“Spooky action at a distance…”
- Albert Einstein
That’s what Einstein called “quantum entanglement”…
“He was explicitly invoking the interpretation of gravitational motions that Newton had called a ‘great absurdity’…” That’s what I call the daily, weekly, and trending divergences I see between FX, Commodities, and Bond markets, globally, vs. short-term US Equity FOMO.
“In Newton’s physics, space is passive. In Einstein’s physics, the mysteriousness vanishes because space is active. Matter bends space; space guides matter” (The Trouble With Gravity, pg 162). Think about that in globally interconnected macroeconomic and market terms…
Back to the Global Macro Grind…
Welcome to Macro Monday @Hedgeye! For those of you who are new to our #process, on the first day of the week I review what bent in macro markets (on a week-over-week basis) within the context of the time and space of The Cycle.
As always, I don’t start with your favorite “stahks!”, I start with the globally interconnected FX market:
- US Dollar Index was up another +0.7% last week to +3.5% YTD and confirming its Bullish @Hedgeye TREND in Deep #Quad4
- EUR/USD was down another -1.3% last week and remains Bearish TREND @Hedgeye
- Japanese Yen was +0.3% vs. USD last week and remains Bullish TREND @Hedgeye
- GBP/USD was down another -0.8% last week (it’s down -3.7% in the last 3 months) and remains Bearish TREND @Hedgeye
- Brazilian Real imploded another -4.2% vs. USD last week (crashing -24.6% in the last 3 months) = Bearish TREND @Hedgeye
- Mexican Peso had a Counter @Hedgeye TREND bounce of +4.1% vs. USD last week but remains Bearish TREND @Hedgeye
While the mystery of “monetary inflation” (that many consider inevitable) is fun to discuss, being positioned against consensus for further #StrongDollar asset deflation remains our Deep #Quad4 positioning, for now. Consensus is net LONG EUR/USD, don’t forget.
Some mischaracterized last week’s macro market REFLATION as #AcceleratingInflation. These Counter @Hedgeye TREND moves, particularly in Commodities, happen frequently in short-term windows of Cycle Time and space:
A) CRB Commodities Index reflated +6.1% last week taking its 3-month @Hedgeye TREND deflation to -26.7%
B) Oil (WTI) drove the Index, reflating +25.1% last week, taking its 3-month @Hedgeye TREND deflation to -51.5%
C) Copper reflated +4.1% last week, taking its 3-month @Hedgeye TREND deflation to -6.4%
So, you either chased those short-term Commodity Reflations late last week, or you shorted them. I shorted both Oil and Copper, as my risk management #process says I should when Bearish @Hedgeye TRENDs have bear market bounces to the top-ends of my Risk Ranges.
The “big trade” that some “big names” in macro have either had on (and been dead wrong) or were pushing last week was “Short Treasuries” on pending inflation. How did that work out?
A) UST 2yr Yield collapsed another -3 basis points last week to new Cycle lows and remains Bearish TREND @Hedgeye
B) UST 10yr Yield bounced +7 basis points off the prior week’s lows and remains Bearish TREND @Hedgeye as well
C) HY OAS Spread came in a whopping -20 basis points last week to +725 bps over Treasuries
So, you either chased the short-term move in Duration (selling Long-term Treasuries), or you bought more where I did (at the top-end of my Risk Range for the 10yr Yield) last Thursday. You had another nice bull market buying opportunity in Gold on that day too.
Unlike Small Cap “Stahks” (Russell 2000) which have crashed -20% in the last 3 months, Gold has appreciated +8.5% over the same Full Cycle Investing period of time and space. Emerging Market and European Equities have been terrible places to be in the last 3 months too:
A) Emerging Market Equities (MSCI) deflated another -0.6% last week to -16.5% in the last 3 months
B) Italian Stocks (MIB Index) deflated another -1.4% last week, crashing to -28.8% in the last 3 months
C) Spanish Stocks (IBEX) deflates another -2.0% last week, crashing to -30.9% in the last 3 months
So, obviously, I haven’t heard or read much from “big names” in macro who were buying “cheap” EM and European Stocks for the last 2 years, never mind 3 months!
But US Stocks? Oh baby do I hear quite a bit about those! Tech Stocks (XLK) were +6.6% last week, taking their (really its 2 stocks, AAPL and MSFT, representing 42% of the Sector Exposure) 3-month return to -4.9%.
Unless you’re one of the 99% of people I see on Twitter who sold the FEB top in US Stocks and bought the low, the absolute and relative returns associated with being Long US Dollars, Gold, and Treasuries continues to smoke being down -4.9%.
Despite the US Equity bounce, the TRENDING Global Macro #Divergences have spooky action when considered at a distance.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.58-0.72% (bearish)
UST 2yr Yield 0.10-0.19% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Healthcare (XLV) 96.77-100.95 (bullish)
Tech (XLK) 88.26-95.33 (bullish)
Financials (XLF) 20.23-23.52 (bearish)
VIX 27.09-39.85 (bullish)
USD 98.90-100.75 (bullish)
EUR/USD 1.07-1.09 (bearish)
USD/YEN 106.03-107.54 (bearish)
GBP/USD 1.22-1.25 (bearish)
Oil (WTI) 11.14-27.74 (bearish)
Gold 1684--1742 (bullish)
Copper 2.30-2.42 (bearish)
MSFT 171-188 (bullish)
AAPL 283-313 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
