Don't Cry For Me, Currency Crashes

“Don’t cry for me, Argentina.”
-Madonna 

Did the US start a “trade war” with Argentina or Brazil? Nope. The Argentine Peso crashed all on her own. And now President Macri is the one who is going to impose “new taxes on exports.”

Don't cry for me, Argentina
The truth is, I never left you
All through my wild days, my mad existence
I kept my promise 
Don't keep your distance

Yep, the truth is that #TheCycle never left Latin America. The same consensus Macro Tourists who think every market move is due to “Trump and Trade War” were the ones who came into 2018 long of Emerging Markets because it was allegedly “different this time.”

Welcome back to work, btw. The summer of 2018 was awesome; especially if you travelled the world with #StrongDollars!

Back to the Global Macro Grind…

I’m all fired up this morning because it’s the 1^st Macro Monday of the non-summer season. For those of you who are new to our apolitical and rate of change #process, on Mondays we contextualize last week’s macro moves within @Hedgeye TREND views.

Let’s start with these ongoing Currency Crashes:

1. US Dollar Index was flat last week at 95.14 and remains Bullish TREND @Hedgeye
2. EUR/USD fell -0.2% last week to -3.4% YTD and remains Bearish TREND @Hedgeye
3. British Pound bounced +0.9% vs. USD last week to -4.2% YTD but remains Bearish TREND @Hedgeye
4. Argentina’s Peso crashed another -16.4% last week to -49.5% YTD and remains Bearish TREND @Hedgeye
5. Turkey’s Lira collapsed another -8.1% last week to -41.9% YTD and remains Bearish TREND @Hedgeye
6. Australia’s Dollar got tagged for a -1.9% loss last week to -7.9% YTD and remains Bearish TREND @Hedgeye
7. India’s Rupee moved toward #crash mode down -1.5% last week to -9.8% YTD and remains Bearish TREND @Hedgeye

That’s right – a “crash” in a currency (defined by me) is a drop of -10% or more whereas an equity market #crash is a decline of -20% or more. If you’d like to call it something else like train wreck, disaster, or whatever that’s totally cool with me.

There are actually plenty of crashes already in motion across macro markets in 2018. Greek stocks (down another -0.7% today and down -19% since JAN 2018) are about to join that #RiskOn look to “globally diversified” pie-chart portfolios this morning.

As you know, #StrongDollar perpetuates crashes across Global Macro. Always has, always will. And, unless it’s different this time, as 37% of countries move into Quad 4 in Q4, the US Dollar’s expected value is higher than in any other economic quadrant.

Here’s how some Commodities fared with a flat Dollar last week:

1. CRB Commodities Index (19 commodities) +0.5% to -0.5% YTD and remains Bearish TREND @Hedgeye
2. Oil (WTI) was up another +1.6% last week to +18.9% YTD and remains Bullish TREND @Hedgeye
3. Copper’s #crash continued, down another -1.9% last week to -20.3% YTD and remains Bearish TREND @Hedgeye
4. Gold was down another -0.5% last week to -9.5% YTD and remains Bearish TREND @Hedgeye
5. Silver was down another -2.3% last week to -16.7% YTD and remains Bearish TREND @Hedgeye
6. Coffee’s #crash continued, down another -2.8% last week to -25.5% YTD and remains Bearish TREND @Hedgeye

In other words, ex-Oil, whether it’s a single commodity exposure that is crashing or not, Commodities as an asset class is not where you want to have your money as the majority of the world deals with Quad 4 economics.

*As a reminder, Quad 4 is when both growth and inflation are slowing, at the same time

So, if you can’t be long:

1. Foreign Currencies
2. Emerging Market Equities
3. Commodities

Should you stay “long Europe because it’s cheap?”

A: not unless you want to lose relative performance to whoever stayed long “expensive US Equities” for the last 3, 6, and 12 months.

In sharp contrast to US Equity Indices (SP500, NASDAQ, and Russell) which all made new all-time highs last week:

1. EuroStoxx600 was down -0.3% last week to -1.8% YTD and remains Bearish TREND @Hedgeye
2. London’s FTSE was down another -1.9% last week to -3.3% YTD and remains Bearish TREND @Hedgeye
3. Italy’s MIB Index was down another -2.3% last week to -7.2% YTD and remains Bearish TREND @Hedgeye

This is how the “growth scarcity” pitch starts to resonate with asset allocators. With #PeakCycle US Earnings Season wrapping up last week at +25.4% aggregate year-over-year SP500 earnings growth, why wouldn’t you stay long what’s working?

1. US Tech Stocks (XLK) up another +1.8% last week to +18.2% YTD remain Bullish TREND @Hedgeye
2. US Consumer Discretionary Stocks (XLY) up another +1.8% last week to +18.5% YTD remain Bullish TREND @Hedgeye

And… stay short and/or underweight what’s not working (China, EM, Europe) in Global Equities in 2018?

I suppose if one’s clients are either unaware or political enough, they may tolerate another terrible year of Global Macro returns because all of this is all about Trump and “trade wars”?

But the thing about people who have made a lot of money is that they don’t like to lose it. That’s why I think you keep booking gains in late-cycle US Equity exposures like Tech and Consumer Discretionary and re-invest or rotate as we head towards Quad 4 in Q4.

Re-invest and rotate into what did not work last week, that is – long-term US Treasury Bonds, Utilities (XLU), REITS (VNQ), and Consumer Staples (XLP). Oh, and all the while, hold onto those non-crashing US Dollars too.

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

UST 10yr Yield 2.79-2.90% (bearish)
SPX 2 (bullish)
NASDAQ 7 (bullish)
Utilities (XLU) 53.03-54.37 (bullish)
REITS (VNQ) 82.79-84.68 (bullish)
DAX 129 (bearish)
VIX 11.54-13.83 (bearish)
USD 94.25-96.00 (bullish)
EUR/USD 1.14-1.17 (bearish)
GBP/USD 1.27-1.30 (bearish)
Oil (WTI) 66.20-71.36 (bullish)
Gold 1183-1221 (bearish)
Copper 2.59-2.73 (bearish)
Corn 3.50-3.73 (bearish) 

Best of luck out there this week,
KM

Keith R. McCullough
Chief Executive Officer