prev

ICYMI: Are You Bullish On The U.S. Dollar Yet?

 

“Mr. Macro Market is reading today's Jobs Report as bad for long-term bonds, Gold, etc. It’s bullish for the US Dollar, Higher Beta and Cyclical Stocks, etc.”

–Hedgeye CEO Keith McCullough

 

The December Jobs Report released today showed the U.S. economy added 158,000 net new jobs. On a year-over-year basis, jobs growth was 1.51%. In other words, the growth rate slowed from 1.58% for the month of November. This is a continuation of the downward trend for jobs growth (which peaked at 2.3% in February 2015).

 

Still, the number may be reaching an inflection point, in which the growth rate bottoms or even reaccelerates (click here to read more). The labor market is one of the only economic indicators not accelerating.

 

In other words, if the bottom is coming, that’s a bullish signal for #GrowthAccelerating macro positions. 

WHAT TO BUY

Plain and simple… buy the U.S. Dollar (UUP). It will trade up too on stronger U.S. growth.

 

(Note: A stronger dollar also lifts U.S. equities. Check out the 0.78 positive correlation, over the past 90 days of trading, between the dollar and the S&P 500 in the video above. This means they generally trade up (or down) together.)


McCullough: This Book Is The ‘Bible’ of Financial Market Knowledge

 

Need to get up to speed on the complex, inner workings of financial markets?

 

We’ve got the book for you. Check out The Misbehavior of Markets by deceased mathematician and deep-thinker Benoit Mandelbrot.

 

“Read this one slowly,” says Hedgeye CEO Keith McCullough.

 

Mandelbrot is the father of fractal geometry (a field of mathematics that attempts to define how complex systems change as they get larger in scale). His theories applied to markets tries to make sense of states of seeming randomness.

 

If all of this sounds daunting don’t worry, Mandelbrot’s style is accessible and laden with insight. He also dissects what works and doesn’t work in financial markets. And Mandelbrot never shies away from taking to task current Wall Street orthodoxy. Take this excerpt for instance:

 

“The financial industry has developed other tools. The second-oldest form of analysis, after fundamental, is “technical.” This is a craft of recognizing patterns, real or spurious – of studying reams of price, volume, and indicator charts in search of clues to buy or sell. The language of the chartists is rich: head and shoulders, flags and pennants, triangles (symmetrical, ascending, or descending. The discipline, in disfavor during the 1980s, expanded in the 1990s as thousands of neophytes took to the internet to trade stocks.” -The (Mis)Behavior of Markets (pg 8)

 

McCullough calls The Misbehavior of Markets the “bible for understanding fractal math and non-linearity” in financial markets. It’s definitely worth checking out.


ICYMI: What to Watch Ahead of Tomorrow’s Jobs Report

 

If we see a positive Jobs Report tomorrow, we think Gold and the 10-year Treasury get smoked.”

–Hedgeye CEO Keith McCullough

Get ready. It’s Jobs Day tomorrow.

And we think most investors are missing a critical opportunity ahead of Friday’s labor market check-up.

 

The Federal government’s Non-Farm Payroll report, as the jobs report is called, will give us an update on the number of jobs added for the month of December. Since February 2015, the year-over-year growth (or rate of change) in jobs has been slowing, from that peak of 2.58% to the November reading of 1.58% (see the brief video above for more).

 

It’s one of the few U.S. economic indicators that’s still slowing.

 

But this could change. Especially as we head deeper into 2017 and jobs growth “compares” get easier. This means last year’s absolute jobs number, over which tomorrow’s December reading will be compared to calculate year-over-year growth, is a lot lower. So, essentially, labor market growth isn’t as hard to come by, particularly heading into the first and second quarter of 2017.

WHAT TO SELL

Sell Gold (GLD) and Long-Term Treasury Bonds (TLT) ahead of the report. These are classic slower economic growth macro exposures. In other words, they could get crushed tomorrow if tomorrow’s jobs report is better than expected.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

ICYMI: How to Trade Gold Right Now

Takeaway: The U.S. economy is growing. Interest rates and the U.S. Dollar are rising. That’s an explicit signal to do what? Sell gold.

 

“If you want to get Gold right, you have to get rates and the U.S. Dollar right.”

—Hedgeye CEO Keith McCullough

 

As you can see in the video above, the U.S. Dollar has a negative correlation of -0.97 to Gold over the past 90 days, meaning their prices move in direct opposition to each other. Pay attention to the 10-year Treasury yield and direction of the U.S. dollar — both are expressions of future growth expectations.

 

Recently reported economic data including U.S. GDPISM Manufacturing and Durable Goods orders all suggest that U.S. economic growth is accelerating.

 

We agree.

 

And at the right level, you sell gold.

WHEN TO SELL

Our proprietary model signals gold is overbought. It suggests Gold has almost 4% downside at current prices to $1121 per ounce. However, an even better spot to sell, McCullough says, is when the 10-year Treasury yield hits 2.41%. That would imply Treasuries (and hence other asset classes that benefit from slower U.S. economic growth) are also overbought.

 


Here’s The Only Emerging Market We Like Right Now

 

RUSSIA.

 

That’s right. We like Russia, even after Russia’s RTSI stock index rose 52.2% in 2016 and after President Barack Obama’s recent retaliatory sanctions against the country for alleged interference in the 2016 presidential election.

 

Why?

 

Our predictive tracking algorithm – the GIP model (which stands for Growth, Inflation, Policy) – suggests the Russian economy will continue growing while inflation slows through the first half of 2017. We call this setup Quad 1 and it is very bullish Russian stocks, explains Senior Macro analyst Darius Dale in the video above. (Click here to learn more about how we model global economies.)

 

As Dale wrote recently in a note to subscribers:

 

“Part of our bullish thesis on Russia – which is the only emerging market we like here – is the deepening of Trump/Putin relations that may eventually lead to an unwind of sanctions on trade and capital flows which have helped perpetuate one of Russia’s most protracted recessions in the modern era.”

 

Or as Dale puts it more succinctly in the video above, the Russian economy is growing and you could also get some “goodies from the Trump White House as well.”


ICYMI: ‘You Gotta Love Brexit’

Takeaway: Not the gloom and doom that many predicted, the FTSE 100 is up +14.6% since Britain’s E.U. referendum.

 

“In sharp contrast to the politicized-fear-mongering about Brexit, the British economy chugged along at +2.2% year-over-year growth in Q3. That was even better than the USA’s +1.7% year-over-year growth rate,” Hedgeye CEO Keith McCullough wrote recently. In other words, the U.K. economy is accelerating.

WHAT TO BUY...

We like Britain’s pound on the long side (especially against the euro).


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

next