“We have the right assets for a fast growing digital business.”
- Bernie Ebbers
I’m wondering how the Dot Com Cowboy would have fared in the TAM Cloud bubble? What kind of revenue multiple would ye Olde Wall have slapped on the MCI/Worldcom merger if it happened today (that merger happened on this day in 1998)?
I know, I know. It’s “not the 1999 Bubble.” Ten percent ago in the NASDAQ, in terms of both concentration and size of market cap, it was much larger. You don’t have to have frauds like Ebbers to have asset bubbles.
Notwithstanding that this really super tremendously cool company (Snowflake) is coming public this week and analysts describe what they do as “magic”, all you’d need are #Quad4 market conditions in Q4 to keep popping these puppies.
Back to the Global Macro Grind…
It’s Macro Monday baby! Welcome back. Bolt into your chair and enjoy that Team #ESF US Equity Futures spike between 2-3AM EDT!
Let’s start with the Global Currency market, which traded like a rising probability of #Quad4 in Q4 last week:
- USD Index up +0.7% last week and up for the 2nd straight week to down -3.5% in the last 3 months
- EUR/USD +0.1% last week to +4.8% in the last 3 months remains Bullish TREND @Hedgeye
- Yen +0.1% vs. USD last week remains Bullish TREND @Hedgeye as well
- GBP/USD tagged for a -3.6% loss last week and is the 1st big FX mover to Neutral (from Bullish) @Hedgeye TREND
- Turkish Lira down another -0.5% last week vs. USD and -8.5% in the last 3 months = Bearish TREND @Hedgeye
- Mexican Peso +1.3% last week vs. USD and +7.0% in the last 3 months = Bullish TREND @Hedgeye
That’s right, our risk management #process is all about rising or falling probabilities:
A) When the US Dollar goes up, on a TRENDING basis, it’s signaling rising probability of Deep #Quad3 or #Quad4
B) When the US Dollar goes down, on a TRENDING basis, it’s signaling rising probability Straight or Shallow #Quad3
That’s the Signal. On the economic Quad data itself, here’s what Quadzilla (Darius Dale) wrote after Friday’s clean cut US #InflationAccelerating CPI (Consumer Price Inflation) report:
“FWIW, the conditional probability of realizing Quad 4 in Q4 crept up to 40.8% (from 39.2%) post Friday’s CPI release.”
Yep, I’m thinking I’m taking his word for it on that over the cover of Barron’s saying “its not time for the bubble to pop yet.”
In Dollars, Oil broke bad to Bearish @Hedgeye TREND last week and Commodities, generally, dis-inflated:
- CRB Commodities Index was -2.2% last week to +10.6% in the last 3 months and remains Bullish TREND @Hedgeye
- Oil (WTI) deflated -6.1% last week to only +0.9% in the last 3 months, moving back to Bearish #Quad4 TREND ?
- Copper corrected -0.7% last week to +16.1% in the last 3 months and remains Bullish TREND
- Corn inflated another +2.9% last week to +7.2% in the last 3 months and remains Bullish TREND
- Lean Hogs inflated +13.3% last week to +22.8% in the last 3 months and remains Bullish TREND
So, if you want to ask me the same question 100 different ways on whether I am going to position for #Quad4 instead of #Quad3, the answer is still going to be the same: I don’t know yet. But I’ll keep doing what I’ve already been doing.
Ex-Oil, which diverged materially (on Saudi price cut) from Food, Softs, and Metals last week:
A) Two up weeks for USD does not a new TREND make and
B) I reserve the right to wait and watch for more volatility signals before I make a “call” like that
In the meantime, it wasn’t a “call” to neither be long levered Energy Stocks (XLE down another -6.1% last week and -16.0% in the last 3 months) nor gross up my leverage to Tech Stocks (XLK down -4.4% last week). It was my risk management #process.
On @Hedgeye TREND breakouts in the vol of vol (like NASDAQ and Oil Volatility), I reduce gross long exposure. During ongoing breakdowns in volatility (like Gold’s Volatility falling to 20 last week), I add to my gross long exposure:
A) Gold appreciated another +0.3% last week to +12.3% in the last 3 months and remains Bullish TREND
B) Silver appreciated another +0.5% last week to +47.1% in the last 3 months and remains Bullish TREND
C) Platinum appreciated another +4.6% last week to +13.1% in the last 3 months and remains Bullish TREND
Gold, Silver, and Platinum aren’t widely owned “stahks!” They have nothing remotely resembling Bitcoin’s Volatility Regime (which looks like the NASDAQ’s) right now either.
The other obvious major Asset Allocations with falling volatility (on a TRENDING basis) last week were both TIPs and Treasuries. The Long Bond was a much better place to have your money than some High Yield Bubble:
A) UST 10yr Yield was down -5 basis points last week to 0.67%
B) High Yield OAS Spread widened +8 basis points last week to +496bps over Treasuries
Nope. You don’t have to have a 100% probability in anything to lose a lot of money in something. A rising probability of #Quad4 keeps a #Quad3 portfolio allocated to more duration (TLT) than going from #Quad4 (deflation) to #Quad3 (reflation) does.
All the while, staying long Gold and precious metals works in both Quads. So, while I let the market and data tell me where to go next, I don’t need to lose my mind over those asset allocations and/or who “feels” what about bubbles and their definitions.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.60-0.73% (bearish)
UST 2yr Yield 0.11-0.16% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,471-11,377 (neutral)
Tech (XLK) 108.35-119.04 (neutral)
Financials (XLF) 24.30-25.45 (bearish)
VIX 25.09-34.92 (bullish)
USD 91.99-93.79 (bearish)
EUR/USD 1.17-1.19 (bullish)
USD/YEN 105.37-106.62 (bearish)
GBP/USD 1.26-1.31 (neutral)
Oil (WTI) 35.06-39.72 (bearish)
Gold 1 (bullish)
Silver 26.01-28.96 (bullish)
Copper 2.97-3.09 (bullish)
Bitcoin 9495-10,953 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
