Another #Quad4 Week

“It was fear that first made the gods.”
-Lucretius 

It wasn’t fear that first made The Quads. 

In contrast to the “fear of hidden forces in the earth, rivers, oceans” that Lucretius was thinking about (The Lessons of History, pg 43), it’s the secret to the universe (calculus) that made our 4 Quadrant GIP Model. 

And last week’s macro market moves confirmed another Quad 4 in Q3 week, indeed. 

Back to the Global Macro Grind…

Welcome to another summer-time edition of Macro Monday @Hedgeye! For those of you who are new to our measuring and mapping #process, on the 1^st day of every week we review the prior week’s macro market moves within the context of @Hedgeye TRENDs. 

Let’s start with the Global Currency market: 

1. US Dollar Index corrected -0.6% last week to +1.4% YTD but remains Bullish TREND @Hedgeye 
2. EUR/USD bounced +0.8% last week to -2.3% YTD but remains Bearish TREND @Hedgeye  
3. Yen was up another +0.9% vs. USD last week to +3.7% YTD and remains Bullish TREND @Hedgeye  
4. GBP/USD dropped another -1.1% last week to -5.7% YTD and remains Bearish TREND @Hedgeye     
5. Argentine Peso fell another -1.3% vs. USD last week to -16.9% YTD and remains Bearish TREND @Hedgeye  
6. Chinese Yuan was -1.7% vs. USD last week to -2.6% YTD and remains Bearish TREND @Hedgeye   

While some Macro Tourist types lit their hair on fire on last week’s “OMG Chinese Yuan” move, it didn’t change anything in our 4 Quadrant Model. Everything happening in FX terms has been happening since the US Dollar broke out in Q2 of 2018. 

Alongside Mr. and Mrs. Market’s ongoing #Quad4 Global Demand outlook (strong Dollar and crashing inflation expectations), here’s how the #Quad4 Deflation in Commodities looked last week: 

A) CRB Commodities Index deflated another -0.7% last week to -10.6% year-over-year and remains Bearish TREND @Hedgeye  
B) Oil (WTI) deflated another -2.1% last week to -13.7% year-over-year and remains Bearish TREND @Hedgeye  
C) Lumber deflated another -5.2% last week to -9.2% year-over-year and remains Bearish TREND @Hedgeye  

The other side of that demand #slowing coin has been the ongoing #acceleration in Precious Metal prices: 

A) Gold was up another +3.5% last week to +20.1% year-over-year and remains Bullish TREND @Hedgeye 
B) Silver was up another +4.1% last week to +6.4% year-over-year and remains Bullish TREND @Hedgeye  
C) Nickel was up +7.3% last week to +10.0% year-over-year and remains Bullish TREND @Hedgeye  

Real Yields #crashing and Credit Spreads WIDENING (happens in Quad 4) has been uber bullish for Gold: 

A) UST 2yr Yield was down another -7 basis points last week and is down 100 basis points year-over-year
B) UST 10yr Yield was down another -10 basis points last week and is down -118 basis points year-over-year
C) High Yield OAS Spread widened another +18 basis points last week and is UP +87 basis points year-over-year 

What up with the year-over-year thing, bro? 

As Full Cycle Investors recall, at this time last year (AUG of 2018) US interest rates, the Russell 2000, etc. were charging to their #PeakCycle highs …. as all the big things we’re long right now (Treasuries, Gold, REITS, etc.) were coming off The Cycle lows. 

Even people who just talk “stocks” on CNBC probably get that now. Check out last week’s US Equity Sector Style #divergences within the lens of year-over-year returns: 

1. Energy Stocks (XLE) deflated another -2.2% last week, crashing to -21.0% year-over-year and remain Bearish TREND @Hedgeye  
2. Financials (XLF) were down another -1.6% last week to -4.1% year-over-year and remain Bearish TREND @Hedgeye  
3. Tech Stocks (XLK) were down -0.7% last week to +6.6% year-over-year and remain Bearish TREND @Hedgeye  
4. REITS (VNQ) were UP another +1.7% last week to +10.3% year-over-year and remain Bullish TREND @Hedgeye  
5. Utilities (XLU) were UP another +1.2% last week to +14.4% year-over-year and remain Bullish TREND @Hedgeye  
6. Consumer Staples (XLP) were UP another +0.2% last week to +11.0% year-over-year and remain Bullish TREND @Hedgeye   

Yep, REITS, Utes, and Staples have obviously smoked cyclical “value” stocks like Energy and Financials (where “cheap” keeps getting cheaper)… and are now pounding the beloved “Techs” on a year-over-year, #FullCycleInvesting, basis. 

Just like doing the math on your age, the year-over-year exercise of measuring and mapping your net wealth isn’t going to change. Having perfectly avoidable draw-downs of your capital won’t either if you’re not up to speed on The Quads. 

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

UST 10yr Yield 1.57-1.84% (bearish)
UST 2yr Yield 1.47-1.70% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 59.11-61.17 (bullish)
REITS (VNQ) 87.29-91.32 (bullish)
Financials (XLF) 26.19-27.66 (bearish)
VIX 15.47-24.91 (bullish)
USD 96.90-98.37 (bullish)
EUR/USD 1.10-1.12 (bearish)
USD/YEN 104.46-107.50 (bearish)
GBP/USD 1.20-1.22 (bearish)
Oil (WTI) 50.09-55.78 (bearish)
Gold 1 (bullish)
Copper 2.49-2.61 (bearish) 

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer