#Quad3 Stagflation

“In the day, there was a manager and a trainer… and that was it.”
-Jerry Weinstein

Oh the good ole days of Major League Baseball weren’t much different than when I got into this gig as a hedge fund analyst in the year 2000. There was a PM and there were our analysts and traders… and that was it. 

Then along came the math guys, modern technology, predictive tracking algos, etc… and those of us who evolved our Global Macro risk management and “stock picking” processes started to learn faster, racing against The Machine. 

For me, not using either The Quads or multi-duration and multi-factor signals to front-run The Machine would be the equivalent of professional golfers and baseball players not using TrackMan. 

“TrackMan, which was founded in Denmark in 2003, began tracking golf swings and ball trajectories. Cofounder and CTO Frederik Tuxen, a radar engineer who previously worked on military technology used to track projectile weapons, says the company’s plan was to provide instant feedback for golfers at driving ranges…” 

“Almost immediately TrackMan corrected coaching misconceptions… after getting established in golf, the company engineered a baseball product… by early 2008, the company was making overtures to MLB teams…” 

Back then when Los Angeles Dodgers pitching coach, Rick Honeycutt, asked Tuxen ‘is that a good spin rate?’

… Tuxen said, ‘I don’t know, don’t you guys know?’ “Nope, they never had the data.” -The MVP Machine (pg 58-59) 

Back to the Global Macro Grind… 

When it comes to measuring, mapping, and reading the data born out of our #process, I really don’t have to write about it to know what to do with it. We write to you every morning so that you are both data and macro aware.

It’s the 1^st Macro Monday of 2020 @Hedgeye. On the 1^st day of every week we try to contextualize weekly macro market moves within the lens of both The Quads and our TRADE/TREND/TAIL Signals. 

Let’s start with the always critical Global Currency market:

1. It was another #Quad3 Stagflation week for the US Dollar which was -0.1% and is -0.9% in the last month
2. EUR/USD was -0.1% on the week but remains Bullish TREND @Hedgeye 
3. Japanese Yen broke out to Bullish @Hedgeye TREND vs. USD with a +1.3% weekly move
4. GBP/USD was flat on the week and also remains Bullish TREND @Hedgeye  
5. Canadian Dollar was up another +0.6% vs. USD and remains Bullish TREND @Hedgeye  
6. CNY/USD (Chinese Yuan) popped +0.4% last week but remains Bearish TREND @Hedgeye   

In other words, my “conviction” (ole school “stock picking” bosses of mine loved that word) in Down Dollar, #Quad3 Stagflation, continues to rise alongside broadening weakness in USD vs. other major currencies. 

The FLATION part of that conviction has gone straight up in the last month with #InflationAccelerating: 

1. CRB Commodities Index was -0.2% last week but is +5.2% in the last month and remains Bullish TREND @Hedgeye 
2. Oil (WTI) reflated another +2.2% last week and is +12.5% in the last month and remains Bullish TREND @Hedgeye  
3. Gold ramped another +2.3% last week and is +4.6% in the last month and remains Bullish TREND @Hedgeye   

If The Machine read the market’s “spin rate” as a #Quad2 Seamer Fastball (when both real growth and inflation are accelerating at the same time), Real Yields would be spiking … and Gold would be collapsing. 

#Quad3 Stagflation (back to back quarters of it) is more like a nasty Trevor Bauer slider. Good luck to Captain Home Run Stock Picker (who thinks it’s a heater right down the middle to “buy stocks”) in hitting that!

Alongside being LONG certain major Currencies (including Gold) and Commodities, what other Global Asset Allocations make sense with the USA in back to back quarters of #Quad3? 

1. Emerging Market Stocks (MSCI) were up another +0.5% last week and are +8.3% in the last month
2. Russian Stocks (RTS Index) was up another +1.0% last week to +10.6% in the last month 

Yep. If it’s an EM country that’s not in Quad 3 or Quad 4 and it has a lot of Oil, that’s been the easiest fastball to hit. The other thing you should have been long for the last 1-3 months are TIPs (inflation protected bonds). 

And, if you waited on that hanging curveball (i.e. the top-end of my Risk Range in bond yields), you’ve made money (relative and absolute) “year-to-date” being long of both short and long-term US Treasuries too. 

On the heels of last week’s 127-month low in the US ISM report (nope, no bounce there… never mind a big and huge one), the UST 10yr Yield dropped -9 basis points last week to -13 basis points, “year-to-date.” 

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

UST 10yr Yield 1.76-1.91% (bearish)
UST 2yr Yield 1.50-1.63% (bearish)
SPX 3183-3254 (bullish)
RUT 1 (neutral)
Utilities (XLU) 63.50-65.01 (bullish)
REITS (VNQ) 90.30-92.99 (bullish)
Energy (XLE) 58.85-61.40 (bullish)
Tech (XLK) 90.18-93.38 (bullish)
VIX 11.75-15.95 (neutral)
USD 95.80-97.47 (bearish)
EUR/USD 1.10-1.12 (bullish)
USD/YEN 107.74-109.01 (bearish)
GBP/USD 1.29-1.33 (bullish)
Oil (WTI) 59.80-64.22 (bullish)
Gold 1 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer