Blame The Machine?

“Taking advice from no one and blame for nothing.”
-John Feinstein

If you want the definition of a bad professional leader, there you have it. That’s how one of the best coaches in NBA history (Red Aeurbach) described short-time Boston Celtics Coach, Rick Pitino.

In the NBA, Pitino wasn’t big on professional accountability. After resigning during what would have been his 4^th straight losing season as a Head Coach in the best basketball league in the world, Pitino’s Celtics were 102 (wins) and 146 (losses).

Some people in our profession blame everyone but themselves too. After watching two US stock market crashes in my career, that hasn’t changed. What continues to change is The Game itself. There’s massive opportunity in understanding that.

Back to the Global Macro Grind…

Good Columbus Day to you! It’s also Macro Monday. For those of you who are new to our research and risk management #process, on the 1^st day of the week we review last week’s macro moves within the context of @Hedgeye TRENDs.

Let’s start with that Quad 4 style #StrongDollar Global Currency market:

1. US Dollar Index up another +0.5% last week to +3.8% YTD remains Bullish TREND @Hedgeye
2. Euro (vs. USD) down another -0.7% last week to -4.0% YTD remains Bearish TREND @Hedgeye  
3. Canadian Dollar down -0.3% vs. USD last week to -2.9% YTD remains Bearish TREND @Hedgeye  
4. Yen flat vs. USD at -0.9% YTD and remains Bearish TREND @Hedgeye  
5. Russian Ruble down -1.6% vs. USD to -13.5% YTD and remains Bearish TREND @Hedgeye  
6. Indonesian Rupiah down -2.4% vs. USD to -11.0% YTD and remains Bearish TREND @Hedgeye  
7. Turkish Lira down -1.3% vs. USD to -38.1% YTD and remains Bearish TREND @Hedgeye  
8. Chilean Peso down -2.7% vs. USD to -9.7% YTD and remains Bearish TREND @Hedgeye  
9. South African Rand down -4.3% vs. USD to -15.9% YTD and remains Bearish TREND @Hedgeye  
10. Bitcoin down another -1.6% vs. USD last week to -54.3% YTD and remains Bearish TREND @Hedgeye  

Oh, you have crypto friends and perma Gold bulls who thought both would do awesome during a worldwide currency and China/EM (+ European) equity market crash? Tell them not to blame the machines; blame their process, bias, or premise.

On that equity market crash update, it’s nasty Quad 4 out there this morning with the Chinese stock market dropping another -3.7% overnight the Hang Seng down -1.4%, taking their respective crashes to -23.7% and -21.0% since JAN.

This comes on the heels of not only US Growth and High Beta Factor Exposures getting smoked last week (Russell 2000 down -3.8%), but Emerging Market and European Equity exposures remaining Bearish @Hedgeye TRENDs:

1. Emerging Markets (MSCI Equity Index) down -4.5% on the week to -13.6% YTD remain Bearish TREND @Hedgeye  
2. European Stocks (EuroStoxx600) down -1.8% on the week to -3.3% YTD remain Bearish TREND @Hedgeye  
3. Italian Stocks down another -1.8% on the week to -6.9% YTD remain Bearish TREND @Hedgeye  
4. Greek Stocks down another -4.7% on the week to -17.9% YTD remain Bearish TREND @Hedgeye  
5. Turkish Stocks down another -5.1% on the week to -17.7% YTD remain Bearish TREND @Hedgeye  

I’m not cherry picking. If I was I’d have called out India’s stock market being down -6.1% in a straight line last week after its currency crashed in the prior months. India’s BSE Sensex is down -11.2% in the last month alone as of this morning’s decline.

Picking on myself, the one place I got tagged last week was obviously being long duration via long-term US Treasuries. The UST 10yr Yield was up an eye popping +17 basis points on the week to 3.23% and, thankfully, isn’t ramping again this morning.

Italian bond yields, which were +28 basis points last week (on the 10yr), are ripping higher, however… up another +15 basis points this morning to +3.42% with a Greek bonfire in bond yield terms right behind them as German Bund yields fall.

Interestingly, but not shockingly, Utilities (XLU) were UP +1.8% last week, despite the move in both local and global bond yields. Compared to being long anything US Growth/Momentum, that proved to be a Quad 4 winner because:

1. US Consumer Discretionary Stocks (XLY) dropped -4.3% on the week to +13.7% YTD
2. US Tech Stocks (XLK) corrected another -2.3% on the week to +15.1% YTD

Yeah, the YTD gains are good. But don’t forget we were one of the few firms obeying the rules of The Machine, being long those US #GrowthAccelerating exposures when the US economy was in Quad 2 for 5 quarters in a row. We’re in Quad 4 now.

And in Quad 4, this thing called equity volatility rips. Last week the front-month US Equity Volatility (VIX) ripped +22% to +34% YTD. That too, is a big YTD move. Then again the unwind in “globally synchronized” growth expectations has been too.

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

UST 10yr Yield 2.99-3.24% (bullish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 51.21-53.91 (bullish)
Shanghai Comp 2 (bearish)
VIX 12.73-15.60 (bullish)
USD 93.63-96.10 (bullish)
EUR/USD 1.14-1.16 (bearish)
YEN 112.30-114.71 (bearish)
GBP/USD 1.28-1.31 (bearish)
Oil (WTI) 70.64-76.90 (bullish)
Bitcoin 6 (bearish) 

Best of luck out there this week,
KM

Keith R. McCullough
Chief Executive Officer