Long Treasuries, Tech, and Gold?

“Finance has also created problems: debt, bubbles, devastating crises and crashes, exploitative corporations, imperialism, and income inequality.”
- William Goetzmann

Goetzmann is a polymath who was born in New Haven, CT. He went to Yale and went on to produce PBS Documentaries and write some important economic history books. The aforementioned quote comes from Money Changes Everything.

It’s a thick book (588 pages) because it’s a very long history. While some people think “it’s different this time”, many people are feeling the pain of exploitative corporates, imperialists, and income inequality. If it is different, that might mean it’s worse!

On debt, bubbles, and crashes… we’ve seen all 3 play out, epically, so far this year. As long as you are Long Treasuries, Tech, and Gold for #Quad3 Stagflation, your hard earned capital has done terrifically. As for everyone else, who on the Old Wall actually cares?

Back to the Global Macro Grind…

Rise and shine for another Macro Monday @Hedgeye! For those of you who are new to our data-driven measuring and mapping process, we aren’t trying to solve for the world’s political issues – we’re trying to A) preserve capital and B) compound returns.

As always, let’s start with telling you a story about the Global Currency market:

1. US Dollar Index (-0.5% last week) was devalued for the 3^rd week in a row and remains Bearish TREND @Hedgeye  
2. EUR/USD was up another +0.5% last week taking its 3-month gain to +3.3% and keeping its Bullish TREND
3. Yen appreciated another +0.6% vs. USD last week and remains Bullish TREND as well
4. GBP/USD popped +1.1% last week, moving from Neutral to Bullish @Hedgeye TREND
5. Chinese Yuan popped +1.0% too last week, moving back to Bullish @Hedgeye TREND alongside Chinese Stocks!
6. New Zealand’s Kiwi appreciated +0.7% in value last week taking its 3-month appreciation to +8.2%

Do Americans who don’t own Treasuries, Tech, and Gold care that the purchasing power of their hard earned Dollar is being devalued, inflating the real cost of living, and perpetuating inequality? They should.

In New Zealand, I’m thinking The People are fine with a +8.2% increase in the value of their hard work. In China, I’m thinking that they are thinking like this is a Game of Go, while US politicians are playing a short-term game of checkers.

Cost of living inflating? Very obviously, in Commodities that trade/settle in US Dollars:

1. CRB Commodities Index inflated another +0.7% last week taking it to +10.7% over the 3-months that USD is down -2.8%
2. Oil (WTI) was -0.3% last week taking its inflation to +22.4% in the last 3-months for Fed Dollar Devaluation
3. Copper ramped another +5.4% last week taking its 3-month inflation to +26.9%, confirming its Bullish TREND breakout

It’s not just the TRENDING (3 months or more) Phase Transitions that are becoming more obvious as a longstanding Bull Market in the US Dollar ended. It’s the 1-month price MOMENTUM that The Machine is chasing that matters now too:

1. Silver inflated another +4.0% last week and is +6.0% in the last month = Bullish TREND
2. Wheat finally inflated +8.5% last week and is +4.4% in the last month
3. Lumber ramped another +13.7% last week taking its 1-month inflation to +38.0%!

Nothing to see here if you work for the willfully blind on ye Olde Wall. As you can see in today’s Chart of The Day, if you look at food and/or medical costs, #InflationAccelerating remains obvious too.

Ever hear of TINA? That’s There Is No Alternative to Stahks! But, like a lot of things pumped at you on CNBC, that’s a complete crock. Over the same 1-month price momentum period of measurement:

1. Stahks in London (FTSE) are down -3.7%
2. US Financial Stahks (XLF) are down -6.9%
3. US Industrial Stahks (XLI) are down -6.3%

Now if you want to talk stahks that we’ve liked since our Q3 Macro Themes presentation in June:

1. Emerging Markets (MSCI) Equities are up +15.6%
2. Chinese Equities (Shanghai Comp) are up +14.9%
3. Tech Stocks (XLK) are up +26.9%!

As anyone who does modern Macro like we do knows, there has been a tremendous amount of alpha generated on both the LONG and SHORT side of inflation (accelerating) and corporate profit (decelerating) expectations in the last month in particular.

‘Oh but KM, you didn’t buy all of those things when everyone bought “the bottom” in March.’ Nope, damn proud that I stayed with my #process too. Commodities didn’t bottom until the end of April and my signals went bullish on those and EM/China in June.

All the while, both the 1-week and 1-month returns on everything “cheap value” that I’ve shorted have been great:

1. LEVERAGE (high Debt/EBITDA) companies were down another -0.9% last week
2. SLOW GROWTH (sales and EPS) companies were down another -0.8-0.9% last week
3. SMALL CAP companies were down another -1.4% last week

*mean performance of Top vs. Bottom Quartile in SP500 names

That’s why the Russell 2000 (IWM) was down another -0.6% last week and down for the 2^nd week in 3 while the NASDAQ punched out 3 straight all-time closing high days to end another awesome week to be Long Treasuries, Tech, and Gold.

Full Cycle Investors get #Quad3 Stagflation. Pretty soon, The People are going to get that they’re quite literally eating that too.

Immediate-term @Hedgeye Risk Range with TREND signal in brackets:

UST 10yr Yield 0.59-0.69% (bearish)
SPX 3046-3199 (bearish)
RUT 1 (bearish)
NASDAQ 10,000-10,770 (bullish)
Tech (XLK) 102.99-109.80 (bullish)
Financials (XLF) 22.17-23.68 (bearish)
Shanghai Comp 3 (bullish)
VIX 26.11-33.40 (bullish)
USD 96.09-97.36 (bearish)
EUR/USD 1.12-1.14 (bullish)
USD/YEN 106.58-107.98 (bearish)
GBP/USD 1.23-1.27 (bullish)
Oil (WTI) 38.20-41.41 (bullish)
Gold 1 (bullish)
Copper 2.68-2.96 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer