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“Who was the first guy that looked at a cow and said, “I think I’ll drink whatever comes out of those things when I squeeze them”

-Calvin & Hobbes

After reviewing this past week’s macro market moves, I couldn’t think of anything other than something that could make me chuckle for this morning’s quote. It took the worst US data point of the year (SEP jobs report) to drive 2015’s “best weekly gain.”

Everyone nailed it. Yep. After consensus called for > 3% US GDP growth and > 3% long-term (10yr) Treasury Yields, it will take a GDP growth number with a 1% in front of it for Q3, Down Dollar, and Down Rates to “stimulate” the “reflation trade” again.

But how high can it go? Or was this the bull case for Equities all along? After a +9% weekly gain for West Texas Crude Oil (triple the US stock market’s weekly gain) is the next 2015 bull-narrative-drift that “higher-gas prices” are going to pump up the consumer?

Bear Squeeze - denial cartoon 09.28.2015

Back to the Global Macro Grind

Last week’s Down Dollar move was the 2nd in as many weeks. As you can see in our Chart of The Day (Fed Fund Futures), post the #LateCycle US employment slowdown, the probability of a “rate hike” has crashed again.

With the US Dollar Index -1.1% on the week, here were the week-over-week callouts:

  1. EUR/USD +1.4% on the week, taking it to -6.1% YTD
  2. Canadian Dollar +1.6% on the week, taking it to -10.2% YTD
  3. CRB Index +4.4% on the week, taking it to -10.2% YTD
  4. Oil (WTI) +9.0% on the week, taking it to -15.6% YTD
  5. Copper +3.8% on the week, taking it to -14.7% YTD
  6. Gold +1.7% on the week, taking it to -2.6% YTD
  7. SP500 +3.3% on the week, taking it to -2.1% YTD
  8. Energy Stocks (XLE) +8.0% on the week, taking them to -12.9% YTD
  9. Basic Materials Stocks (XLB) +6.7% on the week, taking them to -9.1% YTD
  10. Healthcare Stocks (XLV) +0.2% on the week, taking them to -0.1% YTD

In other words, the new bull-narrative-drift case is A) to get the stock market back to break-even for 2015 by B) arresting the crash in #deflation sectors and C) pretending that it’s still “mid-cycle.”

Fed Easing is the best path to non-economic-prosperity, remember? Whenever the economy slows, we just have to mask the weakness of it all with the illusion of growth – Down Dollar Reflation – and call it “demand accelerating”, or something like that.

At one point on Thursday, the Minneapolis Fed Head (Kocherlakota) suggested that your un-elected Fed should “consider reducing rates.” The Reflation Trade loved that. So did everything that’s been imploding in the land of Emerging Markets:

  1. Emerging Market Equities (MSCI) ripped 2x the SP500’s gain last week, closing +6.9% (still down -10.1% YTD)
  2. Latin American Equities (MSCI Index) squeezed +9.5% higher last week (but still crashing -22% YTD)
  3. Indonesian Stocks ramped +9.1% last week, but are still -12.2% YTD

Does Down Dollar stop Emerging Markets from crashing, for a week? Can you see the TRADE vs. the TREND here?

  1. Brazilian Real +4.9% week-over-week, but -35.8% year-over-year
  2. Russian Ruble +6.9% week-over-week, but -34.7% year-over-year

I’ll bet you a fully-funded Draft Kings account that your average US stock market navel-gazer can’t tell you what the FX market did last week, never mind all of the commodity-country-currency links.

It was a Bear Squeeze to remember (and fade again), indeed.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.98-2.13%

VIX 15.94-27.98
USD 94.58-96.01

Gold 1135-1167

Best of luck out there this week,


Keith R. McCullough
Chief Executive Officer

Bear Squeeze - z cod bbb