“I’d light a cigar and just sit back.”
-Red Auerbach
That’s what one of the greatest US professional basketball coaches of all-time would do when he knew his Boston Celtics had the game in hand. Think that annoyed the losing team and their fans?
As Auerbach explained in Let Me Tell You A Story, “It always bothered me to see coaches who are up 20-30 points jumping up and down and screaming with minutes to go… so I’d kind of sit there and not know exactly what to do… the cigar didn’t become a big thing until we started winning championships.” (pg 73)
And winning is what Auerbach’s teams did. They won 9 NBA Championships in 10 years while he was the Head Coach. If US GDP stays where it’s at as of Friday’s data, that will be a record 9 consecutive quarters of US #GrowthAccelerating.
Back to the Global Macro Grind…
It’s Macro Monday! For those of you who are new to our apolitical and data-driven research and risk management #process, on Mondays we contextualize last week’s macro moves within the context of @Hedgeye TREND views.
Before I get into the ongoing #crash in both the Chinese stock market and foreign currency markets…
The aforementioned point about US GDP is that our predictive tracking algo ticked up to +2.95% year-over-year and +3.04% q/q SAAR for Q318 as of Friday’s Retail Sales and Industrial Production data.
It’ll be a data point dog fight for the final basis point countdown on whether Q3 can beat the +2.90% year-over-year Q218 print. Sequentially, the 3.04% is obviously lower than Q2’s +4.2%. US Growth Bulls have been smoking the stogies for 2 years now.
Back to the FX #Crash, that happened despite a Dollar Down week:
- US Dollar Index was down -0.5% last week to +3.0% YTD and remains Bullish TREND @Hedgeye
- EUR/USD was +0.6% last week to -3.2% YTD and remains Bearish TREND @Hedgeye
- Japanese Yen was down -0.9% vs. USD last week to +0.6% YTD and remains Bearish TREND @Hedgeye
- British Pound bounced +1.2% vs. USD last week to -3.3% YTD and remains Bearish TREND @Hedgeye
- Argentine Peso continued to crash -7.4% vs. USD last week to -53.4% YTD and remains Bearish TREND @Hedgeye
- Brazilian Real continued to crash -2.8% vs. USD last week to -20.6% YTD and remains Bearish TREND @Hedgeye
Imagine what this looks like on the next ramp in the US Dollar? With the USA set to hit Quad 4 in Q4 (joining the mean and mode of the Top 20 countries in the world by GDP). The higher USA goes in Q3, the lower sequentially it can in Q4. That’s just math.
The Down Yen move had the Nikkei rip +3.5% last week. Meanwhile the #crashing currency story in Argentina and Brazil had the LATAM Equity (MSCI) Index down another -0.7% to -13.9% YTD which is god awful vs. what US Growth stocks did:
- US Tech Stocks (XLK) were +1.9% on the week to +17.2% YTD
- US Consumer Discretionary (XLY) was +1.2% on the week to +18.5% YTD
What Macro Hedgie lit a big fat one in JAN staying Long US Growth (and Dollars) vs. Short EM Equity and FX? The Professional Alpha League wants to know! Wow was there a lot of money to be made if you’re a Global Macro Long/Short fund.
It wasn’t just LATAM stocks or their currencies you could have been short and making money on last week:
- Chinese Stocks were down another -0.8% last week to -18.9% YTD and remain Bearish TREND @Hedgeye
- Philippines’ stock market was down another -2.2% to -13.4% YTD and remains Bearish TREND @Hedgeye
- Hungary’s stock market was down another -2.5% to -7.9% YTD and remains Bearish TREND @Hedgeye
Philippines and Hungary? Are you kidding me KM? Nope. Those (and shorting Indonesian stocks, the Chilean Peso, etc.) could have made an upstart hedge fund famous! But if you just shorted big stuff (liquid China, EM, and LATAM) that worked too.
The other great story developing in alpha space (on the short side vs. US Dollars and Equity Long) is the implosion in #PeakCycle inflation expectations in the Commodities Asset Class:
- CRB Commodities Index did nothing at 0.0% last week to -1.7% YTD and remains Bearish TREND @Hedgeye
- Gold did nothing at 0.0% last week to -9.9% YTD and remains Bearish TREND @Hedgeye
- Corn got cobbed for a -4.2% decline last week to -8.4% YTD and remains Bearish TREND @Hedgeye
- Coffee got clobbered for a -2.7% deflation last week to -27.1% YTD and remains Bearish TREND @Hedgeye
- Lumber got chopped for a -3.3% drop last week to -7.0% YTD and remains Bearish TREND @Hedgeye
So if you’re confused on how the USA can go on a record run for 8 or 9 (we’ll see, data pending) consecutive quarters of year-over-year GROWTH #accelerating, to Quad 4 in Q4… the #InflationSlowing part of that is easy to see.
On how we could be wrong on the growth part, well don’t forget the epic Q417 acceleration we called for during US Tax Reform last year. Those base effects are youge!
And if we’re wrong on that, you know what we’ll do? Unlike China, Europe, EM, LATAM, etc. bulls this year who have been averaging down into an abyss, we’ll change our mind. There’s no need to do that or light the cigars on Global Quad 4 yet.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.85-3.02% (neutral)
SPX 2 (bullish)
NASDAQ 7 (bullish)
Shanghai Comp 2 (bearish)
Nikkei 224 (bullish)
VIX 11.58-15.43 (bullish)
USD 94.40-95.75 (bullish)
EUR/USD 1.15-1.17 (bearish)
YEN 110.76-112.30 (bearish)
GBP/USD 1.28-1.31 (bearish)
Gold 1190-1211 (bearish)
Copper 2.61-2.70 (bearish)
Corn 3.46-3.62 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
