“Building and ruling a truly global system isn’t something any old empire can even attempt.”
- Peter Zeihan

That’s how Zeihan kicks off chapter 2 of Dis-United Nations. He calls today’s American model “The Order” and reminds us that, while many Americans think about macro in a domestic vacuum, that doesn’t mean the rest of the world ceases to exist.

“China’s economy grew from the 7th largest economy in the world in 1996 to the 2nd in just 15 years.” (pg 28)

And, in case you have friends who didn’t yet know, the Chinese have a different plan than Americans do for the future. What is the American plan, btw? Just more money printing, currency devaluation, and limitless “stimulus” for stocks?

Of Down Dollar #MegaStim Hopes... - 10.09.2020 SOL cartoon

Back to the Global Macro Grind…

Welcome to another big Macro Monday @Hedgeye where it appears that the crowd went BIGLY long of #MegaStim last week. They’re definitely thinking the US economy will not be in #Quad4 for Q4

Rather than “feel” something viscerally or politically about that, let’s just measure and map market expectations within a multi-factor and multi-duration #process. Starting with the Global Currency market week-over-week:

  1. Down Dollar -0.8% to a big higher-low with its Bearish @Hedgeye TREND is the market betting on NOT #Quad4
  2. EUR/USD was +0.9% last week to a big lower-high and remains Bearish TRADE @Hedgeye so I shorted it
  3. Yen was -0.3% vs. USD last week and is +0.5% in the last month, still Bullish TREND @Hedgeye 
  4. GBP/USD was +0.8% last week vs. USD and signaling immediate-term TRADE #overbought
  5. Turkish Lira was down another -0.9% vs. USD last week to -4.6% in the last month = Bearish TRADE and TREND
  6. Russian Ruble was +1.9% vs. USD last week but is still down -1.8% in the last month = Bearish TRADE and TREND

That’s right, even with the US Dollar Index down on the week, signaling immediate-term TRADE #oversold, the Russian currency remains Bearish @Hedgeye TREND alongside Oil and Turkey’s political plan continues to fail in Global FX terms.

All that said, if you want to bet on NOT #Quad4, you’d stay with our Long Commodities (#Quad3) call that we made in June (I’ve been booking gains on that baby, and Bitcoin HODLers are loving me for it!):

  1. CRB Commodities Index reflated +5.3% last week to lower-highs as USD sold off to higher-lows
  2. Oil (WTI) reflated a big +9.6% last week (after deflating -8% in the wk prior) but remains Bearish @Hedgeye TREND
  3. Copper was up +3.5% last week but signaling a lower-high at $3.08/lb


A) Lumber prices deflated -7.6% on the week, taking their 1-month price momentum to -38.1%
B) Cattle prices deflated -2.1% on the week, taking their 1-month price momentum to -2.5%

And… that matters in our model since I was long both Lumber & Cattle and made the probability-weighted risk management decision to sell both pre the deflation. I didn’t have loggers or cattle ranchers come after me for it like bitcoin peeps either!

Another way you can bet on NOT #Quad4 is to short Treasuries and BUY Junk Bonds (JNK):

  1. UST 2yr Yield was +2 basis points last week to a whopping +0.15%
  2. UST 10yr Yield was up +7 basis points last week to 0.77%
  3. HY OAS Spread compressed -41 basis points last week to +469bps over Treasuries

And… I was buying Treasuries (across the curve) and shorting Junk (JNK) all week long. Maybe I’m crazy, executing on the process and all, but I think this consensus net SHORT position of -422,712 contracts (futures & options) in 5yr Treasuries is crazier.

Crazy is as crazy does though. In the words of the most tremendous Pumper of stocks in US history, “believe me”, I get it!

This isn’t the first time I’ve been “early” calling for a #Quad4 (i.e. with consensus Wall Street positioning completely on the other side of me) and it certainly won’t be the last.

And… what’s really interesting about the NOT #Quad4 crowd is that 2 of the best US Equity Sectors to be long in OCT (Utes and REITS) are Long #Quad4 in Q4 bets, despite the 2-week Counter TREND bounce in bond yields:

A) Utilities (XLU) were up another +4.6% last week and are +6.1% in the last month … whereas
B) Energy Stocks (XLE) were +5.0% last week… but are still down -9.0% in the last month

Long Energy? TRADE or TREND? With #MegaStim hopes, we’ll see what they “get done” this week. In the meantime, my favorite US Equity Sector Short (Financials, XLF) still has to report Profit Cycle reality this week. Good luck to them with that.

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

UST 10yr Yield 0.62-0.81% (bearish)
UST 2yr Yield 0.10-0.16% (bearish)
SPX 3 (neutral)
RUT 1 (bearish)
NASDAQ 10,757-11,608 (bearish)
REITS (XLRE) 34.73-37.61 (bullish)
Utilities (XLU) 59.09-64.59 (bullish)
Financials (XLF) 23.15-25.51 (bearish)
VIX 24.40-30.18 (bullish)
USD 92.89-94.39 (neutral)
EUR/USD 1.16-1.18 (neutral)
USD/YEN 105.16-106.20 (neutral)
GBP/USD 1.28-1.30 (neutral)
Oil (WTI) 37.08-41.97 (bearish)
Copper 2.87-3.11 (bullish)
Bitcoin 10,465-11,419 (neutral)

Best of luck out there this week,


Keith R. McCullough
Chief Executive Officer

Of Down Dollar #MegaStim Hopes... - CoD 5Y TSY CFTC