“My philosophy is that all foreigners are out to screw us and it’s our job to screw them first.”
-John Connally 

You think the current tit-for-tat on tweets and trade are bad this morning? That’s how the former US Treasury Secretary spoke during the Nixon Administration’s ending of the Gold Standard.

As Richard McGregor goes on to recount in Asia’s Reckoning: “Kissinger told colleagues that Connally said that the Japanese are always our enemies… and if Nixon wanted to stick it to Japan, then Connally was the right man for the job.” (pg 48)

I don’t know who is going to stick it to who this morning. I’m just glad that subscribers to the data-driven Hedgeye ROC (rate of change) #process are on the right side of the stick. A Quad 4 #Blackhole in Q3, it is…

#Quad4 Blackhole, It Is - Gold cartoon 08.11.2016

Back to the Global Macro Grind…

Good Macro Monday @Hedgeye morning to you all from Connecticut! For those of you who are new to our #process, on the 1st day of the week we review weekly moves in Global Macro markets within the context of intermediate-term @Hedgeye TRENDs.

Let’s start with the Global Currency market (which continues to signal that both the US and Global Economies are in Quad 4):

  1. US Dollar Index was up another +0.1% to 2yr highs last week and remains Bullish TREND @Hedgeye 
  2. EUR/USD was down another -0.2% last week to -3.1% YTD and remains Bearish TREND @Hedgeye 
  3. Japanese Yen was up another +2.0% vs. USD last week to +2.8% YTD and remains Bullish TREND @Hedgeye 
  4. GBP/USD was down another -1.8% last week to -4.6% YTD and remains Bearish TREND @Hedgeye 
  5. Argentine Peso crashed another -3.0% vs. USD last week to -39% year-over-year and remains Bearish TREND @Hedgeye 
  6. Russia’s Ruble finally corrected -2.8% vs. USD last week to +6.2% YTD and remains Neutral TREND @Hedgeye 

Then, in a sea of Global Equity Quad 4 red, my favorite currency to be long of when Real Rates are #crashing (Gold) was up another +1.4%, taking its Full Cycle Investing gains from this time last year to +15.6%!

Not to be confused with “Commodities” (that crash during Quad 4), Gold should continue to be a core Asset Allocation in your hard earned portfolios and retirement accounts until Real Yields (globally and locally) stop crashing:

  1. UST 2yr Yield crashed -14 basis points last week to 1.71% = down -95 basis points year-over-year
  2. UST 10yr Yield crashed -23 basis points last week to 1.85% = down -114 basis points year-over-year
  3. France’s 10yr Yield crashed -12 basis points last week to NIRP -0.24%
  4. The Dutch 10yr Yield crashed -12 basis points last week to NIRP -0.38%

*NIRP = Negative Interest Rate Policy = Bullish @Hedgeye TREND on Gold.

Back to that Quad 4 Commodity Deflation, here’s how that measured and mapped last week:

  1. CRB Commodities Index deflated another -2.2% last week to -10.0% year-over-year and remains Bearish @Hedgeye TREND
  2. Oil (WIT) deflated another -1.8% last week to -13.3% year-over-year and remains Bearish @Hedgeye TREND
  3. Copper deflated another -4.4% last week to -9.3% year-over-year and remains Bearish @Hedgeye TREND
  4. Cotton deflated another -7.9% last week to -27.1% year-over-year and remains Bearish @Hedgeye TREND
  5. Coffee deflated another -1.6% last week to -18.8% year-over-year and remains Bearish @Hedgeye TREND

That’s right. None of the aforementioned 5 things believed A) that we had a “China deal” pending and/or that B) Global Demand was #accelerating alongside Global Inflation Expectations (like our model said they would throughout 2H of 2016 and all of 2017).

Oh, I haven’t mentioned what happened to “stocks” last week. It was more of the same for Global Equities (bear markets in Asia, China, and EM that are, in some cases well over a year old now):

  1. Emerging Market Stocks (MSCI) down another -2.3% last week to -4.0% year-over-year remain Bearish TREND @Hedgeye 
  2. Hang Seng hammered for a -5.2% loss last week to -2.9% year-over-year and remains Bearish TREND @Hedgeye   
  3. South Korea’s KOSPI cooked for another -2.6% loss to -9.3% year-over-year and remains Bearish TREND @Hedgeye  
  4. Germany’s DAX down a hard -4.4% last week to -5.4% year-over-year breaking bad (back to Bearish TREND @Hedgeye) 
  5. Spain’s IBEX down another -3.6% last week to -8.3% year-over-year and remains Bearish TREND @Hedgeye  

I know, the year-over-year thing kind of matters to both your age and net worth, eh? How old were you and what was your net worth doing in the back half of the summer of 2018? What were the Asset Allocation decisions you made as the US Cycle was peaking in Q318?

If you were buying Gold and Utilities (XLU) at this time last year, you’re up +15.6% and +14.1% year-over-year, respectively.

Yep, I wrote down that y/y return in Gold, twice, just because it’s so good, ha! What’s not been good for the last year is owning US Equity Sector Styles and Factor Exposures like:

  1. SMALL CAP (Russell 2000) down another -2.9% last week and down -8.8% year-over-year = Bearish TREND @Hedgeye  
  2. Energy Stocks (XLE) back in crash mode -3.3% last week and down -20.1% year-over-year = Bearish TREND @Hedgeye   
  3. Materials (XLB) down another -2.9% last week and down -2.4% year-over-year = Bearish TREND @Hedgeye  

In sharp contrast to Utes and REITS (VNQ up +0.3% last week = +8.7% year-over-year) big US Factor Exposures like HIGH BETA were down -5.7% last week and are now TRENDING Bearish on a 3-month duration too (-7.3% in the last 3 months).

“So”… if you have Macro Tourist friends who are gasping at how or why US Equity Futures can gap down 30-50 handles on a Macro Monday, just remind them that they could/should have known some sort of a Quad 4 #Blackhole was coming.

I’ll be hosting a Mid-Quarter Update Call/Show @HedgeyeTV at 11AM EST today reviewing what is (or not) “priced in.”

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

UST 10yr Yield 1.71-2.02% (bearish)
UST 2yr Yield 1.58-1.82% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 58.99-60.60 (bullish)
REITS (VNQ) 87.22-89.64 (bullish)
Financials (XLF) 26.60-28.25 (bearish)
Shanghai Comp 2 (bearish)
DAX 114 (bearish)
VIX 14.22-21.64 (bullish)
USD 96.95-98.52 (bullish)
EUR/USD 1.10-1.12 (bearish)
USD/YEN 106.02-109.00 (bearish)
GBP/USD 1.20-1.22 (bearish)
Oil (WTI) 53.68-57.69 (bearish)
Gold 1411-1465 (bullish)
Copper 2.53-2.68 (bearish) 

Best of luck out there this week,
KM 

Keith R. McCullough
Chief Executive Officer

#Quad4 Blackhole, It Is - Chart of the Day 8 5 19