
  3. Oh, and Russian stocks (RSX) dropped -2.3% too

 

Futhermore, I can’t for the life of me find the part in the Federal Reserve Act of 1913 that states that un-elected-US-linear-economists shall be tasked with upholding levered Energy Junk Bonds and/or “international earnings” from SP500 cohort companies…

 

In other words, never did so many do so well yesterday, at the expense of the few.

 

Sadly, this too shall probably pass as the Federal Reserve boxes itself in a corner at this stage of what we have been calling #LateCycle in the US economy – and that’s devalue the Dollar as both US consumption and labor cycles slow.

 

As a reminder, here are your immediate-term Macro Calendar Catalysts for a resumed Down Dollar correction:

 

  1. May 29th – ugly headline Q1 2015 GDP report will keep political pressure on the Fed to push out the dots
  2. June 5th – watch out for the cycle on the labor front; especially if we get the 2nd bad jobs report in the last 3
  3. June 17th – Fed Day in America (FOMC meeting); sleep in until 9AM and just buy everything

 

If the European, Japanese, and Chinese central planners don’t come out and devalue, daily, that is…

 

Looking for immediate-term risk management levels on that?

 

  1. US Dollar Index immediate-term TRADE overbought at 96.02 with no support to 92.82
  2. EUR/USD immediate-term TRADE oversold at $1.10 with no resistance to $1.14
  3. CRB Index immediate-term TRADE oversold at 224 with no resistance to 234
  4. Oil (WTI) immediate-term TRADE oversold at $56.14 with no resistance to $61.37
  5. Gold immediate-term TRADE oversold at $1200 with no resistance to $1239

 

That’s just the immediate-term though – and if you’re paid to not risk manage that duration (or take advantage of the opportunities it presents), no worries – you probably aren’t reading this anyway.  

 

From a long-term TAIL risk perspective, the onus is definitely on the Europeans (and Japanese) to prove that they aren’t who we think they are – some version of what Napoleon crushed over 200 years ago.

 

But, other than Warren, who in this business is really allowed to stir the masses with long-term leadership views and skip over everything that could happen until June 17th? I’m not. So, for now, I’ll take our asset allocation to Commodities to its YTD high of 10%.

 

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

 

UST 10yr Yield 1.97-2.32% (bearish)

SPX 2105-2140 (bullish)
RUT 1220-1262 (bullish)
DAX 11593-11898 (bullish)
VIX 11.91-14.98 (bullish)
USD 92.82-95.92 (neutral)
EUR/USD 1.10-1.14 (neutral)
YEN 118.91-120.99 (bearish)
Oil (WTI) 56.14-61.37 (bullish)

Natural Gas 2.79-3.11 (bullish)

Gold 1200-1239 (bullish)
Copper 2.78-2.91 (neutral)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Stirring The Masses - Chart of the Day


CHART OF THE DAY: S-L-O-W-E-R For L-O-N-G-E-R

Editor's Note: The excerpt and chart below are from today's Morning Newsletter written by CEO Keith McCullough. If you're not a subscriber yet, you're missing out. Click here to learn more and subscribe.

 

...The two core components of our Global Macro slide deck remain A) the cyclical call (USA in a #LateCycleslowdown) and B) the secular call (#Demographic slowing of core baby boomer consumption cohorts, in the US, Europe, Japan, and China).

 

Click to enlarge 

CHART OF THE DAY: S-L-O-W-E-R  For L-O-N-G-E-R - z 06.03.15 chart


Dollar Down, Rates Up?

“We live in time, and through it.”

-Wallace Stegner

 

That’s another great quote about life from a book I’m quite liking right now, Angle of Repose. For the record, there is no repose for me this morning. And I like it. There will be plenty of time to sleep, when I retire.

 

In the meantime, I’m getting on a plane to the heartland of America for a day of investor meetings. I’ll be outlining what I think is becoming more likely by both the day and economic data point – Slower-For-Longer, on both US and Global growth, that is…

 

The two core components of our Global Macro slide deck remain A) the cyclical call (USA in a #LateCycle slowdown) and B) the secular call (#Demographic slowing of core baby boomer consumption cohorts, in the US, Europe, Japan, and China).

