Clearly #Quad3 Stagflation

“No other single event represented as clearly the clash between scientific reasoning and religious authority.”
- Mario Livio

In Galileo and The Science Deniers, the aforementioned quote refers to Galileo’s Inquisition, which ended in June of 1633. Imagine Pope Pump appointed 10 Cardinals to put this Irish-Canadian on trial for suggesting US Dollar Devaluation perpetuated stagflation & inequality?

Ha!

Although Pump did tweet/mention he might want to “fix” inequality this weekend, he’s obviously not as serious as the economic matter has become. This is going to require a generational change in how the American establishment thinks about the currency of The People.

Back to the Global Macro Grind…

Welcome to your first Macro Monday for August of 2020! On the 1^st day of every week, we review what happened across the Global Macro market in the prior week, so that we can measure & map particular moves within existing and emerging @Hedgeye TRENDs. 

Let’s start with the US Government’s Dollar Devaluation story:

1. US Dollar Index down for the 6^th week in a row, devalued another -1.2% to -4.2% in the last month alone
2. EUR/USD was up another +1.1% in kind, reinforcing its Bullish @Hedgeye TREND
3. Yen was +0.3% vs. USD and also remains Bullish TREND @Hedgeye  
4. GBP/USD appreciated another +2.3% last week to +5.5% in the last month = Bullish TREND #reiterated
5. Chilean Peso was +2.4% vs. USD last week taking its 1-month appreciation to +8.1%
6. Hungarian Forint was +1.5% vs. USD last week taking its 1-month appreciation to +7.9%

Yes, The People in both Chile and Hungary appreciated that. It’s not clear how we’re making America great again when the Early Look is citing strength in Chilean Pesos and Hungarian Forints, however!

‘But, but… Keith, there’s no inflation.’ Ha!

Here are your weekly and monthly Commodity Inflations (in Dollars):

1. Lumber inflated another +8.2% last week and has inflated +35.7% in the last month
2. Coffee inflated another +9.7% last week and has inflated +17.8% in the last month
3. Sugar inflated another +10.0% last week and has inflated +5.7% in the last month
4. Cocoa inflated another +7.9% last week and has inflated +9.8% in the last month
5. Silver inflated another +6.0% last week and has inflated +29.9% in the last month

Now if you need some technocrat at the Treasury to tell you when there’s real world #InflationAccelerating, I guess that’s your problem. Hedgeye Jedis who are long of Commodities can see the inflation, daily. It’s in their Full Investing Cycle accounts.

The Treasury Bond market (and Gold up another +3.2% last week) gets what Stagflation means at the particular time in The Cycle when many low to middle income earning consumers (that’s if they have a job) can’t afford it:

A) UST 2yr Yield collapsed another -4 basis points to an ALL-TIME low last week of 0.11%
B) UST 10yr Yield collapsed another -6 basis points to an ALL-TIME closing low last week of 0.53%

‘But, but… Keith, that’s because of the Fed.’ Ha!

No, that’s because both Real US Growth expectations and Real Yields continue to collapse alongside Real Inflation Expectations rising. That’s why being long the growth that remains (Tech) has such a premium right now. Being long Real Estate (XLRE) is working in #Quad3 too:

A) Tech (XLK) led US Equity Sector Style gainers with a +5.0% week
B) REITS (VNQ) were right on Tech’s heels, inflating +4.2% last week

Alongside Utilities, Tech and REITS are in our Top 3 Sector Style LONGS vs. Financials (XLF) - still our favorite US Sector SHORT – were a bloody dog last week, losing another -1.0% and still in #crash mode at -21.9% for 2020 YTD.

Instead of being long Chinese (KBA and KWEB) and Emerging Market Equities, you weren’t long US Financials and French Stocks, I hope!

A) France’s stock market lost another -3.5% of its “value” last week and remains Bearish TREND @Hedgeye vs.
B) China’s Shanghai Comp +3.5% and the MSCI Emerging Markets Equity Index appreciating another +1.7%

Clearly, there’s a ton of alpha out there being generated on both the long and short side of Global Macro right now. Long Taiwan (EWT) at +4.5% last week vs. Short Japanese Stocks at down -4.6% last week, is another example.

That’s clearly because we have #Quad3 recessions in some countries and #Quad1 recoveries in others.

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

UST 10yr Yield 0.52-0.62% (bearish)
UST 2yr Yield 0.10-0.14% (bearish)
SPX 3 (bullish)
NASDAQ 10,302-10,822 (bullish)
Tech (XLK) 105.09-110.89 (bullish)
REITS (XLRE) 34.15-37.11 (bullish)
Financials (XLF) 23.04-24.62 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 211 (bearish)
VIX 23.56-30.40 (bearish)
USD 92.49-95.40 (bearish)
EUR/USD 1.15-1.18 (bullish)
USD/YEN 104.06-106.55 (bearish)
GBP/USD 1.27-1.31 (bullish)
Oil (WTI) 39.66-42.43 (bullish)
Gold 1 (bullish)
Silver 21.75-25.49 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer