“Bitcoin forced me to realize I didn’t understand money.”
-Wences Cesares
That’s one of my favorite quotes from a Bitcoin bible called Digital Gold. Wences Cesares is an Argentine (congrats on the #WorldCupWin yesterday by the way!) who is my age and made a lot of money (if he realized some gains in Dollars) in Bitcoin.
But did the Bitcoin and Crypto evangelists force themselves to realize that they all didn’t quite understand Bitcoin within the context of Global Macro markets? The graveyard is growing on failed hedge fund managers who pivoted to long crypto last year.
The appeal to many Latin American Bitcoin promoters is that they can “trust it” more than something like Brazilian Reals and Argentine Pesos. Yet the Bitcoin crash of 2018 is far more spectacular at this point than the crashes in those currencies have been.
Back to the Global Macro Grind…
Yep, there’s a lot of crashing going on out there in 2018:
- Crypto
- EM Currencies
- Levered long EM Debt and Equity portfolios
- China’s Stock Market (Shanghai Composite Index)
- Philippines Stock Market
- European Bank Stocks
Fortunately, due to our rate of change crystal balls, we haven’t had you long of any of that stuff. No matter how much you think you understand “money”, never, ever, forget Rule #1 of Investing: Don’t (crash and) Lose Money.
Unless I was trying to become an author or an academic, I don’t have time to waste trying to convince you that, after centuries of debate, I’m the chosen one who “understands money.” I’m too busy trying to prove that I understand macro markets!
God willing, with two feet on the floor every morning, we rise up against the ivory towers, Old Walls, and crypto brokers of the world and give you a transparent, accountable, and objective break-down of what economic data and market signals are doing.
If that’s all we can consistently do for our clients, across cycles, I’m good with that.
While there will be a time when I am long of some or all of those 6 Things That Are Crashing, that time will not be today. The causal factors that have driven cross asset class volatility straight up off the all-time lows are trivial at this point.
Rather than blaming it all on #TradeWars (such a lazy out), here’s how all of this sequenced so far in 2018:
- #GlobalDivergences started to manifest across both economic data and macro markets in Q1 of 2018
- #ChinaSlowing, #EuropeSlowing, and #EMSlowing from 2017 cycle peaks was obvious in Q1 of 2018
- FX Volatility started to pick up in kind in Q1 then exploded to the upside in Q2 of 2018
- All the while, the world’s reserve currency caught a bid and broke out in Q2 of 2018 as well
- EM currency and crypto crashes #accelerated to the downside to new lows throughout Q2 of 2018
- Chinese Stocks moved into #crash mode in Q2 of 2018
And … a bunch of other stuff happened along the way that most Macro Tourists will just blame Trump for anyway.
In other real-time market news this morning, The Question remains “Have Rates Peaked?”
- The Sword of Damocles (European Rates) continues to fall, across the board in every European country, this morning
- Swiss 10s are the low-yielder at negative -0.11%; Germany’s 10yr Bund Yield is down to +0.31%
- And … the UST 10yr Yield is down to 2.85% with most of Old Wall consensus still positioned for “Rates Rising”
All the while, the Yield Spread is compressing to a fresh YTD low of +33 basis points (that’s subtracting the 2yr UST Yield from the 10yr) as there’s going to be no US economic data to support the Fed going “dovish” (taking down the 2yr yield) anytime soon.
That said, with China, Europe, and EM #slowing, the Bond Market doesn’t have to wait for the Fed. Mr. Market is happy to see their “4 rate hikes” with a probability of 1.5-2 priced in at best. Why not rate cuts in 2019?
Since our predictive tracking algos are calling for late-cycle +3% handles on both headline inflation and US GDP growth for Q2 (which won’t be reported until Q3 – our headline GDP tracker is currently at +3.26%), Powell will have no US #slowing data.
He may very well have falling US Consumer Confidence (which slowed to 126 in JUN vs. 128 in MAY and the US cycle peak in US Confidence that followed Tax Reform + the all-time closing high in the SP500 in JAN) and falling global cyclical stock markets.
But he will not have Trump or #TradeWar to blame ahead of the mid-term elections…
Does Jerome Powell “understand money?” I don’t care if he does or doesn’t. What macro markets really care about is whether or not the US Federal Reserve wants to continue to tighten monetary policy in the face of an obvious global slow-down?
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.84-2.96% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
REITS (VNQ) 78.77—81.46 (bullish)
Industrials (XLI) 70.75-73.47 (bearish
DAX 12053-12667 (bearish)
VIX 12.80-18.28 (bullish)
USD 93.75-95.05 (bullish)
Oil (WTI) 64.16-70.49 (bullish)
Gold 1 (bearish)
Copper 2.91--3.07 (bearish)
Bitcoin 5 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
