“Well now, just because we don’t agree on everything doesn’t mean we’re not friends.”
-Reclamation Administrator
“Oh, I wouldn’t say that” replied long-time US conservationist and river runner, Martin Litton…
But, but, can’t we all be friends after stock market futures plunge? On Friday Trump called Xi (and Powell) the “enemy”… and this morning Xi is a “great leader.” Lol. Maybe PE Powell is going to be a super great head of the Fed (if he cuts 50 basis points at a time) too!
Don’t worry, I’m not going political on you this morning. I’m not a conservationist either. I’m just a guy who measures and maps both economies and their respective markets who chuckled when I read the aforementioned passage in The Emerald Mile (great US #history book).
Back to the Global Macro Grind…
It’s a great day to be back in the saddle in Westport, Connecticut! After the 4th straight week of markets pricing in #Quad4 in Q3, it’s indeed another Macro Monday @Hedgeye.
At the beginning of every week we review what happened in macro markets in the week prior, contextualizing what the market is pricing in within our intermediate-term @Hedgeye TREND research views.
Let’s start with the Global Currency market:
- US Dollar Index finally corrected -1.0% within its Bullish @Hedgeye TREND last week and is +1.6% year-over-year
- EUR/USD had a Counter @Hedgeye TREND bounce of +0.5% last week and remains Bearish @Hedgeye TREND
- Chinese Yuan was down another -0.8% last week vs. USD taking it to -3.1% year-over-year and still Bearish TREND
- Japanese Yen was up another +0.9% vs. USD last week to +4.0% YTD and remains Bullish TREND @Hedgeye
- GBP/USD had a +1.0% Counter @Hedgeye TREND bounce last week to -3.8% YTD and remains Bearish TREND @Hedgeye
- Swiss Franc was up another +0.4% last week vs. USD to +0.7% YTD and remains Bullish TREND @Hedgeye
Yep, while I sold-some on Friday, the P.A. (personal account) is still long of Swissy (FXF) and Yen (FXY), and liking it. That’s been my way of playing the #PeakDollar Theme. Since the US Dollar should peak sometime here during #Quad4 in Q3, other currencies become longs against it.
The other major currency that should have made your retirement accounts quite happy last week was Gold. In a sea of HIGH BETA US Equity red on Friday, Gold was glistening towards a #FullCycleInvesting gain of +25.2% year-over-year.
Why did Gold stop going down at this time last year and start making a series of lower-highs through SEP and OCT? Oh, I’d say #Quad4 in Q4 of 2018, crashing inflation expectations, and real yields crashing in kind, eh…
On that inflation expectations front, it was another Moarrr #Quad4 for the Commodities asset class last week:
- CRB Commodities Index deflated another -1.1% to -11.5% year-over-year and remains Bearish TREND @Hedgeye
- Oil (WTI) deflated another -1.2% last week to -15.8% year-over-year and remains Bearish TREND @Hedgeye
- Copper deflated another -2.5% last week to -8.0% year-over-year and remains Bearish TREND @Hedgeye
- Corn deflated another -3.4% last week to -6.1% year-over-year and remains Bearish TREND @Hedgeye
Yeah the whole #FullCycleInvesting thing can really open up your eyes (in your personal accounts) if you could have been up what you’re up being long a portfolio of Treasuries, Gold, and Utilities vs. “stocks” (like the Russell 2000 which is -15.0% year-over-year).
On “stocks”, as you know, what really matters is what part of the US stock market that you DO NOT own during #Quad4:
A) Materials (XLB) “stocks” led losers last week losing -3.0% taking it’s year-over-year loss to -5.9%
B) Energy (XLE) “stocks” lost another -1.9% last week taking their year-over-year #crash to -24.4%
C) Financials (XLF) dropped another -1.8% last week taking their year-over-year loss to -7.2%
Whereas, #Quad4 LONGS like Utes and REITS did this last week:
A) Utilities (XLU) up +0.2% last week to +14.9% year-over-year
B) REITS (VNQ) only down -0.5% last week to +9.4% year-over-year
In terms of Factor Exposures, where you want to be SHORT (or underweight) in #Quad4:
A) HIGH BETA “stocks” lost another -2.1% taking their draw-down to -14.0% in the last month alone
B) SMALL CAP “stocks” lost another -2.2% taking their draw-down to -12.4% in the last month alone
*mean perf of Top Quartile vs. Bottom Quartile, SP500 companies
Those are nasty draw-downs that obviously should have been avoided. If you’re using an apolitically Data-Driven (vs. Trump-Tweet driven) #process, that is. Just because we just had more #Quad4 during Q3 doesn’t mean that the big man and I can’t be friends.
UST 10yr Yield 1.41-1.67% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 60.16-62.65 (bullish)
REITS (VNQ) 89.32-92.61 (bullish)
Financials (XLF) 25.32-27.05 (bearish)
VIX 16.07-24.51 (bullish)
USD 97.19-98.45 (bullish)
EUR/USD 1.10-1.12 (bearish)
USD/YEN 105.21-107.01 (bearish)
GBP/USD 1.20-1.22 (bearish)
USD/CHF 0.96-0.98 (bearish)
Oil (WTI) 52.72-56.80 (bearish)
Gold 1 (bullish)
Copper 2.51-2.62 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
