“Deceive the heavens to cross the ocean.” -The Thirty-Six Stratagems

That’s the opening quote by Dr. Michael Pillsbury in a required-reading book on China titled The Hundred-Year MarathonChina’s Secret Strategy To Replace America As The Global Superpower.

Do you know everything you need to know about “China”? I know what #GrowthSlowing Quads its economy has been in for the last 9 quarters. I also know that its PMI #slowed (again) to a new cycle low this morning. I know what Dr. Copper is signaling too…

But what do I really know about China other than to sell the reams of #fakenews we’ve had in 2019 on “trade progress”? Someone’s always trying to deceive someone out there. My risk management job is to have a data-driven #process that doesn’t suck me in.

"A Deceiving Week" - 07.11.2018 China cartoon

Back to the Global Macro Grind…

It’s Macro Monday @Hedgeye and my heart and prayers go out to everyone in the Bahamas this morning.

In Global Currency market signaling terms, there was absolutely no deception about Global #Quad4 in Q3 last week:

  1. US Dollar Index ramped another +1.2% to a new cycle high and remains Bullish @Hedgeye TREND
  2. EUR/USD depreciated another -1.5% last week to -4.2% YTD and remains Bearish TREND @Hedgeye (since Q218)
  3. Yen corrected -0.8% vs. USD last week to +3.2% YTD and remains Bullish TREND @Hedgeye 
  4. GBP/USD depreciated another -0.9% last week to -4.7% YTD and remains Bearish TREND @Hedgeye 
  5. Argentina’s Peso crashed another -7.2% vs. USD last week to -36.8% YTD and remains Bearish TREND @Hedgeye  
  6. CNY/USD fell another -0.8% last week to -3.9% YTD and remains Bearish TREND @Hedgeye  

Nope, I don’t have to be a “China Expert” like Dr. KOSPI to know how to measure and map its economic slow-down alongside those in both Europe and the USA. I don’t have to rack my brains on the “levels” of growth either. I just have to get the ROC right.

For those of you who are new to subscribing to our #process (welcome aboard!), the ROC = the rate of change. In his recent book on calculus, Infinite Powers, Cornell math guru, Steven Strogatz, called the ROC the “secret to the universe.” I loved that.

Do you feel the love this morning? Or do you feel the FOMO some people had chasing last week’s Counter @Hedgeye TREND move in “stah-kks” (Russell 2000 +2.4% last week to -13.7% year-over-year)? Neither the FX nor Treasury Bond markets cared for FOMO, fyi:

A) UST 2yr Yield dropped another -3 basis points last week to -115 basis points year-over-year
B) UST 10yr Yield dropped another -4 basis points last week to -136 basis points year-over-year

The year-over-year ROC in Bond Yields matters bigly now. Why? Because at this time last year the Triple Top in the US economic cycle was peaking with GROWTH, INFLATION, and PROFITS all putting in their ROC Cycle Peaks at the same time!

That’s why your Full Cycle Investing returns in things like Treasuries, Utilities, and REITS from SEP of 2018 to SEP of 2019 look bigger than a trumpeted bigly. That’s also why last week saw more of the same from Gold and her cousins:

A) SILVER was up another +5.3% last week to +22.7% year-over-year
B) PLATINUM was up another +9.5% last week to +15.1% year-over-year

This of course is happening within the context of Gold being up +23.4% year-over-year as the #1 back-tested driver of Gold prices (the direction of REAL YIELDS) didn’t require me to be a “Gold Expert” either.

What is a macro market “expert” anyway? Many of the “Emerging Markets” experts are still long of EM right now. That’s not been good. EM Equity (MSCI Index) was DOWN another -0.4% last week to -8.3% year-over-year.

“Cheap” is getting cheaper with one of the top drivers of EM Equity underperformance (a #StrongDollar) still doing what it should be doing during Global #Quad4 in Q3. Where are all the macro hedge funds who are Long Gold/Silver/Platinum vs. Short EM Equity btw?

To be fair, there are plenty of fund managers who have been crushing it for the last year. I define that as managers who A) haven’t had multiple draw-downs of their client’s capital and B) are seeing the NAV of their portfolios hit all-time highs this morning.

Since I’m not into the whole deception thing, crush or be crushed I say! That’s a lot easier than expecting to deceive the heavens or cross oceans of #Quad4 economic risks on a massively huge boatload of tweets.

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

UST 10yr Yield 1.43-1.61% (bearish)
UST 2yr Yield 1.45-1.59% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Utilities (XLU) 61.31-62.91 (bullish)
REITS (VNQ) 90.45-92.59 (bullish)
Financials (XLF) 25.49-27.05 (bearish)
VIX 15.43-22.29 (bullish)
USD 97.80-98.96 (bullish)
EUR/USD 1.09-1.11 (bearish)
USD/YEN 105.22-107.00 (bearish)
GBP/USD 1.19-1.22 (bearish)
Oil (WTI) 53.18-56.61 (bearish)
Gold 1 (bullish)
Copper 2.48-2.59 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer

"A Deceiving Week" - Chart of the Day