“Time erodes everything. Countries included.”
- Peter Zeihan

Hopefully that’s not how you think about your children or favorite cloud stock… but thinking about longer-term demographic risk in particular, Zeihan absolutely nails that historical fact in Dis-United Nations: The Scramble For Power In An Ungoverned World.

Short Euros, Buy Treasuries - 10.05.2020 macro tourist in hell cartoon

Back to the Global Macro Grind…

So a guy walks out of a hospital and another guy and a gal are going to have another socially distanced phone call today… and all of the long-term cycle risks (like debt and demographics) are going to magically go away alongside #Quad4 in Q4?

Super cool narrative. But, for some reason, our data-driven #process isn’t scoring it as relevant this morning.

Time erodes narratives. Old Wall’s included. I have plenty of volatility-adjusted and actionable narratives I’ve given you in the last month. From getting out of Tech at the top to getting back into AAPL at $105 and buying more Gold, “like a pirate!”, argh!

And I’ll tell you to Short Euros (that’s new) and Buy Treasuries, like a Full Cycle boss, again this morning. None of it is narrative driven.

But I can tell one heck of an ice-fishing story! Heck, other than the $105 (low-end of the AAPL @Hedgeye Risk Range with the top-end = $120) and this scary #Quad4 Pirate thing, I haven’t used one bloody number in my rant, yet, this morning. I could work for Citigroup!

Mathematically speaking, the wrong Volatility Regime of numbers erodes everything. Levered Long (TQQQ) portfolios included.

So let’s get into the 3 most important Global Macro numbers in my notebook this morning:

  1. US Dollar Index continues to signal a series of higher-lows and has immediate-term upside to $94.90
  2. Oil’s price bounced to a big lower-high within its Bearish @Hedgeye TREND, but Oil Volatility in the high 40s is bad
  3. #NazVol (NASDAQ Volatility) closed at 35.67 yesterday with a vol of vol Risk Range of 33-39ish

Then there are a bunch of other numbers within theses numbers (that fractally drive these numbers):

  1. Front-month VIX closed UP on an up-day for SPY with Total US Equity Volume -18% vs. its 1-month average
  2. UST 10yr Yield moved yuge (8bps higher is a lot), but Treasury Bond Volatility (MOVE Index) didn’t move
  3. Gold’s 15-day inverse correlation to USD went to almost MAX at -0.97

Obviously whoever was staring at 50 and 200 day Moving Monkey charts of USD and Bond Yields missed the singularity of these cross-asset-class and volatility points yesterday. And that is the point this morning:

They’re providing you the short selling opportunity in EUR/USD and buying opportunity in Treasuries (SHY, IEF, and TLT).

Surely life is simpler if you use a 1-factor Simple Moving Average of a market’s price and look for Lazarus and some Stimulus. But time erodes perma bull hope too. If Moving Monkeys back-tested as an alpha generating macro process, I’d get more sleep and use them.

In other Old Wall media news…

“#BOOM: 30-year US Treasury Yield crosses above its 200-day moving average”
- Bloomberg Opinion Columnist, aka Alpha Gen Man

Sounds serious, bro. What if you sold Treasuries and bought US Bank Stocks (KRE) on that on June 8th at UST 10yr Yield of 0.92%?

We obviously know what “stocks” only people have been trying to “rotate” into since June 8th (i.e. trying to rotate into 2020 money-losing positions, both relatively and absolutely), but there’s a much bigger risk than that this morning.

It’s that the things that actually worked since June 8th (like long NASDAQ and Gold during #Quad3 in Q3) could/should go down now, at the same time as all of those loser positions (Financials, Airline Stocks, Russell, etc.) go down… if its Dollar Up, from here.

Cycle Time erodes narratives. If its Dollar Up (even for 2 weeks or 2 months), it means the market is pricing in #Quad4 in Q4 for both the USA and Germany. Looks like the ECB’s Lagarde is acknowledging that economic erosion in European countries today too.

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

UST 10yr Yield 0.61-0.79% (bearish)
UST 2yr Yield 0.11-0.15% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,560-11,521 (bearish)
Utilities (XLU) 56.66-61.96 (bullish)
Financials (XLF) 22.86-24.88 (bearish)
DAX 127 (bearish)
VIX 25.11-30.05 (bullish)
USD 93.35-94.90 (bearish)
USD/CHF 0.90-0.93 (bearish)
Oil (WTI) 37.32-39.96 (bearish)
Gold 1 (bullish)
Silver 22.46-24.95 (bearish)

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Short Euros, Buy Treasuries - 30