“More than anything else, this is a problem of mental representations.”
- Anders Ericsson
As Ericsson explains through an excellent behavioral book I’ve been citing this year (Peak: Secrets From The New Science of Expertise), deliberate practice and study of subject matter isn’t nearly enough. Most people need coaches!
“When you’re practicing by yourself , you have to rely upon your own mental representations to monitor your performance and determine what you might be doing wrong. This is not impossible, but it is much more difficult and less efficient than having an experienced teacher watching you and providing feedback…” (pg 148)
How do you find a good coach? Well, if you’re looking for one to teach you about the Full Investing Cycle and coach you through NOT making the behavioral mistakes investors make chasing charts and/or short-term benchmark “returns”, you’ve found the right place.
Back to the Global Macro Grind…
Welcome to the 1st Macro Monday @Hedgeye of Q3 of 2020. For those of you who are new to our risk management process, on the 1st day of every week we review the prior week’s Global Macro market moves within the context of my @Hedgeye TREND Signals.
As is my discipline, I start with what’s signaling in the Global Currency market:
- US Dollar Index continued lower last week, down -0.3% and confirming my Bearish @Hedgeye TREND signal
- EUR/USD was up +0.3% last week to +4.1% in the last 3 months and remains Bullish TREND @Hedgeye
- Yen was -0.3% vs. USD last week to +1.0% in the last 3 months and remains a Bullish TREND as well
- Canadian Dollar was +1.1% vs. USD last week to +4.9% in the last 3 months and is now Bullish TREND too
- Norwegian Krone was +2.4% vs. USD last week to +12.0% in the last 3 months and remains Bullish TREND as well
In other words, as both the Fed and US Treasury remain committed to devaluing both the purchasing power and credibility of the US Dollar, plenty of other countries have the opposite happening now on a TRENDING basis, for The People in their countries.
Unless, you think the Canadians and Norwegians don’t appreciate seeing the currency they get paid in appreciate in value, that is…
Setting aside that, sadly, there aren’t many coaches teaching you these basic economic realities on Old Wall Street, that doesn’t mean they cease to exist. Check out last week’s Cost of Living (or Commodity) #InflationAccelerating:
- CRB Commodities Index (19 commodities) inflated another +4.6% last week and remains Bullish TREND @Hedgeye
- Oil (WTI) inflated another +5.6% last week moving it back to Bullish @Hedgeye TREND with Oil Volatility collapsing
- Copper’s recent Bullish @Hedgeye TREND breakout continued with another +2.6% inflation last week
- Corn ramped +7.6% on the week and is one of our big Bearish to Bullish Phase Transition calls (ETF: CORN)
- Lumber prices inflated another +3.4% last week and are up +55.3% in the last 3 months alone
How many of the recently ordained Proctology Macro people (they all called the “bottom” in Stahks! in March/April) called the multi-year Cycle Bottoming #process of Commodities in Dollars? Just asking for some free market capitalist friends…
The People, of course, are going to have to eat this inflation. That’s obviously not good with Friday’s US Jobs report implying the fastest rate of PERMANENT job loss since we were in the thralls of Old Wall’s last Leverage Crisis (2008).
No worries though, the Bond Market gets the difference between recessionary stagflation (where your neighbor permanently lost their job but you still have yours) and an economic expansion:
A) UST 2yr Yield was down 1 basis point last week to 0.15% and Short-term Treasuries (SHY) remain Bullish TREND @Hedgeye
B) UST 10yr Yield was only +3bps last week to 0.67% and Long-term Treasuries (TLT) remain Bullish TREND as well
While our recent Full Investing Cycle pivot to going long both Commodities and certain Emerging Equity markets was as of last month, Full Cycle Investors have enjoyed the longer-term Bull Markets in both Gold and Treasuries since Q4 of 2018 (Gold is +48% since).
Emerging Markets (EEM) #1 component is the top ranked country in our back-tested Quad model: China.
As you can see in Quadzilla’s (Darius Dale) Chart of The Day (slide 109 in our Q3 Macro Themes deck), China’s Consumer (KWEB) is at the top of the Longs List. It also signals Bullish TREND. Here’s how EM and China did last week:
A) Emerging Market Equities (MSCI) were +3.4% last week and are in a Bearish to Bullish @Hedgeye TREND Phase Transition
B) Chinese Stocks (Shanghai Comp) were +5.8% last week after confirming my recent Bullish @Hedgeye TREND signal as well
Yep, with real world inflation accelerating there are plenty of new pivots Full Investing Cycle investors need to be coached through. Teaching people the difference between US Economic Stagflation and non-V-shaped-expansions will continue to be critical too.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.62-0.73% (bearish)
UST 2yr Yield 0.14-0.20% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 9778-10,296 (bullish)
Tech (XLK) 100.96-106.54 (bullish)
REITS (XLRE) 33.30-36.23 (bullish)
Financials (XLF) 22.06-23.99 (bearish)
Shanghai Comp 2 (bullish)
VIX 26.04-36.62 (bullish)
USD 96.18-97.75 (bearish)
EUR/USD 1.11-1.13 (bullish)
USD/YEN 106.38-108.16 (bearish)
Oil (WTI) 37.19-41.47 (bullish)
Gold 1 (bullish)
Copper 2.62-2.77 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
