“The whole world is simply nothing more than a flow chart for capital.”
-Paul Tudor Jones
While I’m sure some in the social science departments of academia might quibble with PTJ’s definition of the world, at this hour of the morning it’s a reasonable one for macro people like me.
#Charts. So many charts. They go up. They go down. Sometimes fast; sometimes slow.
If you look at one or two charts, you might confirm what you want (need) to see. But what if you look at all of the world’s major macro market charts, across durations, every morning of your life? What would you see?
Back to the Global Macro Grind…
While it was another good week for us on the long side (Utilities up another +1.0% with the Long Bond Yield falling another 11 basis points to 1.87% on the UST 10yr), my High Beta, High Leverage (Style Factors) US Equity shorts sucked.
That said, it’s a good thing I don’t have subscribers long US Healthcare, European, or Japanese stocks.
Post the Fed’s move to devalue the US Dollar and reflate US stocks to 5 week highs (which equates to YTD returns of: SP500 0.3%, Nasdaq -4.2%, and Russell 2000 -3.0%), here’s how the aforementioned lagged week-over-week:
- US Healthcare Stocks (XLV) -2.6% to -7.2% YTD
- European Stocks (EuroStoxx 600) -0.2% to -6.6% YTD
- Italian Stocks (MIB Index) -2.0% to -13.1% YTD
- French Stocks (CAC 40) -0.7% to -3.8% YTD
- Japanese Stocks (Nikkei 225) -1.3% to -12.1% YTD
Whereas if you played our #GrowthSlowing call more aggressively (into the Fed agreeing with it), here’s what really worked last week:
- Short USD = down another -1.2% on the week to -3.6% YTD
- Long Euros and Yens (vs. USD) = up +1.0% and +2.0%, respectively, to +3.8% and +7.8% YTD
- Long Commodities = +1.6% on the week for the CRB Index to 0.1% YTD
- Long Oil = +2.4% on the week for WTI to +0.8% YTD
- Long Russia = +4.7% on the week to +16.9% YTD
Seriously, who isn’t levered long Russia? There was a manic media headline that crossed my screens about “Egypt Now In Bull Market” too. So I checked that out and see that Egyptian stocks ramped +14.0% on the week to +6.8% YTD. #Awesome
*Note: if you do the multi-duration math, you better not have been long Egypt pre last week!
Away from not being levered-long most things that would have killed my credibility for the last 18-20 months, it was a pretty quiet week. From a rate of change research perspective most of the trending US cycle data continued to slow:
- NAHB (builder confidence) 58 FEB vs. 65 in OCT = 9 month low from Housing cycle-peak
- US Consumer Confidence (U of Michigan survey) 90 MAR vs 91.7 FEB = new cycle low
- Industrial Production -1.03% year-over-year for FEB, slowed vs. the hoped for JAN “bottom”
Yep. Housing Starts (see the weather?) “beat” and so did the “Philly Fed” (joy to the world), but neither US Retail Sales nor Producer Prices did (both slowed sequentially and remain bearish secular problems for US corporate profits that are currently in #recession).
Back to what most people in the US stare at (Dow Bro), here’s what I have definitely not been long for the last month:
- High Beta Stocks were up another +2.8% on the week = +17.2% in the last month
- Highly Levered Stocks (EV/EBITDA) up another +1.8% = +14.1% in the last month
- EPS #GrowthSlowing Stocks (bottom 25% of SP500) +1.9% on the week = +13.5% in the last month
*Mean performance of Top Quintile vs. Bottom Quintile (SP500 Companies)
Since all of these US Equity Style Factors are the recipient of Down Dollar, we should probably “ex” them out. Lol
There aren’t many long-term capital flow questions coming in these days (most emails I get have to do with super short-term March-to-date squeezes), so here’s some building Correlation Risk to noodle over (i.e. what people are chasing = 15-day inverse correlations):
- US Dollar vs. SP500 = -0.84%
- US Dollar vs. CRB Index = -0.96%
- US Dollar vs. Oil = -0.82%
And if you look at Consensus Macro positioning (non-commercial CFTC futures & options), post the US Dollar’s -3.6% YTD correction, the US Dollar just registered a -2.3x z-score (1yr duration).
What does that mean and/or “just give me the bottom line KM” on why it matters? Almost 100% of the time that something is +/- 2x (standard deviation) overbought/oversold in futures & options terms, that something mean reverts (goes the other way).
Sure – a USD bounce might be as super short-term as the reflation rally has been. But wouldn’t that make the flow of it all change in a hurry? Are you positioned for that? If you have been (for the last 18-20 months), you’ve been happy with your returns.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.79-1.98%
Oil (WTI) 34.65-41.53
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer