Dolly's Down Dollar

“I think I know the value of a dollar.”
-Dolly Parton 

I don’t doubt that Dolly thinks she does know the value of a hard earned dollar. When I googled Dollar quotes this morning, she was quoted on the matter more than any other country singer in my playlist! 

How about you? Do you know that the expected value of the US Dollar is only positive when the economy is in #Quad4? Moreover, did you know that we have the US economy coming out of #Quad4 in Q3? 

Most importantly, did you know that when Dolly Parton sang “9 to 5” in 1980, that was the end of a full, #LateCycle, US employment cycle? The US Dollar really cared about that during the 1981 recession. 

Back to the Global Macro Grind… 

Welcome to another 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 Global Macro moves within the context of our multi-duration, multi-factor model. 

Let’s start with Dolly’s Down Dollar move and the Global Currency Market: 

1. US Dollar Index dropped -1.1% last week (+1.4% year-over-year) moving from Bullish to Neutral TREND @Hedgeye 
2. EUR/USD bounced +1.1% last week to -2.6% year-over-year and remains Bearish TREND @Hedgeye  
3. Yen was flat vs. USD last week at +1.1% year-over-year and remains Neutral TREND @Hedgeye  
4. GBP/USD ripped another +2.2% last week to +1.5% year-over-year and remains Bullish TREND @Hedgeye  
5. Canadian Dollar gained +0.6% vs. USD last week to +3.9% year-over-year and remains Bullish TREND @Hedgeye 
6. Swiss Franc popped +1.3% vs. USD last week to +1.2% year-over-year and remains Neutral TREND @Hedgeye  

Yep, that means that for now at least, I’m no longer buying the damn dips in US Dollars (like I have been since Q2 of 2018 when the Global economy started heading towards #Quad4). That said, if hopes for a Brexit deal change, I’ll change too. 

While Emerging Market “Stocks” (MSCI Index +1.7% on the week) absolutely loved Down Dollar last week, Commodities did not: 

1. CRB Commodities Index was -0.2% last week to -10.6% year-over-year and remains Bearish TREND @Hedgeye  
2. Oil (WTI) was down another -1.8% last week to -20.8% year-over-year and moved back to Bearish TREND @Hedgeye  
3. Soybeans were down -0.2% last week to +1.0% year-over-year and are Neutral TREND @Hedgeye   

And you thought the #BeanDeal was bigger than bigly big? So did consensus. At +73,814 net LONG contracts, long of Soybeans in Trumpian Tweet terms has the HIGHEST 1-year z-score in all of Global Macro right now at +2.37x! 

There certainly was some cognitive Quad dissonance going on out there in terms of read-throughs in both Commodities and US Equity markets. If the market was giving you the green light on straddling Quad 2 and Quad 3, it didn’t say “buy Tech” (or Energy) yet:

A) Energy Stocks (XLE) led losers at -1.5% on the week and -21.0% year-over-year
B) Tech Stocks (XLK) were down -0.8% on the week and are still +15.5% year-over-year

Meanwhile it paid to ride-cowboy-ride on those #Quad4 and #Quad3 straddle exposures. Gold was +0.4% to +18.0% year-over-year, Housing (ITB) hit new highs and REITS (VNQ) ramped another +1.6% last week for a +21.0% year-over-year #FullCycleInvesting gain. 

In US Equity Factor Exposures terms: 

A) HIGH DEBT to EV was +0.9% on the week to -0.1% in the last 3 months (i.e. Bearish @Hedgeye TREND)
B) HIGH BETA stocks were +0.9% on the week to -5.1% in the last 3 months and also remain Bearish @Hedgeye TREND   

With the curve steepening (UST 10s/2s Spread was +4 basis points wider last week to +18bps) and the High Yield OAS Spread coming in -10 basis points to +380bps wide, I guess the Street “felt” better about being long LEVERAGE last week. 

I personally “feel” nothing when it comes to Sector Styles and Factors… 

I will always feel the love for Dolly Parton though. It must have been “I Will Always Love You” and “Jolene” playing in that old house of ours in Thunder Bay while I was in my Mom’s belly back in 1974. 

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

UST 10yr Yield 1.50-1.85% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7 (bearish)
REITS (VNQ) 92.29-94.92 (bullish)
Energy (XLE) 55.57-58.58 (neutral)
Shanghai Comp 2 (bearish)
VIX 12.15-20.73 (neutral)
USD 96.89-98.15 (neutral)
EUR/USD 1.09-1.12 (bearish)
USD/YEN 106.99-109.38 (neutral)
GBP/USD 1.21-1.31 (bullish)
USD/CHF 0.98-1.01 (neutral)
Oil (WTI) 51.80-54.51 (bearish)
Gold 1 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer