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“Rowing a race is an art, not a frantic scramble.”

-George Pocock 

I think that’s a fair metaphor for annual returns.

Frantically scrambling together a year-end narrative on why the market got back to “flat” is disingenuous, at best. Beating your competition (or market beta) requires rowing a precise race.

A Frantic Scramble - The Thinker.Markets cartoon 05.08.2015

Back to the Global Macro Grind

Sure, it took both Sales/Earnings Slowing (-3-4% in Q3 to-date) and both Europe/China easing last week to keep US and European stocks from going down, but that’s not all that happened.

On a week-over-week basis, with Draghi Devaluing the Euro -2.9% (vs. USD) here’s what happened in Global Macro markets:

  1. US Dollar Index ripped at +2.6% weekly gain, taking it to +7.5% YTD and +13.1% year-over-year
  2. Canadian Dollars deflated another -1.9% week-over-week to -11.7% YTD and -14.7% year-over-year
  3. Commodities (CRB Index) got tagged for a -2.9% #deflation on the week, -15.8% YTD, and -28.9% year-over-year
  4. Oil (WTIC) deflated another -6.3% week-over-week, crashing -24.8% YTD, and -44.1% year-over-year
  5. Copper deflated -2.3% on the week, taking it to -17.0% YTD, and still in crash mode -22.5% year-over-year

Oh, right. If you put it in those terms, it wasn’t a great week.

The Russian Ruble and Norwegian Kroner dropped another -1.7% and -3.3% last week and are still in crash mode -33.1% and -21.6% year-over-year, respectively.

But, bro – the Dow Bro – it ripped +2.5% on the week to -1.0% for 2015. #Sweet

In other news:

  1. US Energy Stocks (XLE) didn’t like the Up Dollar news and deflated another -1.4% on the week
  2. MLP (Alerian Index) Energy stocks got pounded for another -6.1% weekly decline
  3. Emerging Market Stocks (MSCI Index) deflated -0.8% on the Down Euro #StrongDollar news
  4. Latin American Stocks (MSCI) deflated -0.9% week-over-week on the same
  5. Russian Stocks (RTSI Index) deflated -0.9% week-over-week

Man, what a bummer.

My narrative isn’t the manic one that went from saying this was a “global bottom” in demand led by “reflation” signals that lasted 3 weeks, when it was actually the #Deflation Risk that has been crushing consensus for a year now that ruled the week.

Sure, US Equity Beta loved not going down on that – but it was really only the big liquid Tech Stuff that dominated:

  1. US Tech Stocks (XLK) were +4.4% on the week vs. Healthcare Stocks (XLV) DOWN -0.6%
  2. Large Cap (as a US Equity Style Factor) was +2.1% on the week vs. Small Cap only +0.5%

*note: that’s what happens when Amazon, Google, and Microsoft all beat, on the same day!

Inasmuch as the market was “flat” in 1987, these Tech titans of the 2015 US stock market #bubble are up “in size” here in October.

But can they do that every day?

Moreover, can the Fed remain Dovish on every week that both the Europeans and Chinese opt for more easing?

I always try my best to answer these questions in real-time (in both Real-Time Alerts and in our Hedgeye Asset Allocation model) as I’m a big believer in being held accountable to the timing of it all. On that front, here are some of the bigger moves I made last week:

  1. Took our net asset allocation (longs minus shorts) to Commodities to 0%
  2. Took up our net asset allocation to Fixed Income close to its max at 32%
  3. Shorted the SP500 (SPY) in Real-Time Alerts on Friday

While I started shorting SPY in July, I’ve been on the sidelines for the last month with no position in RTA.

The main reason for that was that consensus hedge funds shorted the AUG lows at VIX 40. Now VIX is at 14 and I foresee most of the frantic scramble to cover higher as yesterday’s news.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.98-2.09%

RUT 1135--1176
EUR/USD 1.10-1.13
Oil (WTI) 44.24-46.31

Best of luck out there this week,


Keith R. McCullough
Chief Executive Officer

A Frantic Scramble - 10.26.15 EL chart