“No one had any doubt that the bombers would come.”
- Erik Larson
Watching Oil crash another -22% this morning, did you have any doubt that anything the Fed WASN’T being lobbied to bailout and/or buy wasn’t going to crash? Both the FX and Rates markets nailed Deep #Quad4 Deflation, of course.
The aforementioned quote comes from a timely and topical history and risk management book that I started reading this weekend titled The Splendid and The Vile – The Saga of Churchill, Family, and Defiance During The Blitz.
In his note to readers, Larson (who currently lives in NYC) explains that he “came to understand with sudden clarity how different the experience” of 9/11 must have been for New Yorkers. “I started thinking about London and the German aerial assault of 1940-41.”
Back to the Global Macro Grind…
Welcome to Macro Monday @Hedgeye! For those of you who are new to our risk management #process, on the 1st day of the week I review Global Macro market moves from the week prior and contextualize them within both The Cycle and @Hedgeye TRENDs.
As a historical reminder, short-term government bailout TRADEs aren’t economic cycle TRENDs. Next time someone uses a lazy short-cut and says “don’t fight the Fed”, tell them not to fight The Gravity. We’re long Treasuries alongside The Fed, don’t forget.
We’re “fighting the Fed” (they’re trying to devalue the Dollar) and long of The Gravity in Global Currency market terms, however!
- US Dollar Index was up another +0.3% last week to +3.5% YTD and remains Bullish TREND @Hedgeye (core Long position)
- EUR/USD was down another -0.6% last week to -3.0% YTD and remains Bearish TREND @Hedgeye
- Yen was +0.8% vs. USD last week to +1.0% YTD and remains Neutral TREND @Hedgeye
- GBP/USD was +0.4% last week to -5.7% YTD and remains Bearish TREND @Hedgeye
- Brazilian Real dropped another -2.4% vs. USD last week, crashing to -23.2% YTD and remains Bearish TREND @Hedgeye
- South African Rand was down -4.5% vs. USD last week, crashing to -25.6% YTD and remains Bearish TREND @Hedgeye
Crashing Foreign Currencies during a Deep #Quad4 Global depression/recession is right on the screws what happens when gravity beats up on the US Federal Reserve. South Africa cut rates, again, last week and obliterated its currency vs. #StrongDollar.
What does a pervasively #StrongDollar generally do to both US Dollar denominated DEBT and COMMODITIES? A: #Deflation. So, unless super-late-cycle Credit and Commodity bulls can lobby the Fed to buy more of those, gravity continues to win there too:
- CRB Commodities Index deflated another -3.1% last week, crashing to -33.4% YTD = Bearish TREND @Hedgeye
- Oil (WTI) deflated another -19.7% last week, crashing to -69.5% YTD = Bearish TREND @Hedgeye
- Soybeans deflated another -3.3% last week taking their price to -14.0% YTD = Bearish TREND @Hedgeye
Remember President Pump’s #BeanDeal? Nah, let’s not talk about “Phase 1” of that, in soybean terms, this morning…
The one major Global Asset Allocation we’re long and strong alongside The Fed is the one that has been pricing in not only The Cycle peaking in the USA in Q3 of 2018, but the one that you get paid to be huge-and-long during #Quad4 Deflation: Treasuries:
A) UST 2yr Yield fell another -2 basis points last week taking it down -137 basis points YTD = Bullish Short-term Treasuries
B) UST 10yr Yield fell another -8 basis points last week taking it down -128 basis points YTD = Bullish Long-term Treasuries
Gold doesn’t love The Fed as much as it loves fundamental Full Cycle Investing realities like falling Real Yields. Despite it correcting -3.1% from the top-end of its @Hedgeye Risk Range last week, Gold is crushing super-late-cycle Credit Bulls at +10.7% YTD.
Oh, and wait on it… you knew I was eventually going to get there – how about “stahks!” last week?
- US “Stocks” (SP500) were squeezed for a +3.0% reflation last week to -11.0% YTD and remain Bearish TREND @Hedgeye
- US Small Caps (Russell) deflated another -1.4% last week to -26.3% YTD and remain Bearish TREND @Hedgeye
- Stocks in London (FTSE) deflated another -1.0% last week to -23.3% YTD and remain Bearish TREND @Hedgeye
Clearly the Brits don’t have either Pump (or CNBC) to get them all fired up about the 5 “stocks” in the SP500 that currently represent 22% of the Index (surpassing the US stock market bubble of 2000 percentage of the whole), but he really was tremendous last week.
Away from the incredibly tremendous week Amazon (AMZN) had (which is a stock that remains Bullish TREND @Hedgeye in your daily Risk Range product) and Consumer Staples (currently my fav Sector Long) +4.1% on the week to only -3.9% YTD…
The belovedly “cheap” Financials (XLF) were bastardized for a -4.2% loss on the week to -27.3% YTD. Maybe its time those banking execs start fighting the Fed too! Those shorts have been fantastic this year, despite Fed & Fiscal bailouts.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.57-0.81% (bearish)
UST 2yr Yield 0.16-0.28% (bearish)
SPX 2 (bearish)
RUT 1143-1251 (bearish)
Utilities (XLU) 54.12-63.06 (bullish)
Consumer Staples (XLP) 55.90-61.17 (bullish)
VIX 36.00-49.32 (bullish)
USD 98.72-100.91 (bullish)
EUR/USD 1.07-1.10 (bearish)
USD/YEN 106.55-109.54 (neutral)
GBP/USD 1.22-1.26 (bearish)
Oil (WTI) 14.07-26.01 (bearish)
Gold 1657--1787 (bullish)
AMZN 2152-2493 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
