This note was originally published at 8am on May 28, 2015 for Hedgeye subscribers.
“What a pity the man wasn’t lazy.”
That’s what a “theologist” who spent his time politicking instead of battling on the front-lines had to say about a General (Napoleon) who fought 60 wars (only lost 7) and died by the age of 51.
When battling it out in macro market moves like these every morning, I don’t think the first word that comes to mind in describing me would be lazy. That said, I think a good case can be made that if I keep doing this I could go crazy.
Darius Dale and I spent all of yesterday (and into the early eve at a dinner) debating Global Macro issues with Institutional Investors in New York City. It was a mental grind. And we liked it.
Grab some coffee and click here to watch Keith on The Macro Show at 8:30am ET
Back to the Global Macro Grind…
Of the many strategies we’ve heard from investors, the one we hear about the least is the laziest one of all – i.e. the do nothing strategy. As in literally buy everything right now and then go away for the summer and don’t touch your portfolio.
I guess the other thing you could do is sell everything and go away for a while too. Is that crazy? Or is that just not an option? At the end of the day, the art of managing money is having moneys to manage. Being “fully invested” means we get to go crazy, together.
So let’s get a little nuts this morning and strap on the 3 week portfolio pants ahead of the Fed meeting on June 17th:
- Don’t buy more Long-term Bonds (you should have been buying them, lower, for the last 6 weeks)
- Buy Gold (because we like to buy low, and Gold hasn’t done anything but trade in a thick chop for 6 weeks)
- Buy US stocks that look like Bonds (Yield Chasing proxies like Utilities, REITS, etc.) that have corrected in 2015
I know. I’m the former 2 and 20 guy who has this crazy strategy of buying on red and selling on green. So let’s get out there and sell some of those Japanese stocks that we have in the International Equity exposure now that they have been up for 10 straight days.
After 10 days in a row, do you buy or sell? In Japan, that hasn’t happened in 27 years so I don’t think it’s an entirely crazy idea to book some gains; particularly since the aforementioned 3-week-portfolio implies another US Dollar selloff.
Down Dollar? Pardon? Yep. When the Dollar signals immediate-term overbought, the current macro playbook says:
- Burning Japanese Yens are usually signaling oversold
- The Weimar Nikkei is usually signaling immediate-term overbought
That is all. So simple a guy who has taken an 80 mph slap shot off the top of the head (with no bucket on) can do it. #stitches
If you don’t like my playoff hockey shtick, and you’re more into the “long-term” thoughtful thing … and you want to do nothing into Friday’s GDP slowing report and/or next week’s potential train wreck of a US jobs report, that is up to you.
Just be aware that the longer-term call (let’s say the next 6-12 months) is probably the easiest it’s been to make (relative to the short-term call) since the summer of 2007.
Yep, that’s the last time that my model started to signal #LateCycle for the US employment and consumption cycle. And the #LateCycle call before that was in the summer of 2000.
Wanna get really nuts? Let’s go all cyclical on the pro-cyclical “jobs are good” consensus:
- The last time US Jobless Claims were this “good” (on a 4 week rolling avg) was April 15 of the year 2000
- The SP500 imploded from 1356 to 776 (-43%) to the October 2002 cycle low
- The Nasdaq crashed from 3321 to 1114 (-66%) to that same October 2002 low
I guess being lazy on the cycle work would be classified as big battles lost by the perma bulls who bought the 2000 and 2007 US economic cycle tops.
Tops, as you know, are processes, not points. So are cycles. And you can call me crazy staying in certain markets for another 3 weeks. You can call me lazy if I go to 65% Cash after that too.
But this isn’t my first bull/bear cycle battle and I’m thinking that if these keep coming around every 6-7 years, I have few more good fights with long-term “growth” consensus left in me.
Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND view in brackets):
UST 10yr Yield 1.98-2.20% (bearish)
SPX 2108-2139 (bullish)
DAX 11440-11889 (neutral)
Nikkei 20081-20683 (bullish)
VIX 12.75-14.45 (bullish)
USD 95.05-98.33 (bullish)
EUR/USD 1.08-1.15 (bearish)
YEN 121.09-124.16 (bearish)
Oil (WTI) 57.09-61.40 (bullish)
Natural Gas 2.80-3.10 (bullish)
Gold 1180-1209 (bullish)
Copper 2.72-2.81 (neutral)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer