“The truth is…”
-James K. Polk
That’s how the 11th President of the United States would privately preface passages in his diary. There are some who mooch and seek the stardom of political office that have different perceptions of themselves than the truth might. Polk abhored them.
In chapter 15 of an excellent US Presidential History book that I just finished titled Polk – The Man Who Transformed The Presidency in America, Polk criticized a US military General who would eventually become the 12th US President, Zachary Taylor:
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“The indomitable bravery of our army saved General Taylor, and not his good generalship, at the Battle of Buena Vista. Had that battle been lost, he would have been condemned by the whole country for his rashness in violation of his orders.” (pg 252) |
Back to the Global Macro Grind…
Seven months into 2017, the #truth is that both US growth and profits have #accelerated from their 2016 cycle lows. That wasn’t a hard thing to foresee given that major components of the US economy (profits, capex, etc.) were in a recession back then.
Then was then… and today is now. That’s the #truth too. Looking forward, rather than living in fear of the next political circus act in D.C., I sincerely hope most investors have learned to focus on fundamentals like, growth, inflation, sales and earnings by now.
On that score, here’s your real-time update on Q2 Earnings Season:
- 294 of 500 S&P companies have reported their respective quarters
- Aggregate S&P SALES growth is running +6.0% year-over-year
- Aggregate S&P EPS growth is running +10.6% year-over-year
- 54 of 102 Nasdaq companies have reported
- Aggregate Nasdaq SALES growth is running +10.7% year-over-year
- Aggregate Nasdaq EPS growth is running +13.6% year-over-year
And the #truth is that if you bought the Nasdaq 100 right before #ProfitsAccelerating Season started (end of June), you added another +4.0% return in July, taking your US #GrowthAccelerating Sector Allocation (NDX) to +20.9% YTD.
How many of the Old Wall Media’s fav macro pundits nailed that?
A: very few. Most of them have spent the season whining about “valuation”, Trump, etc. Meanwhile, the winning returns have been associated with realizing the historical #truth that as US growth accelerates, “expensive” US stocks get more expensive.
What was another major macro market #truth in July?
- The US Dollar Index dropped -2.9% to -9.1% YTD
- The Euro ramped +3.4% vs. USD to +11.9% YTD
- The Pound popped +1.5% vs. USD to +6.8% YTD
And coming back to the short-side of EUR/USD at $1.15-1.16, the score says I’ve had that wrong so far inasmuch as I’ve had staying away from the long-side of the USD Index since we made the Reflation’s Rollover call at the beginning of Q2 right.
Now that you can see how Consensus Macro positioning can only last for so long if the fundamental growth and inflation picture doesn’t support the price level realized (see the Pound ripping from where we liked it in Q117 at $1.20 to $1.32 for details)…
You can probably see why, after waiting and watching for both Reflation’s Rollover and a predictably Dovish Down Dollar Fed to get priced into that consensus positioning, that I finally issued a BUY signal in USD (via the UUP) in Real-Time Alerts yesterday.
On that consensus in FX, here’s the latest non-commercial CFTC futures & options positioning:
- US Dollar moved to a net SHORT position of -2,554 contracts last week = -2.08x on a 1yr z-score
- Euros net LONG position was flat week-over-week at +93,250 contracts = +1.92x on a 1yr z-score
- British Pound net SHORT position has collapsed to -25,537 contracts = +1.69x on a 1yr z-score
As a reminder, when any macro net LONG/SHORT position moves to +/- 2.0x on a 1yr z-score we register that as a “consensus macro position” that we’ll look to fade like we did GBP/USD when its net SHORT position peaked in Q117.
The #truth is that getting everything in macro right at the same time is almost impossible. Being early (i.e. wrong) on an idea is ok. But it’s more ok to be building a position in an idea like that when the rest of your ideas are working.
As I outlined in last week’s Early Look “Doves vs. Hawks” I’d like to take my time pivoting in both my interest rate and sub-sector exposures (Long Financials vs. Short Industrials). But another #truth is that Mr. Market doesn’t always wait for you.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.24-2.34% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
VIX 9.17-10.86 (bearish)
USD 92.50-95.03 (neutral)
EUR/USD 1.15-1.18 (neutral)
GBP/USD 1.29-1.32 (bullish)
Oil (WTI) 45.19-50.88 (bearish)
Nat Gas 2.76-2.99 (bearish)
Copper 2.73-2.95 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
