“Deliberate practice takes place outside one’s comfort zone.”
- Anders Ericsson
If you’re not comfortable going to bed with US FOMO Futures being down at 3027 (SPX), then waking up to them being bright green on absolutely zero fundamental news, no worries…
All good. Your “401k’s” are kind of all good (or are they?). Especially if your longer-term accounts started 2020 with big Full Investing Cycle Asset Allocations to Treasuries (across the curve) and Gold, you’re definitely good.
Measuring and mapping The Cycle, deliberately, meant you knew (in January) that both US GDP and Profit Growth were already slowing. As Ericsson reminds us in Peak, “deliberate practice is deliberate, that is, it requires a person’s full attention and conscious actions.” (pg 99)
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where we’re not focused on painting the tape with a narrative. We’re not affected by how other people play The Game either. We’re deliberately executing on our data-driven risk management #process.
As usual, let’s start with last week’s Global Currency market moves:
- US Dollar Index had a +0.3% Counter @Hedgeye TREND bounce last week, so I shorted it on Friday at lower-highs
- EUR/USD was down -0.7% last week and is currently signaling Neutral TREND (i.e. do nothing)
- Japanese Yen was up another +0.5% vs. USD last week and continues to signal Bullish TREND @Hedgeye
- GBP/USD was down -1.5% last week and is also signaling Neutral TREND @Hedgeye
- Mexican Peso corrected -1.7% vs. USD last week but is +6.3% in the last 3 months and back to Bullish TREND
As a reminder, within the core components of my multi-factor and multi-duration risk management #process, nothing (including Quads, Pods, etc.) is more important than the singularity of my intermediate-term @Hedgeye TREND signals.
Why? That’s simple. My signaling process front-runs both top-down economic Quads and bottom-up Profit Cycle Pods.
On that front, it was very easy to see the “flation” part of Recessionary Stagflation pending in Q3 last week. All you had to do there is deliberately observe the impact of the Fed Devaluing the Dollar on the Commodities market:
- CRB Commodities Index was +2.7% last week breaking out to Bullish @Hedgeye TREND
- Oil (WTI) reflated another +9.6% last week and is currently Bullish TRADE, Neutral TREND
- Copper confirmed its recent breakout to Bullish @Hedgeye TREND with another +0.4% gain
- Corn was +0.8% last week, moving from Bearish to Neutral @Hedgeye TREND
- Lumber prices inflated +17% last week moving, quickly, back to Bullish @Hedgeye TREND
Oh, but KM that move in Lumber was because of “…” and “…”. As people on Old Wall TV like to say these days “for sure.” I deliberately don’t care about the “why” part. I know that might bother some people. But that’s ok, I deliberately don’t care about that either!
When some people hear #InflationAccelerating, they immediately think that must be bad for Treasuries. Nope. What’s really bad for both Treasuries and Gold is a rip-roaring forward looking @Hedgeye TREND signal for an economic #Quad2.
In #Quad2 (see our call to be short Treasuries and Gold throughout 2017) rates are breaking out to Bullish @Hedgeye TREND and you can be long my current Shorts (Financials and the Russell 2000). Instead, this is what happened last week:
A) UST 10yr Yield was down -1 basis point to 0.69% and remains Bearish @Hedgeye TREND (that’s Bullish TREND for Bonds)
B) Gold was up another +0.9% last week taking its league-leading 2020 “YTD” return to +13.8%
And some people quite literally want and/or need me to “admit” that I “missed calling the bottom” while my favorite US Equity Index Short (Russell 2000) is -15.0% YTD and my fav Sector Style Short (Financials) is down -22.1%, lol.
My hands are in the air – I missed picking it … and I don’t trust the establishment. I am not your proctologist!
What I am is your Risk Manager. And with this level of both US Equity Volatility (35 VIX) and High Yield Spreads (+578 basis points over Treasuries), I sincerely hope you are proactively prepared for the next part of The Profit Cycle #slowing as inflation re-accelerates.
Front-month US Equity Volatility (VIX) was down -2.7% last week and is down -51.2% in the last 3-months, but it’s still signaling Bullish @Hedgeye TREND at +155% YTD!
This is The Gravity of The Cycle’s deliberate response to the most epic level of Wall Street begging for centrally-planned-market prices, ever. While they hoped it would suppress it, panic printing of either money or FOMO Futures evidently perpetuates equity volatility.
At this stage of The Game, if that makes the establishment “feel” outside of their comfort zone, it should!
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.62-0.82% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 9480-10,180 (bullish)
Financials (XLF) 22.23-25.10 (bearish)
VIX 29.98-41.33 (bullish)
USD 95.86-97.97 (bearish)
EUR/USD 1.11-1.14 (neutral)
USD/YEN 106.23-109.05 (bearish)
GBP/USD 1.24-1.28 (bullish)
Oil (WTI) 34.96-40.81 (neutral)
Gold 1 (bullish)
Copper 2.51-2.67 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
