“He that would run his company on visible figures alone will soon have neither company nor visible figures to work with.”
- W. Edwards Deming
And he or she who would run their companies on FOMO alone will eventually have some visible issues to deal with too! I hope everyone enjoyed the daily US Equity Futures FOMO that ramped at 3AM EDT as West Coast riots went to bed.
Back to the Global Macro Grind…
What really has the US and Emerging Equity market FOMO going right now is a Down Dollar.
Obviously with our risk management #process having been mostly Bullish on the US Dollar since Q2 of 2018, you can see how wretched an Asset Allocation to “cheap” Emerging Market (or European) Stahks has been since.
In a Global Macro market dominated (in the short-term) by The Machine, Down Dollar is A) potentially new and B) has impact:
A) USD 15-day inverse correlation to SPY is -0.90
B) USD 30-day inverse correlation to SPY is -0.78
So you’re saying the Old Wall’s next move it to eviscerate The Purchasing Power of The People? Oh yeah, baby. The FOMO on your perf sheets with rioting in the streets? Think about it when the US unemployment rate ramps towards 20% on (report due out Friday).
This is where my #process needs to be long of some patience because:
A) US Dollar Index @Hedgeye TREND support = 97.69 … but
B) US Dollar Index is at the low-end of its 97.11-100.53 @Hedgeye Risk Range
In other words, it could/should bounce +3% (from here to the top-end of my Risk Range) and make everything on your screen look like a total FOMO head-fake. If there is a spot where someone would capitulate at the low-end of the USD range, it’s today.
Obviously (or not), I built my process using a multi-duration and multi-factor framework so that I can A) breathe and B) have patience in particular market moments like this. Remember, fractal fans, it’s the PARTICULAR moments in macro that matter most.
So, some big macro stuff that’s not testing Bullish @Hedgeye TREND breakouts, or Phase Transitions, yet:
- Oil
- Copper
- Emerging Market Equities
Since I’m short Brent Oil (BNO) this morning and it has a -0.77 inverse correlation (on a 15-day duration), that’s going to suck wind. Happens, unless you’re a new subscriber who has never lost money shorting something in a straight up tape…
After we observe and orient around this short-term OODA Loop, the bigger question I need to answer from an Asset Allocation perspective is when to tilt from Deep #Quad4 into Deep #Quad3?
For those of you who don’t know about the non-V-shaped recovery in the US economy:
A) ISM for May bounced a whopping 1.6 points from the 41.5 low in April to 43.1
B) ISM New Orders went from an epic 27.1 low in April to 31.8 in May (see Chart of The Day)
Using that picture instead of people’s FOMO “feelings” and words, that’s what DEEEEEEEEEEEEP looks like. When combined with A) high and rising unemployment and B) devaluing Dollars and raising the cost of living, that’s also called Deep State Stagflation.
Whether they explicitly say it this way or not, some on the Old Wall say screw The People on that. While I’m sure that will end well, I’m less sure what the “multiple” is on super-late-cycle Equity & Credit bubbles will be during this recessionary #Quad3 phase.
For those of you who don’t know, the back-tested reality is that both Equities & Credit get:
A) More “expensive” during #Quad4 (because the E in the PE is falling fast as the Fed props up the P)… and
B) They get cheaper and cheaper during #Quad3 as the P in the PE starts to fall, again, alongside time and space (and the E)
No worries on that this morning though.
Everyone you watch on CNBC will tell you why this is all bullish in the 15-30 day window. Then when they want to jump out of a window again, they’ll expect the Fed to be there for them with a nice big safety net (no tear gas for them).
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.62-0.72% (bearish)
UST 2yr Yield 0.14-0.19% (bearish)
Healthcare (XLV) 98.32-103.10 (bullish)
Tech (XLK) 93.95-98.64 (bullish)
Utilities (XLU) 54.40-60.94 (bullish)
Financials (XLF) 20.57-24.65 (bearish)
VIX 26.42-35.37 (bullish)
USD 97.11-100.53 (bullish)
GBP/USD 1.21-1.25 (bearish)
Oil (WTI) 29.04-36.60 (bearish)
Gold 1 (bullish)
Copper 2.35-2.48 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
