“For markets to function there needs to be a shared concept of value and standardized units in which to measure it.”
-Felix Martin
That quote comes from Martin’s thought provoking book on currencies in 2013 called Money. Ironically enough, he’s considered one of the big Bitcoin bulls. His own words explain why the alternative currency to coins (US Dollars) is currently crushing it.
Are you crushing it? From what we hear in client meetings, some people are getting crushed. That doesn’t make a lot of sense to us given both #GlobaDivergences and the most recent breakout in the world’s reserve currency.
The US Dollar is breaking out BECAUSE we’re having #GlobalDivergences!
Back to the Global Macro Grind…
For those of you who are new subscribers to the Hedgeye Independent (data driven) Research #Process, welcome aboard. Just to get you up to speed, #GlobalDivergences was one of the Top 3 Macro Themes we introduced at the beginning of 2018.
What are Global Divergences?
- When real growth slows (by country) relative to US growth… and
- When real market returns reflect those divergences
Those “returns” aren’t just in stocks. The most obvious winner of the Long USA trade is in the currency market. Do you want to be long of Brazilian Real and Turkish Lira when both Brazilian and Turkish growth is #slowing?
I realize that you realize that these are simple and causal relationships driving returns. What isn’t simple is measuring and mapping both GROWTH and INFLATION, by country, in rate of change terms, on a daily basis.
Rather than jumping from Macro Tourist site to tourist site, what we really care about watching every day is our Global Macro Dashboard that I’m showing you as today’s Chart of The Day (slide 50 in the current Macro deck).
1, 2, 3, 4 – I declare a Global Macro hedgie war!
Yep, there are no sentences in this table of economic data – just numbers. We’re not opining on what the world’s economies should be doing either. We’re simply scoring each country with rate of change numbers (i.e. what the data is already doing):
- Quads 1 and 2 are good
- Quads 3 and 4 are bad
Good/Bad from a real growth perspective I mean. Quad 4 is really bad – that’s when both GROWTH and INFLATION are slowing, at the same time. Here are 10 countries that were entering Quads 3 and 4 in the 1st half of 2018:
- Brazil
- China
- France
- Germany
- Indonesia
- Italy
- South Africa
- South Korea
- Spain
- Turkey
All the while, your local Old Wall economist was calling this a “globally synchronized recovery.” And you wonder why some people are getting crushed? I wouldn’t mind if they remained gainfully employed for life. We love being on the other side of these trades!
So, because Italian bond yields are down for the 2nd day in a row and the EUR/USD has bounced within its Bearish @Hedgeye TREND in kind, does that mean that the Emerging Market currency crash we’re in now ceases to exist?
If you want to receive the line items that get fired into our predictive tracking algos every day, we can do that for you. For a price we send out what’s called the Hedgeye Global Macro Risk Monitor, daily. An example yesterday was Brazil’s data:
- Brazil: data confirmed our #Quad4 forecast for Q1; data mixed w/ respect to our #Quad3 forecast for Q2
- Q1 Real GDP: 1.2% YoY ↓ from 2.1%; inflecting lower from a trending perspective
- MAY CNI Consumer Confidence Index: unchanged at 102.2; trending higher
Did you know that? Or are you waiting for the monkeys on CNBC to tell you why Brazil’s popular equity ETF (EWZ) just crashed (down -25% since peaking when the “globally synchronized recovery” consensus positioning did in JAN 2018)?
I used to be a macro monkey. I also worked with plenty of them. When you’re trained as a fundamental, “bottom-up”, stock picker, your plate is full and the macro stuff can be too much to absorb. That’s why I built a repeatable and objective #process for that.
As we’ve explained, being Long USA in its purest broad US Equity Index exposure is best achieved via the Russell 2000 (IWM). It ramped to an all-time closing high of 1647 yesterday. Long Russell vs. Brazil, Turkey, and China? Yes, you are crushing it.
Long our Top 3 USA Sector Styles: US Energy (XLE), Consumer Discretionary (XLY) and Tech (XLK)? Boom, #crush! Have friends who were long of Italian currency (Euros) and/or EM currency/credit risk? They got crushed.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.77-3.17% (bullish)
SPX 2 (neutral)
RUT 1 (bullish)
NASDAQ 7 (bullish)
Energy (XLE) 73.88-80.30 (bullish)
VIX 12.23-16.65 (bullish)
USD 92.75-94.80 (bullish)
EUR/USD 1.15-1.18 (bearish)
YEN 108.10-111.41 (bearish)
GBP/USD 1.32-1.35 (bearish)
Oil (WTI) 66.09-73.00 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
