“I don’t think that the same God who has given us our senses, reason, and intelligence wished us to abandon their use.”
- Galileo
Whether it’s China (who is threatening to ban American visas this morning for “behaving badly”) or the Catholic Church pronouncing Galileo’s view that the Earth was not the center of the universe as “heresy”, Establishments have a long history of fighting the truth.
The aforementioned quote comes from a brand new book that was recently published called Galileo And The Science Deniers where author and astrophysicist, Mario Livio, goes on to remind us:
“As history would have it, Galileo’s tragic end only helped to transform him into one of those larger-than-life heroes of our intellectual history. Einstein called him the father of modern physics – and, indeed, of modern science altogether.” (pg 2-3)
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where this bean counter still believes in both economic gravity and The Cycle.
Let’s start with the fractal and omnipotent @Hedgeye TREND signals in the Global Currency market:
- USD Dollar Index was down -0.2% last week confirming its Bearish @Hedgeye TREND
- EUR/USD was +0.4% last week and remains Neutral @Hedgeye TREND
- Yen was -0.3% vs. USD last week but remains Bullish TREND @Hedgeye
- GBP/USD was -0.1% last week and moved back to Bearish @Hedgeye TREND
- Swedish Krone was +1.5% vs. USD last week to +6.8% in the last 3 months and a new Bullish TREND
- AUD/USD was up another +0.4% last week to +13.2% in the last 3 months and remains Bullish TREND
Contrary to popular Old Wall establishment belief (that the world revolves around Fed policy and 5 Stahks), there are plenty of other countries and human beings in this non-linear and globally interconnected ecosystem.
Congrats to both the Swedes and Aussies on seeing the purchasing power of their hard earned currencies breakout to the upside in a time when The People need it the most. Nothing is worse than seeing your currency devalued (and cost of living rise) during a recession.
On that cost of living front, here’s how Commodities did last week:
- CRB Commodities Index corrected -2.6% but remains a new Bullish @Hedgeye TREND @Hedgeye
- Oil (WTI) deflated -3.4% last week and remains a Neutral TREND (but a Bullish immediate-term TRADE)
- Copper inflated another +1.9% last week and is also a new Bullish TREND @Hedgeye here in June
- Lumber prices inflated another +2.6% last week and are also a new Bullish TREND @Hedgeye
- Silver inflated +0.8% last week and remains Bullish TREND @Hedgeye
When something big (like Bearish USD) is signaling something new, other big things start to signal something new as well. For those who are one-way, perma-marketing certain asset classes, that critical and objective part of my process doesn’t work for them.
Gold, for example, should never be owned when Real Yields are rising. That’s why I was unpopular with the Gold Bug establishment in 2017 and into 2018 until my signal (and economic Quad) said it was buy Gold time back in Q4 of 2018.
Similarly, when The Signal (and economic Quad) agreed that the peak of the US economic and profit cycle was in (Q3 of 2018), we went bearish on Small Caps & Speculative Credit. Last week here’s what Gold did vs. the Russell 2000, in context of The Cycle:
A) Gold was up another +1.6% last week taking its Full Investing Cycle return to +48.3% since Q4 of 2018
B) Russell 2000 (IWM) was down another -2.8% last week taking its Full Cycle Crash to -20.8% since Q318
Fortunately for all of you Full Cycle Investors, these are examples of dramatic #divergences that can’t be explained with a narrative that denies the solar system or The Cycle’s existence.
The other big time Full Cycle Investing return that continued to pay off last week was Long Treasuries (across The Curve) vs. Short both “cheap” Financials Stahks! (that continue to get cheaper) and super late cycle High Yield Credit (JNK):
A) UST 10yr Yield was down another -5 basis points last week to 0.64% (vs. 3.2% where we started buying TLT in Q418)
B) Financials (XLF) dropped another -5.8% last week and High Yield OAS Spread widened +37bps to +615bps over Treasuries
While it doesn’t surprise me whatsoever that everyone on the Old Wall called “the bottom” in March/April, it’s quite consistent that they all missed calling The Cycle’s Lower-Highs (and Higher Lows for Gold & Treasuries) at the beginning of June.
On the Factor Exposure front, “behaving badly” would be an understatement last week (these exposures were worse than being long the Russell or Junk Bonds):
A) HIGH BETA was down another -6.7% last week, taking its 6-month (trending) return to -36.0%
B) BOTTOM 25% SALES GROWERS down another -5.7% last week, taking its 6-month return to -25.8%
I don’t know about you, but if I lost 5-10% of my hard earned net wealth in 6 months, I’d consider that a disaster.
Seeing that the US government is already trying to devalue the currency that I labor for, I need to keep compounding Full Cycle Returns as best I can in order to keep pace with #InflationAccclerating.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.62-0.71% (bearish)
UST 2yr Yield 0.14-0.20% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Tech (XLK) 99.69-104.90 (bullish)
REITS (XLRE) 33.04-36.50 (neutral)
Utilities (XLU) 54.66-58.32 (neutral)
Financials (XLF) 22.01-24.17 (bearish)
VIX 30.22-39.65 (bullish)
USD 96.40-97.84 (bearish)
EUR/USD 1.11-1.13 (neutral)
USD/YEN 106.36-107.63 (bearish)
GBP/USD 1.22-1.25 (bearish)
Oil (WTI) 36.15-40.99 (neutral)
Gold 1 (bullish)
Copper 2.56-2.71 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
