Contradicting Yourself?

“Do I contradict myself? Very well then, I contradict myself.”

-Walt Whitman

That’s a great introspective question we should all have the humility to ask ourselves, especially if we’re trying to evaluate where either the stock market or the economy is going to go based on one man’s contradictory tweets…

Richard Stengel cited Walt Whitman’s “Song Of Myself” in an awesome chapter (chapter 14) in Mandela’s Way titled “It’s Always Both.” He reminded me that even a great leader like Nelson Mandela would contradict himself, from time to time:

“He understands that consistency for its own sake is a false virtue, and that inconsistency is not automatically a flaw. He knows that humans are complex creatures…” (pg 209). If we start by embracing that uncertainty, we’re starting from a better place.

Back to the Global Macro Grind…

I don’t know about you, but after a fantastic long weekend I still put two feet on the floor the same way in the morning and look forward to logging in to whatever the world decides to price in.

Last price is a beautifully non-linear and chaotic thing. It’s always based on the prices that preceded it. From there, people may or may not see what they want to see. That’s the thing about “charts”… they’re pictures that can trick you into confirming your biases.

At a bare minimum, my rate-of-change process isn’t contradictory. The data itself changes, but those changes should be observed within a multi-duration, multi-factor framework – not inside the emotional echo chamber of one’s politics.

Last week’s US growth and inflation #accelerating data delivered:

1. A stronger US Dollar
2. Rising US interest rates
3. Fresh all-time closing highs for the US stock market

No. They didn’t all go up at the same pace and/or at the same time. But yes, they’re all following through, again, with what we call the intermediate-term TREND view @Hedgeye this morning.

Dollar Up, Rates Up, Stocks Up. Forget the tweets. That’s what would actually make America great again.

While the USD is up more this morning than it was last week, this would be the 3^rd straight week of gains, if we get them. That’s not unlike the US stock market (it just had 3 straight weeks of gains) – like rates, the move is on delay!

Recapping what happened in macro markets last week within the context of our TREND (post Trump Win) duration:

1. EUR/USD dropped -0.3% and remains bearish TREND @Hedgeye
2. Oil corrected -0.9% but remains bullish TREND @Hedgeye
3. Gold was +0.3% but remains bearish TREND @Hedgeye
4. Copper corrected -2.2% but remains bullish TREND @Hedgeye
5. US Equity Volatility (VIX) bounced +6% but remains bearish TREND @Hedgeye
6. US 10yr Yield was +1 beep to +2.41% and remains bullish TREND @Hedgeye
7. US Stocks (SP500) were +1.5% and remain bullish TREND @Hedgeye
8. Nasdaq (High Beta Style Factor) was up another +1.8% and remains bullish TREND @Hedgeye
9. Financials (XLF) led US Equity Beta gains, +2.9%  and remains bullish TREND @Hedgeye
10. Utilities (XLU) lagged Higher Beta exposures, +0.6% and remain bearish TREND @Hedgeye

From a trending US Equity Style Factor perspective, I can’t stress enough how important it’s been to be Bullish Enough on High Beta:

1. Last week High Beta was +1.2% vs. Low Beta +0.9%
2. In the last 3 months High Beta is +8.8% vs. Low Beta +6.5%
3. In the last 6 months High Beta is +16.7% vs. Low Beta +0.5%

*mean performance of Top Quartile vs. Bottom Quartile of SP500 Companies

To be Bullish or Bullish Enough, remains the question. Looking at positioning (non-commercial CFTC futures and options), the only view we have that is currently Bullish Enough is being Long Crude Oil:

1. SP500 (Index + E-mini) net LONG position dropped -1,102 contracts last week to +24,945 = +0.07x (1yr z-score)
2. US Dollar’s net LONG position dropped -882 contracts last week to +45,794 = +1.00x (1yr z-score)
3. Crude Oil’s net LONG position ramped another +29,704 contracts last week to +557,570 = +2.23x (1yr z-score)

Since a reading of > +2.0x on a 1yr z-score signals Bullish Enough, I’m calling it Bullish Enough. Are you Bullish Enough?

As you know, consensus can be right for long periods of time – so try not to let your “valuation” biases contradict market history!

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

UST 10yr Yield 2.34-2.53% (bullish)

SPX 2 (bullish)

NASDAQ 5 (bullish)

VIX 10.37-12.18 (bearish)
USD 100.01-101.75 (bullish)
EUR/USD 1.05-1.07 (bearish)
Oil (WTI) 52.02-54.47 (bullish)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer