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“The enemy, of course, is the resistance of the water.”

-George Yeoman Pocock

For me, of course, the resistance isn’t that of a swimmer or a rower. Hockey players play above the water. Our resistance is the wall.

Without the Old Wall (and its legacy print + NJ cable media) how would we save or make any money? The Cover Story in the oldest of wallpapers this weekend pitched Bears against Bulls on a tightrope. The header of the article read:

“Look Out, Bears”

And it cited Barron’s latest “money manager survey” that found that “55% of managers are bullish and 16% bearish.” I was a little offended by the whole thing. After all, I’m sensitive. And I’m the bull of all bulls this year, in #GrowthSlowing and Long Bond terms!

Look Out, Bulls! - Bull and bear extra cartoon

Back to the Global Macro Grind

No offense to Barron’s and their Old Wall boys, but having not called for a slow-down and/or a down stock market (and down bond yields) 9-10 months ago, they have no credibility in calling for an end to what they didn’t realize was starting.

That said, while consensus macro has been many times wrong, it rarely seems in doubt. So what is it that is driving the “stocks can never go down” mentality, all over again?

  1. Is it that they were so wrong on growth that bad news about being wrong is obviously good?
  2. Is it that bad/good news of Down Dollar is the best path to US inequality and asset reflation?
  3. Or is it that no matter what happens, Treasuries are always too “expensive” and stocks are “cheap”?

You can waste your time answering those questions this morning. I’m getting back to work.

Let’s start with what contextualizing last week’s moves within the 3 month @Hedgeye TREND:

  1. US Dollar Index down for the 3rd straight week, taking Down Dollar to -3.2% in the last 3 months
  2. Japanese Yen was up another +0.7% last week, and is +3.9% vs. Down Dollar in the last 3 months
  3. Russian Rubles were +0.9% last week taking their 1-month gain to +6.9% vs. -7.1% in the last 3 months
  4. Russell 2000 was DOWN -0.3% last week, taking it back to -8.7% in the last 3 months
  5. Nikkei 225 (Japanese Stocks) dropped another -0.7% last week, taking its 3 month loss to -11.2%
  6. Spanish Stocks (IBEX) deflated another -0.8% last week, taking their 3 month loss to -11.1%

Oh no you didn’t.

You didn’t call both the broadest measure of the US domestic revenue outlook (80% of Russell 2000 revs are USA) and the other joints that did the devaluation thing (it didn’t work in Japan or Spain) as being down in a week that the Old Wall called “up”?

Yes I did.

And you can do this too. Just get up an hour earlier each day and watch what happens to your brain. This is not your brain on consensus. This is your brain, thinking for itself – crushing consensus:

  1. US 10yr Treasury Yield down another 5 basis points last week to 2.05% = down 32 basis points in the last 3 months
  2. UST 5yr Breakevens (inflation expectations) down another -5bps last wk (-41bps in the last 3 months) to 1.16%

Oh boy. I better stop there. Barron’s doesn’t do cross-asset class or bond market read-throughs!

Back to “stocks”, Mucker. What did “stocks” do?

  1. Utilities (XLU) +2.3% week-over-week were the BEST sub-sector exposure to be long (+2.3% in the last 3 months)
  2. REITS (MSCI Index) +1.2% week-over-week and +1.4% in the last 3 months (vs. SP500 down -4.3% in the last 3 months)
  3. Industrials (XLI) deflated another -1.6% last week and have lost -4.4% in the last 3 months

Yep. In an “up” market for US stocks, both the Russell 2000 (IWM) and Industrials (XLI) were down on the week. As long as your Old Wall broadcaster doesn’t have to explain those details, they’ll never have Draft Kings for billionaire “stock pickers.” #TooMuchDetail

Finally, for the “folks” who still think “stocks” tell you about a globally interconnected macro marketplace, here are some hard-core US Equity Style Factors:

  1. SP500 High Beta Stocks were -1.1% last week vs. their Low-Beta brethren +0.7%
  2. SP500 Smaller Caps (bottom 25% cap) were -1.3% last week vs. their Big Cap brethren +1.0%

In other words. Size matters. And so does beta chasing.

Just think about it – little Hedgeye continues to be long Treasuries, Utilities, Gold, Low-Beta and Big Cap Liquidity… and the US growth/beta bulls continue to be underweight what we like. Look out, consensus bulls!

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.98-2.07%

RUT 1130-1178
EUR/USD 1.11-1.14

Gold 1145-1195

Best of luck out there this week,


Keith R. McCullough
Chief Executive Officer

Look Out, Bulls! - 10.19.15 chart