#Quad4 Comebacker

“We have to take into account the idiosyncrasies built up over 5,000 years.”

-Henry Kissinger

Another day after another failed “trade deal” where there Chinese (South China Morning Post) are accusing the USA of “trying to colonize China’s economy.” What could possibly go wrong?

While big things like Dr. Copper and Global Bond Yields have absolutely nailed that there’s no “deal” of substance that can trump Global #Quad4 in Q3, short-term @CNBC “stock” FOMO Futures traders always hope there’s a chance…

That’s cool with me. That’s what makes a market. So does mapping The Cycle’s TREND within the long-term TAIL risks built up over dynasties in China. The aforementioned advice was given by Kissinger to Clinton post H.W. Bush selling Taiwan F-16s in 1992.

Back to the Global Macro Grind…

Welcome back. It’s Macro Monday @Hedgeye where we measure and map things like the German Composite PMI hitting a new cycle (and recessionary) low of 49.1 this AM within the context of our multi-duration and multi-factor risk management model.

Let’s start with last week’s moves in the Global Currency market:

1. US Dollar Index was up another +0.2% last week to +4.8% year-over-year and remains Bullish TREND @Hedgeye in #Quad4
2. EUR/USD was down another -0.5% last week to -6.4% year-over-year and remains Bearish TREND @Hedgeye 
3. Yen was up +0.5% to +4.6% year-over-year vs. USD but moved to Neutral @Hedgeye TREND
4. GBP/USD was down -0.2% last week to -6.0% year-over-year and remains Bearish @Hedgeye TREND
5. Argentine Peso was down another -1.1% vs. USD last week to -32.8% year-over-year and remains Bearish TREND @Hedgeye   
6. Australian Dollar was down another -1.7% vs. USD last week to -7.2% year-over-year and remains Bearish TREND @Hedgeye

While there was plenty Dollar driven deflation in Commodities markets, we had an Oil shock last week that kept the Index up:

1. CRB Commodities Index was up +1.5% last week to -8.0% year-over-year but remains Bearish TREND @Hedgeye  
2. Oil (WTI) was up +6.7% last week to -13.0% year-over-year and did NOT confirm a Bullish TREND reversal
3. Copper deflated -4.0% last week to -7.1% year-over-year confirming its long-standing Bearish @Hedgeye TREND
4. Cotton deflated -2.8% last week to -20.4% year-over-year and remains Bearish @Hedgeye TREND
5. Coffee deflated -4.2% last week to -13.3% year-over-year and remains Bearish @Hedgeye TREND  

Evidently there’s no “deal” for the Chinese to start buying Copper with Industrial Production (seasonally adjusted) #slowing to its SLOWEST pace since 1990 and the Eurozone’s Manufacturing PMI print of 45.6 in SEP (lowest of The Cycle) this morning.

But you’re going to “buy stahh-ks”, eh? That’s totally cool with me too. Just buy the same kinds of US Equity Sector Styles and Factor Exposures that not only worked (again) last week but have been crushing your competition’s “stock” portfolios for over a YEAR now:

1. Utilities (XLU) were up another +1.5% last week to +19.8% year-over-year and remain Bullish TREND @Hedgeye  
2. REITS (VNQ) were up another +2.0% last week to +12.8% year-over-year and remain Bullish TREND @Hedgeye  

Oh, I know those Utes and REITS are “expensive.” But they certainly aren’t as expensive as it has been to NOT be a Full Cycle Investor from where the US economic cycle peaked at this time in 2018:

1. Russell 2000 (IWM) was down another -1.2% last week to -9.3% year-over-year and remains Bearish TREND @Hedgeye  
2. Industrials (XLI) were down another -1.9% last week to -2.6% year-over-year and remain Bearish TREND @Hedgeye  
3. Financials (XLF) were down another -1.4% last week to -3.1% year-over-year and remain Bearish TREND @Hedgeye  

Yep, those are the #FullCycleInvesting lessons of where NOT to have had your money chasing tweets and Fed rate cut hopes while you could have bought every damn dip in Gold which was up another +1.6% last week to +22.2% year-over-year.

What else worked on last week’s #Quad4 in Q3 Comebacker (that’s been working for almost a full year now)? Treasuries, baby:

1. UST 2yr Yield dropped -11 basis points last week and is down -112 basis points year-over-year from The Cycle peak
2. UST 10yr Yield dropped -18 basis points last week and is down -134 basis points year-over-year from The Cycle peak

Did you panic during the Counter @Hedgeye TREND bounce in bond yields (in the week prior) or have the greatest asset allocation there is for a Full Cycle Investor: #patience? The last 5,000 years have built-up plenty of FOMO too. Stay with your #process and fade that.

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

UST 10yr Yield 1.59-1.89% (bearish)
UST 2yr Yield 1.52-1.78% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
Utilities (XLU) 62.19-64.40 (bullish)
REITS (VNQ) 91.31-94.15 (bullish)
Financials (XLF) 27.19-28.61 (bearish)
Shanghai Comp 2 (bearish)
DAX 12065-12516 (bearish)
VIX 13.40-17.49 (neutral)
USD 97.50-99.10 (bullish)
EUR/USD 1.09-1.11 (bearish)
USD/YEN 107.01-108.64 (neutral)
GBP/USD 1.22-1.25 (bearish)
Oil (WTI) 53.01-62.40 (neutral)
Gold 1 (bullish)
Copper 2.53-2.65 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer