“The truth is always more heroic than the hype.”
-Jessica Lynch
I don’t know about you, but I’m a pretty hopeful person. If you want to build and grow your own company (and/or a family with 4 children!), you have to be. You have to have a passion to pursue all of your hopes and dreams. You also have to grind.
That said, especially when building a company and/or portfolio, hope is not a risk management process. Neither is hyping up your positions in hopes to sell people on a situation being more truthful than it really is.
What is the truth about China? What is the truth about the Global Economic Cycle? What will the truth about the US cycle look like within 2 months if we get our first big rate of change slow-down in headline GDP?
Back to the Global Macro Grind…
Today will be a super huge and wonderful day for Macro Tourists looking to tell you a new narrative about why the stock market is up. Will it jive with the one of a “Dovish Fed” from earlier last week? Uh…
Regardless of the storytelling, we’ll stick with the same risk management #process that A) got you out of China, Europe, and Emerging Markets back in JAN and B) got you out of Momentum, High Beta, and US Growth on SEP 27, 2018.
Today is indeed, Macro Monday @Hedgeye. So let’s get after it and measure and map what macro markets did within the context of our multi-factor and multi-duration TRADE, TREND, and TAIL model.
First, let’s start with one of the biggest things that did not change last week - the Global FX market signal:
- US DOLLAR Index was up another +0.3% last week to +5.5% YTD and remains Bullish @Hedgeye TREND
- EUR/USD was down another -0.2% last week to -5.7% YTD and remains Bearish @Hedgeye TREND
- Yen was down -0.5% vs. USD last week to -0.7% YTD and remains Bearish @Hedgeye TREND
- Pound was down another -0.5% vs. USD last week to -5.7% YTD and remains Bearish @Hedgeye TREND
- Canadian Dollar was down another -0.4% vs. USD last week to -5.4% YTD and remains Bearish @Hedgeye TREND
- Argentine Peso was down another -0.4% vs. USD last week to -50.7% YTD and remains Bearish @Hedgeye TREND
- Brazilian Real was down another -1.0% vs. USD last week to -14.3% YTD and remains Bearish @Hedgeye TREND
- Russian Ruble was down another -1.4% vs. USD last week to -14.0% YTD and remains Bearish @Hedgeye TREND
#StrongDollar has a TRENDING @Hedgeye inverse correlation of -0.72-0.75 vs. both the SP500 and Oil. It’s also one of the biggest asset allocation winners when the mean and mode of Global Economic Growth slows into Quad 4.
But… drumroll… “the Fed went dovish” (sort of) last week… because… we’re in Quad 4, and stocks (globally) loved that:
- SP500 was up for the 3rd week in the last 10, +4.9% to +3.2% YTD but remains Bearish TREND @Hedgeye
- EuroStoxx 600 was only up +1.0% last week to -8.1% YTD and remains Bearish @Hedgeye TREND
- Emerging Markets (MSCI) were +3.0% last week to -13.8% YTD and remain Bearish @Hedgeye TREND
- Japanese Stocks (Nikkei) were +3.3% last week to -1.8% YTD and remain Bearish @Hedgeye TREND
- Chinese Stocks (Shanghai) were only +0.3% last week to -21.7% YTD and remain Bearish TREND @Hedgeye
Well, if you want to call Europe up +1% and China barely up on the week “loving” the newly re-synchronizing-global-recovery… you can call it that. In truthful news, November PMIs in Germany, France, and Italy all slowed (again) this morning.
The other big thing that happened with #StrongDollar and Global Quad 4 economic data last week was that the biggest nominal net SHORT position in macro (short Treasuries) continued to get unwound:
A) US 2yr Yield was down another -2 basis points last week to 2.79% and is now Bearish @Hedgeye TREND
B) US 10yr Yield was down another -5 basis points last week to 2.99% and is now Bearish @Hedgeye TREND
C) Yield Curve (10s minus 2s) compressed another -3 basis points last week to +20bps wide
Obviously when Yields move to Bearish @Hedgeye TREND that makes the underlying Treasury Bonds Bullish @Hedgeye TRENDs. With UST Yields down for 4 weeks in a row, I just thought I’d mention that again as that’s one of our best new asset allocations (Treasuries across the curve) when the US economy slows from Quad 1 and 2 into Quad 4.
Utilities (XLU) weren’t up as much as Healthcare Stocks (XLV) last week, but both are Top US Equity Sector Overweights when the US economy moves into Quad 4:
A) Healthcare (XLV) was up a monster +7.0% last week to +16.0% YTD and remains Bullish TREND @Hedgeye
B) Utilities (XLU) were up another +2.7% last week to +5.5% YTD and remain Bullish @Hedgeye TREND
On the short side, I’ll be looking to add to pretty much every short I covered in Real-Time Alerts in November.
Not every month is as successful as OCT and NOV were for us, but I’m sure looking forward to the 3rd big short-selling opportunity we’ve had since September to go for 3 great months in a row. Admittedly, I have to thank Old Wall hype for that.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.99-3.09% (bearish)
SPX 2 (bearish)
NASDAQ 6 (bearish)
Utilities (XLU) 53.80-55.75 (bullish)
Shanghai Comp 2 (bearish)
Nikkei 219 (bearish)
VIX 15.48-23.65 (bullish)
USD 96.01-97.56 (bullish)
EUR/USD 1.11-1.14 (bearish)
YEN 112.21-114.21 (bearish)
GBP/USD 1.26-1.29 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