Dollar Down, Rates Up? - Growth cartoon 05.19.2015

 

Back to the Global Macro Grind

 

Dollar Up, Rates Down? Yep. We lived through that yesterday. In terms of our positioning, some of that was good – some of it bad. It was a very immediate-term move, but here’s what it looked like:

 

  1. Dollar Down -1.5% on the day (biggest down day in a month)
  2. Euro (vs. USD) +2.1% to the top-end of my current $1.08-1.12 risk range
  3. Commodities (CRB) Index +1.1% on the “reflation” trade to 226
  4. Oil (and Oil & Gas stocks) up with XOP leading US equity sub-sector performers +1.8%
  5. German 10yr Yield ramped from 0.49% to 0.71%, in a day
  6. US 10yr Yield chased that and went from 2.12% to 2.28%, in a day

 

This, mostly on consensus headline chasing of “inflation is back”, after the Eurozone posted a mind-altering 0.3% year-over-year “inflation” report for the month of May.

 

In other news, European producer prices (PPI) deflated -2.2% year-over-year. But don’t tell Bond Bears that.

 

What did my day look like?

 

  1. FX: I came into the day short the USD in Real-time Alerts and signaled buy/cover #Oversold
  2. Commodities: with our asset allocation at a 1yr high, I was satisfied and stayed put
  3. Bonds: didn’t do much of anything as we already trimmed our allocation to FI on last week’s rally
  4. *Stocks: opted to buy US stocks that look most like bonds in Utilities (XLU) and short more Retail (XRT)
  5. Hockey: coached practice until 7PM and felt normal for about an hour
  6. Family: kissed my kids on the forehead before bed

 

We either let these macro moves raise our anxieties to un-healthy levels or we live through them with a work/family life balance. I’m much more prepared on that front today than I was for the last US #LateCycle slow-down. That’s a #process too.

 

Back to the positioning (I think of asset allocation on a NET exposure basis, just because I love shorting/selling things when they are at the top-end of my risk range, so that I can hopefully cover/buy things back at the low-end of the range):

 

  1. US Equity Allocation = UP from 2% at the all-time SPX high of 2130 to 6% as of yesterday’s close
  2. International Equity Allocation = FLAT at 10% with most of that leaning long Japanese Equities
  3. Commodity Allocation = DOWN 1% from 13% to 12%
  4. Fixed Income Allocation = UP from 23% to 24%
  5. FX = DOWN from 3% to 2%

 

I realize how I communicate allocating capital to assets on down moves and taking some off on up moves isn’t for everyone. But it’s dynamic and daily. I do it every day in this transparent format so you can hold me to account.

 

On the Fixed Income vs. Equities debate I don’t really think that’s what matters most right now. I think the Sector Style and asset allocations you make to either the growth #accelerating or #decelerating exposures does.

 

In other words, if you think that:

 

A)     US growth is going to accelerate in 2H 2015, you buy inflation/growth stocks and short Treasury Bonds

B)      US growth is going to continue to decelerate in 2H 2015, you buy #YieldChasing stocks and bonds

 

Sure, you’ll have to live through volatility along the way. But, if the best longer-term risk management call you could have made 1-year ago was preparing for Global #Deflation, from here until 2016 it’s setting up for Global #GrowthSlowing (again).

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.01-2.29%

SPX 2098-2118
Nikkei 20103-20709
VIX 13.03-14.94
USD 94.83-98.33
EUR/USD 1.08-1.12
Oil (WTI) 58.68-61.90

Gold 1178-1203

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dollar Down, Rates Up? - z 06.03.15 chart


Daily Trading Ranges

20 Proprietary Risk Ranges

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The Macro Show Replay | June 3, 2015

 


Live: The Macro Show Featuring Brian McGough at 8:30AM ET

Retail Sector Head Brian McGough will be featured on The Macro Show, Hedgeye's morning Macro call, today at 8:30AM ET. Brian will be running through a big picture overview of the retail space, touching on wage inflation and the Hedgeye Retail Idea List.

 

Ask your questions live in the chat box below. 

 


June 3, 2015

June 3, 2015 - Slide1

 

BULLISH TRENDS

June 3, 2015 - Slide2

June 3, 2015 - Slide3

June 3, 2015 - Slide4

June 3, 2015 - Slide5

June 3, 2015 - Slide6

June 3, 2015 - Slide7

 

 

BEARISH TRENDS

 

June 3, 2015 - Slide8 

June 3, 2015 - Slide9

June 3, 2015 - Slide10

June 3, 2015 - Slide11
June 3, 2015 - Slide12

June 3, 2015 - Slide13


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