“When you have exhausted all possibilities, remember this: you haven’t.”
-Thomas Edison

Are you long US Dollars, US Treasuries, and Bond Proxies (Utilities & REITS)? If you’re feeling like there’s more you can do to protect your hard earned net worth during Quad 4 in Q4, there probably is. 

The aforementioned quote comes from one of America’s greatest non-consensus thinkers and was cited in a great book I’ve been calling out this year, Runaway SpeciesHow Human Creativity Remakes The World, by Anthony Brandt and David Eagleman. 

“We see diversity, and the heavy investment in alternatives, in nature’s constantly branching tree of life. Why? Because the surest path to extinction is to over-invest in a single solution” (pg 156).  Thankfully, Old Wall Macro isn’t extinct, yet. 

Back to the Global Macro Grind… 

Thankfully? Of course. It’s Thanksgiving this week. Anyone who likes to make money when the crowd is losing it should be thankful for the other side of the trade.

Long Treasuries Yet? - zbond

If you’re not long Treasuries yet, here’s what you might be thinking:

  1. “Inflation is breaking out to the upside”
  2. Treasury issuance is at “all-time highs”
  3. Something about Trump and “tariffs” 

Whereas what we’ve been thinking is:

  1. We’ve already seen #PeakCycle year-over-year US Growth and Inflation in Q2/Q3
  2. The all-time high issuance in Treasuries was actually in 2010 (and yields got smoked into 2011-2012)
  3. #StrongDollar is trumping all alleged “tariff” inflation (US imports get reported in US Dollars)

We were doing the Institutional Investor rounds in NYC yesterday and slide 44 in our Q4 Macro Themes deck (Chart of The Day) explains the last point I just made on tariffs: 

A) The quarterly average of the Trade Weighted USD was -6.7% year-over-year at the peak of the Global Growth Cycle (Q118)
B) The quarterly average of the Trade Weighted USD could easily be +8.2% year-over-year in Q1 of 2019 during Global Quad4 

I know. All this ROC (rate of change) stuff can drive the mind mad when the math is bouncing around in between political narratives. The goal of the contrarian’s game is to go from politicized ignorance to mathematical awareness. 

Apologies in advance for not mentioning one of the biggest reasons why someone with no Global Macro GIP Research #process would have been SHORTING Treasuries during the 2 periods in OCT and NOV where you could have bought USTs at 3-year lows: 

A: The Chart 

Yep, just the chart. You know, the same single factor moving average “chart” that would have looked “bullish” on the NASDAQ at the end of August of 2018 (it’s down -13.3% since) or the Russell 2000 (it’s down -14.0% since)… 

Now that the 50-day Moving Monkey chart for the UST 10yr Yield suggests what was 3.11% “support” is now resistance, #omg, the chart is “breaking down, bro!” 

That area above 3.20% for the 10yr Yield that Old Wall Technicians were calling a “37 year breakout going back to 1981” didn’t see Mr. Market spend much time up there. For those of you who are into measuring and mapping momentum, just count the days. 

But I digress… 

And I remain long of both The Long Bond (TLT) and Short-term Treasuries (SHY) which I added to my p.a. (personal accounts) after I signaled buy on it in Real-Time Alerts on October 19th, 2018. #timestamped 

Who is likely to perpetuate rising Treasuries if bond yields continue to make lower-long-term-highs?

  1. The Machine (quants chase 1-month price momentum reversals, don’t forget)
  2. The Fed (everyone is clamoring for a Dovish Fed now)
  3. The ROW (rest of the world)

Yeah, there’s a LOT of Treasuries being issued here in Q418 (taking the 2018 total issuance over $1.3T). And you know what? The ROW is going to need them! If you run a Fixed Income portfolio, where do you reinvest when you sell your Junk and High Yield? 

Moreover, if you’re a Global Asset Allocator, where do you go when a Quad 4 Hurricane hits Global Credit and Equity markets? Hint: not Bitcoin. 

With China #crashing (again) this morning (Shanghai Comp down -25.7% since JAN), Italian stocks #crashing (down -24% since May) and Oil #crashing (down -26% since OCT)… 

Where does the smart money flow? When they think they’ve exhausted all super smart credit and stock picking possibilities, remember this: consensus hasn’t even gotten long Treasuries yet. 

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

UST 10yr Yield 3.02-3.15% (neutral)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 6 (bearish)
Utilities (XLU) 54.07-55.59 (bullish)
Industrials (XLI) 69.17-73.60 (bearish)
Shanghai Comp 2 (bearish)
VIX 15.50-24.33 (bullish)
USD 95.65-97.65 (bullish)
Oil (WTI) 54.00-61.58 (bearish)
Bitcoin 4 (bearish) 

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Long Treasuries Yet? - ... But What About Tariffs