Too Strong?

“There’s nobody in this business strong enough to scare me.”

-Tupac Shakur

GenX’ers like me will remember “2Pac” as one of the greatest rappers of all-time. Sadly, he didn’t live past the age of 25. He’ll most likely be inducted into the Rock & Roll Hall of Fame this year.

“All Eyes On Me”, baby. Does Trump rock out to Tupac?

This weekend, the Tweeter in Chief tried to roil macro markets by calling the US Dollar “too strong.” Did he really try to do that? Does he understand that a #StrongDollar is what’s been a big causal factor in his beloved stock market voting machine?

Back to the Global Macro Grind…

Since the US Dollar Index has had a +80-90% positive correlation with the SP500 since Trump’s win (the 90-day USD vs. SPX correlation = +0.82 right now), I was a little surprised to see him throw a little fake news of his own on the tape.

Especially ahead of his coronation this Friday, does he really have an economic agenda that is contra-TREND to what macro markets have been pricing in for over 2 months? Dollar Down, Rates Down, Stocks Down ain’t gonna work, brotha!

Ex the pseudo-fake-news about the currency that most Americans get paid in, US growth and inflation data continued to accelerate last week. PPI (Producer Prices), Retail Sales, and Consumer Confidence continued their respective bullish trends.

This week (pre Trump Day), we should get more US growth and inflation data accelerating:

1. Earnings Season Accelerating from multiple quarters of negative year-over-year growth in 2016
2. Consumer Price Inflation (CPI) continuing to accelerate on a year-over-year basis (Wednesday)
3. Industrial Production growth accelerating, in rate of change terms, from its 2016 #recession lows

That’s right. As the US Dollar and Rates ramped in December, so did the US economic data. While the USD corrected -1.0% last week (and is correcting again this morning on the Trump comment), it’s still +3.8% in the last 3 months.

In other real-time macro market price news last week:

1. The Euro had a counter-TREND move, popping +1.1% vs. USD and is now back at the top-end of its risk range
2. The Yen had the counter-TREND pop too, +2.2% vs. USD and is also back at the top-end of its risk range
3. Gold was up +1.9% on the week (down -5.2% in the last 3 months during #StrongDollar) = top-end of range
4. Oil corrected -3.0% on the week and is trading in the middle of its $50.69-54.59 immediate-term range
5. Copper spiked another +5.7% on the week, signaling immediate-term TRADE overbought at $2.69/lb
6. The Nasdaq registered yet another all-time closing high of 5,574, closing +1.0% on the week
7. US Equity Volatility (VIX) dropped another -1% on the week (taking its 3 month crash to -32.5%)

If Trump is hyper-sensitive about what everything about him looks like… and he’s gone as far as saying that Putin “liking me is an asset”, how does he not see the position of #StrongDollar, Strong America as his asset?

I don’t know the answer to that question. But if you are connected to any of the elite “Davos Men” that can forward him my note this morning, I’d very much appreciate that.

In addition to the Nasdaq clocking 5 record closing highs in the last 2 weeks of trading, from a US Equity Style Factoring perspective, macro votes continue to side with being long both growth and inflation expectations:

1. High Beta was up another +0.3% (vs. Low Beta -0.7%) and is +13.7% in the last 3 months
2. High Yield (i.e #GrowthSlowing) was down -1.1% (vs. Low Yield +0.2%) and is only +4.1% in the last 3 months
3. Bottom 25% EPS Growers were down -1.0% vs. Nasdaq +1.0%

*Mean Performance of Top Quartile vs. Bottom Quartile of SP500 Companies

So, I’m going to stay with the process instead of reacting emotionally to someone’s editorial tweets. If the growth and inflation data continues to accelerate, I’ll be long higher beta equity sectors and underweight the #GrowthSlowing ones.

If Trump systematically devalues the Dollar and that growth data slows, I’m out. Nope, he doesn’t scare me. A Weak Dollar, Down Rates (read: Bush/Obama) policy would.

Our immediate-term Global Macro Risk Ranges and TREND views (in brackets) are now:

UST 10yr Yield 2.31-2.51% (bullish)

SPX 2 (bullish)

NASDAQ 5 (bullish)

VIX 10.61-13.30 (bearish)
USD 101.00-103.50 (bullish)
EUR/USD 1.03-1.06 (bearish)
YEN 112.83-118.25 (bearish)
Oil (WTI) 50.69-54.59 (bullish)

Gold 1150-1216 (bearish)
Copper 2.47-2.67 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer