“This is a job for all the Care Bears!”
For those of you who didn’t grow up with a little sister in the 80’s (I did), this Early Look quote might be a little out there. But empathize with this US Growth Bear for a few minutes this morning. At Hedgeye Cares we’re a group of multi-factor bears!
Ex-McCullough, Ex-EnergyStocksRamping, and Ex-Earnings we’re going to try our best to look like the original multi-colored Care Bear franchise at the 3rd Annual Hedgeye Cares Charity Golf Challenge today at the beautiful Glen Arbor Golf Club in Bedford Hills, NY.
We’re all for last minute donations. And since many of you are always asking me where to put some “money to work”, we have a magical place just for you. Hedgeye Cares is a 501c3 organization (www.Hedgeye.com/cares/golf) that is internally driven by our employees who want to give back to our community. I couldn’t be more proud of their tireless efforts.
Back to the Global Macro Grind…
“Now, hold your tishie-tags, it’s time I spoke” like your Risk Manager again (that’s a quote from Grumpy Bear in the 1987 Care Bears movie – The Care Bears Adventure In Wonderland).
In the wonderland that has become Wall Street consensus, what the US stock market really needs to go higher from here is not rainbows and puppy dogs – it’s a devalued and debauched US Dollar.
Yep. That’s what Consensus Macro is positioned for. Here’s the latest non-commercial CFTC Futures & Options data:
- US DOLLAR = +12,114 net LONG contracts (vs. the 1YR avg of +40,772) = 1YR z-score of -1.81x
- GOLD = +225,884 net LONG contracts (vs. the 1YR avg of +61,080) = 1YR z-score of +2.29x
- SP500 = +27,235 net LONG contracts (vs. the 1YR avg of -127,441) = 1YR z-score of +2.09x
Since the z-score measures the distance between the current position and the population mean in units of standard deviation, what this means it that USD Dollar consensus positioning is almost as bearish as Gold and SPY positioning is bullish.
This, of course, should surprise no one who has been as aware of US #GrowthSlowing as Janet Yellen is starting to become. As US GDP, employment, and consumption growth has slowed, she’s A) gone dovish (devalued the Dollar) and B) guided rates lower.
That’s mainly why Gold is +20% YTD:
A) Dollar Down -4.2% YTD
B) Rates (10yr) Down -55 basis points YTD after starting 2016 at 2.27%
That’s also why I don’t want to be the guy sending you Tenderheart BUY signals on Gold > $1300/oz. I’d rather wait for a pull-back to the $1 range (i.e. low-end of our immediate-term TRADE risk range).
Interestingly, but not surprisingly, the US Dollar is starting to signal its 1st immediate-term TRADE series of higher-lows as Commodities (CRB Index) are signaling a series of immediate-term lower-highs.
I say ‘not surprisingly’ because this is precisely what happens when consensus realizes that there is falling probability for either a sustainable bounce in US GROWTH or another massive round of REFLATION from current levels.
Putting our immediate-term TRADE signal in the context of long-term TAIL risk:
- US Dollar Index would have to sustain a break-down through the 92-93 level
- CRB Commodities Index would have to sustain a break-out (on accelerating volume) through the 190-192 level
*As of this morning, the US Dollar Index and CRB Commodities Index are trading at 94.55 and 185, respectively.
Since we’re multi-duration (and multi-colored) US growth bears, it’s also important to call out the intermediate-term TREND Correlation Risk to a US Dollar not crushing the purchasing power of the American people much further.
Here’s the 90-day (TREND duration) inverse correlation between the big macro stuff that matters and USD:
- CRB Index -0.91
- GOLD -0.80
- SP500 -0.77
With the US Dollar up for 3 of the last 4 weeks, that’s been a major headwind for the “SP500 is gonna rip to all-time highs” capitulation concern. For the real Grumpy Bear of the lower-highs in SPY (April) that concern has morphed into my content.
On decelerating volume yesterday (Total US Equity Volume was -11% vs. the 1-month average), the SP500 closed right at the top-end of yesterday’s immediate-term risk range. Now that range = 2038-2082.
And while I think it would be a gift to have another selling opportunity in the 2080-2090 SP500 range, I’m not sure that Mr. Market will be so gracious. But, if the Tenderheart Bear in you wants to make up for that, we’d really appreciate anything you can do for the kids in Bridgeport, CT that Hedgeye Cares is supporting today.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.70-1.80%
Oil (WTI) 45.16-49.13
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer