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“None of this happens in a vacuum.”
-Jim Rickards

Rickards wrote that in his book, Currency Wars, back in 2011. When it comes to central-market-planners trying to bend and smooth economic gravity (and ramp SPY), that couldn’t be a more relevant comment today. Everything is relative. 

Ex-Trump, do you know people who are begging PE Powell to devalue the purchasing power of the American People? That’s not new. As Rickards reminded us in 2011, “America has been a leading advocate of Dollar debasement from the 1770s to the 1970s, through the Revolution, the Civil War, the Great Depression and Carter hyperinflation.” 

So when you think about why the US Dollar is testing a 2-year high this morning, don’t think one-dimensionally. American bankers taught the Asians, Europeans, and Latin Americans how to do this. None of this happens in a vacuum. I’ll be hosting Jim Rickards for a timely/topical Real Conversation today LIVE @HedgeyeTV at 1030AM EST. Free access here.

What If Fed Cuts = #Quad4? - z Central banker cartoon 03.03.2015

Back to the Global Macro Grind… 

I’m not a banker. I’m not your broker. And I’m certainly not a fan-boy of any politician in any political party. Does that make me unique? Maybe. If it doesn’t, I actually don’t care. What I care about is what Quad the economy is in. 

On the heels of a critical “catalyst” day for those begging for more central-market-planning #cowbell, the stock market reaction to Mario Draghi’s latest ideas on devaluing The Euro and extending negative rate policy… was negative.

Yep, it was a Quad 4 Day, indeed. As a back-tested reminder on what happens in Quad 4 from a USD vs. US Equity market perspective: 

A) The US Dollar has its highest expected value in Quad 4 (see Chart of The Day)
B) Inflation Expectations (priced in Dollars) fall
C) High Beta Equity Exposures expecting perpetual “asset price reflation” deflate 

Maybe it’s easier to show you what a Quad 4 sensitive US Equity portfolio looked like yesterday: 

  1. Energy Stocks (XOP), which are core Quad 4 Shorts, led SECTOR STYLE losers at -3.0% on the day
  2. HIGH BETA, as a Factor Exposure, was down -1.7% on the day (we shorted SPHB on FOMO day, fortunately)
  3. Biotech (IBB) and US Retailers (XRT) deflated -1.4% and -1.1% on the day, respectively
  4. Consumer Staples (XLP), which are core Quad 4 Longs, were +0.1% in a sea of red US Equity Beta
  5. Housing Stocks (ITB), which are one of our fav LONGS for Quad 4 in Q3, were up a big +2.0% on the day 

That’s not a relative performance # for Housing (ITB). That’s an absolute return day of +2.0%. If you were short HIGH BETA Energy and Biotech names against it, you made lots of money when the crowd was losing theirs. 

Unlike a FOMO chart like Semis that some people were forced to chase higher in the session prior, Energy (XOP), Biotech (IBB), and Retailers (XRT) have been absolute and relative dogs since US “stocks” bounced off their May lows. 

Remember, it’s what you don’t own that matters most. Get The Quads right, you get your Sector Exposures right. 

“So”… what if the Fed cuts rates next week and both the US economy and her stock market remain in Quad 4 throughout the rest of Q3? We haven’t even finished 1/3 of the quarter and lots of people want to believe it’s already “priced in.” 

Uh, what if FOMO is already “priced in” and so are Dovish Fed expectations? 

If my trifecta of the Triple Peak #Slowing happens (GROWTH, INFLATION, and PROFITS all #slowing, at the same time, through OCT 2019), A) The Fed Isn’t yet Dovish Enough and/or B) Expectations can be offside until they cut aggressively. 

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

UST 10yr Yield 1.99-2.12% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
Utilities (XLU) 59.34-61.35 (bullish)
Housing (ITB) 37.74-39.86 (bullish)
VIX 11.75-15.87 (neutral)
USD 96.27-97.81 (bullish)
EUR/USD 1.10-1.12 (bearish)
Oil (WTI) 54.07-57.98 (bearish)
Gold 1 (bullish)
Copper 2.66-2.76 (bearish)

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

What If Fed Cuts = #Quad4? - CoD  USD Quad 4