“The word straight indicates that the whiskey contains no artificial coloring, flavoring – no artificial anything.”
- Tom Bulleit
I’m not a bourbon guy but I’m disruptor guy… and I’m in the midst of reading a great American Capitalist book titled Bulleit Proof – how Tom Bulleit disrupted the liquor industry, “one bottle, one sip, one handshake at a time.”
Not unlike playing against the Old Wall, getting into the game with, at the time, Seagrams, then Diageo, one of the most obvious reasons for Bulleit’s success was the successful capitalist Similar Set of perseverance and patience.
“When it comes to a Kentucky straight bourbon whiskey designation, you have to play by rigid rules. I would have it no other way… I’m nothing if not patient… Think Romanati: waiting, one conquers all.” Pages 47-48
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where it’s my promise to deliver the most patient and process driven macro message to those of you with an intermediate to longer-term Full Cycle Investing framework.
Remember, I’m not trying to bounce you around from weekly or monthly economic quad to quad, company pod to pod, or TRADE to TREND. I’m trying to help you do what I do with discipline and patience with my owned hard earned net wealth.
As usual, let’s start with what happened in the Global Currency market last week:
- US Dollar Index bounced off the low-end of its Risk Range to close +0.4% on the week but remains Bearish TREND
- EUR/USD corrected -0.3% last week, moving back to Neutral @Hedgeye TREND
- Japanese Yen rallied +2.1% vs. USD last week and also remains Neutral TREND
- GBP/USD corrected -1.0% last week, remaining a Neutral @Hedgeye TREND
- Mexican Peso was down another -2.9% vs. USD last week and remains Bearish @Hedgeye TREND
- Aussie Dollar corrected -1.5% vs. USD last week but is a relatively new Bullish @Hedgeye TREND
In summary, that’s about as mixed a message I can get from the FX market on whether or not the US economy is heading into what we call a “deep” or a straight #Quad3. If it’s Deep #Quad3 in Q3, the US Dollar isn’t a short, fyi, so I’ll watch that closely.
That’s the thing about watching EVERYTHING in Global Macro, both patiently and particularly. These aren’t like 10 or 50-day Moving Monkey charts. These are multi-factor and multi-duration signals that generally take time to manifest.
An important example of a big asset class I’d like to buy for #Quad3 in Q3 is Commodities. Patience paid on that front last week because an Up Dollar deflated them, again – that’s been the intermediate-term @Hedgeye TREND:
- CRB Commodities Index was down -3.4% last week and remains Bearish @Hedgeye TREND
- Oil (WTI) was down -8.3% last week and remains Bearish @Hedgeye TREND
- Copper was +2.0% last week testing a Bearish to Bullish @Hedgeye Phase Transition
When something is testing a reversal (Phase Transition) I generally have plenty of time to wait and watch that thing. Copper, for example, is giving back most of last week’s gains this morning and isn’t fully confirming a green light (to buy it).
If you’ve had the patience in your process to buy, hold, and risk manage Core Asset Allocations (like Gold and Treasuries), you afford yourself the luxury of patience. Nothing is worse than chasing something higher, after a short-term move.
Look at these Full Investing Cycle beauties last week:
A) Gold was up another +3.2% last week to +12.8% YTD
B) The Long Bond (10yr Yield) saw its yield drop -19 basis points last week to -121 basis points YTD
I know, I shouldn’t use “YTD” where something like Small Cap Stahks (Russell 2000) were down -7.9% last week to -16.8% YTD looks really bad compared to my core longs in Gold and Treasuries.
I should use what Gold and Treasuries have done vs. my favorite US Equity Index Short (IWM) since Q4 of 2018. That’s the Full Investing Cycle (i.e. where the pod for US Profit Growth peaked alongside the Quad):
A) Gold is +44% since Q4 of 2018
B) 10yr Yield is down -256 basis points over the same period… and
C) The Russell 2000 has crashed -20.3% from that Cycle Peak
But, but, ‘Keith, you didn’t call “the bottom”, in the US stock market in March.’
Well, I did cover almost all of my short positions there and had plenty of longs that worked since March-April, but… if people need me to be that guy, I guess I’m also the guy who didn’t have you chase last week’s IWM bear market lower-high!
Alongside being long of Small Cap Factor Exposure, the 2 worst Sector Styles one could have been long last week were:
A) My favorite Short, Financials (XLF), were down -9.2% last week and remain Bearish TREND
B) A potential #Quad3 Long, Energy Stocks (XLE), were down -11.2% last week and remain Bearish TREND
Nice job being patient on Energy Stocks… because if it’s Deep #Quad3 (and the US Dollar gets back to Bullish TREND), those are shorts, not longs. If it’s a more normal or straight #Quad3, we’ll have the time and space to make that buy decision.
Other Factor Exposures that got hammered last week that have been underweights (or, bad disruptor word, “shorts”) since the end of January 2020:
A) HIGH BETA stocks were down -10.4% last week and remain Bearish TREND
B) HIGH LEVERAGE stocks were down -8.3% last week and remain Bearish TREND
Alongside that, the High Yield OAS Spread widened another +75 basis points last week to +611bps over Treasuries. Oh, and the VIX was +47.2% to close the week at 36.09 too.
There is no such thing as a “longer-term” investor who makes money levered long high beta stocks and Junk Bonds (JNK) going into a VIX ramp > 26 and High Yield OAS > +500 over.
No artificial anything from the beloved Fed needed. Long-term Full Cycle Investors manage risk before those moves.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.60-0.87% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Tech (XLK) 95.72-104.30 (bullish)
Utilities (XLU) 57.27-63.20 (bullish)
Financials (XLF) 21.60-25.04 (bearish)
VIX 28.06-45.66 (bullish)
USD 95.80-98.13 (bearish)
EUR/USD 1.11-1.14 (neutral)
USD/YEN 106.33-110.01 (neutral)
GBP/USD 1.23-1.27 (neutral)
Oil (WTI) 33.51-40.29 (bearish)
Gold 1 (bullish)
Copper 2.45-2.68 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
