“Crack your journal open again. Write it all out.”
-David Goggins
Loved that quote from “Challenge #6” in Can’t Hurt Me by David Goggins. Whether you are training your body and mind for military combat or to beat your competition in bull (Treasuries) or bear (Equities) markets, it’s all up to you.
“Train yourself to study harder and longer than ever before, or read a record amount of books in a given month… feel what its like to overcome those struggles, those opponents, and win. Then get to work.” (pg 193)
And right back to work it is this morning. After covering all of my US Equity Shorts on red last week, I’m bolted to the chair and ready for a nice big bear market relief rally to sell into. Some of the greatest assets you can be long of right now are #process + patience.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! For those of you who are new to our data-driven and apolitical risk management #process, on the 1st day of every week we review last week’s macro market moves within the context of our multi-duration model.
Let’s start with the Global Currency market which has been screaming DEEEEP #Quad4 for the last month:
- US Dollar Index was up a big +2.3% last week taking its 1-month gain to +3.5%, confirming its #Quad4 Bullish @Hedgeye TREND
- EUR/USD was a great short last week, losing another -3.1% confirming its Bearish @Hedgeye TREND
- Yen corrected -0.5% vs. USD last week and remains Neutral @Hedgeye TREND (i.e. do nothing)
- GBP/USD fell another -1.5% last week (covered my short on Friday in RTA) and remains Bearish TREND @Hedgeye
- Mexican Peso got smoked for another -6.7% loss vs. USD last week and has crashed -22.2% in the last month alone
- Brazilian Real got crushed for another -4.7% loss vs. USD last week and has crashed -15.6% in the last month alone
That’s right. Write it all out. Study all of this deliberately. And, over the Full Investing Cycle, you will pound your competition.
Despite the #Quad4 move in FX, there was a centrally-planned ramp in a big part of the Reflation Trade (Commodities) last week. That said, it was neither broad-based nor confirming a reversal in the Bearish TREND view we still have for this asset class:
- CRB Commodities Index had a bear market bounce of +3.3% last week but is still -22.4% in the last month alone
- Oil (WTI) ramped, big time, +31.8% in an epic bear market bounce last week (but is still -40.1% in the last month!)
- Copper whimpered its way to a +0.9% reflation last week taking its 1-month deflation to -14.8%
- Lumber crashed another -15.2% last week taking it to -35.0% in the last month alone
- Lean Hog prices crashed -24.8% last week taking them to -38.1% in the last month alone
Live Cattle deflated -9.6% in price last week, taking its crash to -21.8% in the last month as well. Recall these were LONG positions we held in Commodities from OCT to JAN (because the economy was in #Quad3), then we got you out on the late JAN call moving back to #Quad4.
Who gets you out?
Anyone can market and/or sell you an asset class, but not everyone has an objective 4 Quadrant measuring and mapping #process that helps you allocate your capital across the Full Investing Cycle.
Are you a “longer-term” investor? That’s cool. Two of the positions we’ve held since the US economic cycle peaked in Q3 of 2018 have been US Treasuries and Gold. Unlike Commodities, Global Equities, and Late Cycle Credit, both remain Bullish @Hedgeye TRENDs:
A) UST 2yr Yield made a new cycle low last week and closed out at 0.23%, down -47 basis points in the last month alone
B) UST 10yr Yield re-tested its cycle low last week, closing out at 0.58%, down -40 basis points in the last month alone
C) Gold corrected -0.5% last week (beating “stocks”) and is only -0.2% in the last month amidst Global Equity carnage
Despite the Fed trying to bailout bad decisions that asset allocators made buying super-late-cycle Credit (with US profits going to negative on a year-over-year basis), High Yield OAS Credit Spread continued to WIDEN +21 basis points last week to +942bps over.
And in US Equities, the worst places to have your capital remained HIGH BETA and/or SMALL CAP Factor exposures:
A) HIGH BETA US Equities dropped another -11.0% last week, crashing -42.4% in the last month alone
B) SMALL CAP US Equities dropped another -10.5% last week, crashing -39.7% in the last month alone
*Mean performance of Top Quintile vs. Bottom Quintile, SP500 Companies
That’s right. Write it down. You’d have to be up +67% (from Friday’s close) to get your money back to break-even if you made the terrible Full Investing Cycle mistake of buying “Small Caps” (Russell 2000) from the Triple Cycle Peak in US GDP, Inflation, and Profits!
Oh I get it. There will be a relief rally today. Heck, there might even be one tomorrow too. But to where? Well, we have a risk management process for that also. I built it into Hedgeye’s signaling #process in order to risk manage bear market bounces in 2008, don’t forget.
I have at least +6.9% upside in the beloved SPY from Friday’s close. Unfortunately (for whoever didn’t get you out of SPY in FEB), you still have to be up +37% from where SPY closed on Friday to get back to break-even!
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.53-0.91% (bearish)
UST 2yr Yield 0.16-0.37% (bearish)
SPX 2 (bearish)
RUT (bearish)
VIX 44.77-70.24 (bullish)
USD 97.75-102.38 (bullish)
EUR/USD 1.07-1.11 (bearish)
USD/YEN 105.52-111.78 (neutral)
GBP/USD 1.17-1.26 (bearish)
Oil (WTI) 17.81-30.40 (bearish)
Gold 1 (bullish)
Copper 2.10-2.26 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
