US Dollar Devaluation = Long Gold

“The first mathematical models of business growth and profit appeared 4,000 years ago.”
- William Goetzmann

After studying the last 4,000 years of countries, businesses, and their respective cycles, you’ll find that there’s never been a country who explicitly devalued the purchasing power of their people (while ramping their deficits and debts into double and triple %’s of GDP) and it ended well…

While writing about these basic economic relationships (like a Government devalues Dollars and those paid in Dollars have a higher cost of living, in Dollars) is still surprisingly differentiated, that doesn’t mean that forgotten histories cease to exist.

As Goetzmann reminds us in Money Changes Everything, “Mesopotamia gave the world its first cities, first written language, first laws, first contracts, and first advanced mathematics” (pg 19). Pump, Mnuchin, and Kudlow are just giving us a political narrative about joblessness, deficit spending, and debt that neither Gold nor the Treasury Bond market believes.

Back to the Global Macro Grind…

Unless you don’t believe in Mondays, it’s Macro Monday @Hedgeye! For those of you who are new to our data-driven #process, on the 1^st day of every week we review the prior week’s macro market moves within The Cycle’s @Hedgeye TRENDs.

Let’s start with America’s Currency Devaluation story:

1. US Dollar Index was down for the 5^th straight week, devalued by another -1.6% last week = Bearish TREND, since May
2. EUR/USD appreciated another +2.0% last week, is +7.7% in the last 3 months, and remains Bullish TREND @Hedgeye  
3. Japanese Yen was +0.9% vs. USD last week and also remains Bullish TREND @Hedgeye  
4. GBP/USD appreciated another +1.8% last week and remains Bullish TREND @Hedgeye  
5. Brazil’s Real was +3.0% vs. USD last week, is +6.9% in the last 3 months, and back to Bullish TREND too
6. Australia’s Dollar was +1.6% vs. USD last week, taking its 3-month ramp to +11.5% = Bullish TREND @Hedgeye  

‘Oh, but KM, they’re all doing it too.’ No they aren’t. Who in Australia, Canada, or the UK announced another TRILLION in government checks before the US Equity FOMO Futures were set to open on Sunday night?

As you can see in today’s Chart of The Day (heat map of global fiscal deficit spending), no one, globally, is going for Gold like Pump & Mnuchin are. If you can’t see that, pull up a live quote of Gold this morning:

A) In Devalued Dollars, Gold was +5.0% last week
B) Gold is up another +2% this morning
C) Gold’s Full Investing Cycle return (started in OCT 2018 when the US Cycle peaked) is +64%

Dollar Down, Treasury Yields Down, Gold Straight Up is not an easy political message to sell with US Joblessness re-accelerating last week and Commodities outperforming Stahks! (again):

A) UST 10yr Yield was down another -4 basis points last week to 0.59% (and is down 9 basis points in the last month)
B) Commodities (CRB) Index inflated another +1.6% last week and remains Bullish TREND @Hedgeye  
C) SPY and Small Caps (IWM) were down -0.3% and -0.4%, respectively, last week

In fact, the Russell 2000 (IWM) has been down for 4 of the last 6 weeks while Gold is going for its 8^th weekly gain, in a row. Across the Full Investing Cycle, being long the Russell (since it peaked in Q3 of 2018) is down -15.3% (vs. Gold +64%).

And who encouraged you to have a max 12% Asset Allocation to a currency like Gold? We did. I review it on The Macro Show, daily. That’s why it remains my largest Asset Allocation as of this morning, followed by TIPs (TIP and IVOL) and Treasuries (TLT).

In Equities, I’m long a bunch of stuff now (my max allocation to each is 6% of my portfolio), which include:

1. Nasdaq (QQQ) which was on sale on Friday (down -1.3% on the week) so I bought more
2. Utilities (XLU) which were +0.1% last week, beating SPY and IWM too
3. REITS (XLRE) which were -0.4% on Friday, so I bought a little more of that too
4. Chinese Stocks (KWEB and KBA) which were on sale -0.5% last week and remain Bullish @Hedgeye TREND 
5. Emerging Markets (EEM) which were +0.5% last week and remain Bullish @Hedgeye TREND too

I’m also long Indonesian (IDX) and Thai (THD) stocks alongside a whole boat load of Commodities (4% max, per position), including one that I don’t totally understand (Bitcoin).

But that’s fine, after studying the last 4,000 years, I understand the devalued Dollars in which $10,180 Bitcoins are priced!

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

UST 10yr Yield 0.56-0.65% (bearish)
UST 2yr Yield 0.12-0.16% (bearish)
SPX 3166-3280 (neutral)
RUT 1 (bearish)
NASDAQ 10,273-10,807 (bullish)
REITS (XLRE) 34.29-35.28 (bullish)
Utilities (XLU) 57.19-61.58 (bullish)
Financials (XLF) 22.37-24.65 (bearish)
Shanghai Comp 3150-3443 (bullish)
VIX 22.61-31.18 (neutral)
USD 95.01-96.29 (bearish)
EUR/USD 1.14-1.17 (bullish)
USD/YEN 105.20-107.15 (bearish)
GBP/USD 1.25-1.28 (bullish)
Oil (WTI) 39.73-42.23 (bullish)
Nat Gas 1.60-1.90 (bullish)
Gold 1 (bullish)
Copper 2.86-2.98 (bullish)
Bitcoin 9111-10,201 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer