“It is through empowering others that we impart our own leadership and ideas.”
-Nelson Mandela
Welcome to 2017! I hope you all had a happy and healthy start to the New Year. It’s important to remember that not everyone in this world did. So when life goes our way we should be extra thankful for its blessings. I know I sure am.
I don’t think the opportunity to lead in this business has ever been better. As Mandela taught many, that doesn’t always mean leading from the front. Sometimes the opportunity to “lead from the back” of a movement is as powerful as any.
“The way to do that is by empowering or pushing others to move forward ahead of you.” (Mandela’s Way, pg 77)
Back to the Global Macro Grind…
Since I don’t run money anymore (that would be a massive conflict of interest with our clients) part of my job is to push you to think ahead of (and beat) your competition. In order to push you, I need my team to push me.
The way I see it, we’re all in this together.
Measuring and mapping the rates of change in growth and inflation data is what we do. Expect us to hammer that home throughout 2017. In turn, if we’re missing something in the data, we fully expect you to hammer us too.
May the 2017 season begin!
Today’s macro market move (Dollar Up, Rates Up, Stocks Up) mostly has to do with:
A) what happened last week and
B) what was trending prior to that
The immediate-term TRADE (last week) ran counter to what we see as the TREND of US growth and inflation accelerating. Let’s start with the counter-TREND correction in FX and US Treasury Rates last week:
- US Dollar Index corrected -0.8% to signal immediate-term TRADE oversold within a bullish TREND
- EUR/USD bounced +0.6% to the top-end of its risk range ($1.05) but remains bearish TREND @Hedgeye
- YEN (vs. USD) bounced +0.3% but remains bearish TREND @Hedgeye
- US 2yr Yield dropped 1 basis point but remains bullish TREND @Hedgeye
- US 10yr Yield corrected 9 basis points but remains bullish TREND @Hedgeye
- US 5yr forward break-even dropped 2 basis points to 2.05% but remains bullish TREND @Hedgeye
In other words, since USD, Bond Yields, and Break-evens are all signaling bullish from an intermediate-term TREND perspective, my quantitative signal agrees with our fundamental research call that the USA is in Quad2 (growth and inflation accelerating).
When both growth and inflation are accelerating, and the equity prices for those macro exposures correct, you buy them. While emotions can complicate the lack of having a macro process altogether, we tend to like that. It gives us a competitive advantage.
Pardon? Yes, we like it when other people have issues (in markets). Teams that sell low after chasing high are absolutely who we want to compete with. That’s why last week’s correction in US Equities allowed us to signal BUY (in Real-Time Alerts) in:
- Oil & Gas Stocks (XOP)
- Transportation Stocks (IYT)
- Nasdaq (QQQ)
That’s right, with High Beta (as a US Equity Style Factor) correcting -1.5% last week, we had what the Old Wall calls a “buying opportunity” in precisely what we want to be long in Quad2 = higher beta and cyclical components of the US Stock market.
Am I too bullish?
I don’t think so. In fact there are still some fantastic short-selling opportunities born out of the aforementioned macro TRENDS. One of those remains short the Euro vs. USD. Others are short Long-term Treasuries and Gold.
Gold was +1.6% last week and remains bearish TREND @Hedgeye.
Am I too bearish?
We’ll see. But what you won’t see is me hiding, twisting, or turning about what “call” I’m making. Having responsibility in recommendation, after all, is a major reason why we built this place!
You’d be amazed how empowering it is to be transparent and accountable, every day.
So I just wanted to end this note the way that I started it. I want to thank you for another opportunity to play another season alongside my teammates. God willing, we’ll all be able to push one another into healthy, data driven, debates and realize a happy outcome.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.42-2.62%
SPX 2
NASDAQ 5
XOP 41.26-42.99
USD 101.75-103.80
EUR/USD 1.03-1.05
YEN 115.19-118.99
Oil (WTI) 51.49-55.36
Gold 1121-1159
Best of luck out there this year,
Keith
Keith R. McCullough
Chief Executive Officer
