“The crash of 1929 is both a pivotal moment in American history and a great mystery.”
- Maury Klein

That’s the opening quote from a book that one of our subscribers sent me: Rainbow’s End - The Crash of 1929.

“Contrary to popular belief, the Great Crash was not the event of one day but a series of events that stretched initially across the week from Wednesday, October 23, through Thursday, October 31.” (pg xiii)

A happy Halloween for those who thought the Roaring 1920s made things like “automobiles” and “electricity” secular growers and “different this time”, it was not.

Rainbow's End? - 10.23.2020 market mantis cartoon

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye! As a matter of measuring & mapping #process, on the 1st day of the week, we review last week’s Global Macro market moves within the context of our multi-duration and multi-factor framework.

Let’s start with what happened in the Global Currency market:

  1. US Dollar Index was down another -1.0% last week, breaking bad, back to Bearish on both TRADE and TREND durations
  2. EUR/USD was +1.2% last week and remains Neutral on my TRADE duration, Bearish on my TREND duration
  3. Japanese Yen was +0.6% last week vs. USD and remains Bullish TRADE and TREND @Hedgeye  
  4. GBP/USD was +1.0% last week and remains Neutral on both my TRADE and TREND durations
  5. Turkish Lira depreciated another -0.4% vs. USD last week and remains Bearish TRADE and TREND @Hedgeye 
  6. Chinese Yuan appreciated another +0.2% vs. USD last week and remains Bullish TRADE and TREND @Hedgeye 

I’m sure the Chinese people appreciate that. They get paid in Chinese Yuans, after all.

With China’s economic data still confirming Real Growth #Accelerating (i.e. #Quad1), it makes fundamental sense for its currency to appreciate vs. an American currency that both political parties and perma asset bulls alike want to devalue.

As Wall Street cheers on #MegaStim via CTRL+Print and US Dollar Devaluation, the cost of American living continues to rise in those devalued Dollars, when no-to-low-income people can least afford it:

  1. Corn continued to inflate, up another +4.3% last week to +13.8% in the last month
  2. Soybeans inflated another +2.9% last week to -6.1% in the last month
  3. Natural Gas inflated another +7.1% last week to +6.3% in the last month
  4. Copper inflated another +2.0% last week to +4.5% in the last month
  5. Rubber inflated another +7.3% last week to +20.0% in the last month

It’s a good thing The People can’t eat rubber, I guess.

Bond Yields finally paid acute attention to US #InflationAccelerating (i.e. NOT #Quad4) last week:

A) UST 2yr Yield was up +1 basis point to 0.16%
B) UST 10yr Yield was up a big +10 basis points to 0.84%
C) High Yield OAS Spread compressed -3 basis points vs. Treasuries to +468bps over

That was all good for what some have called the “garbage trade” because rising interest rates were good for the Financials (+1.0% on the week) and Factor Exposures that are junkie like:

A) HIGH DEBT (to Enterprise Value) Stocks were +1.6% last week
B) HIGH SHORT INTEREST Stocks were +2.4% last week
C) SLOW GROWTH Stocks were +1.6% last week

Since plenty of people are only long LARGE CAP US GROWTH (instead of COMMODITIES and EMERGING MARKET Equities, like us), not being diversified across Country Exposures, Asset Classes, and Quads was not a good thing last week with:

A) Tech Stocks (XLK) down -2.2% last week
B) NASDAQ (QQQ) down -1.1% last week
C) Apple (AAPL) down -3.3% last week

Netflix (NFLX) was a great alpha generating short, down -8.0% last week. And the haha-party at Tesla (TSLA) got rained out with Elon’s stock down -4.3% on his suspect-earnings report week too…

So, is this Rainbow’s End (i.e. was that the beginning of the end for Tech) … or what?

Unless it’s #Quad4, our risk management process says no. I’m currently long the #Quad3 US portfolio which includes:

A) Long Software (IGV) and Tech (XLK) when they’re for sale at the low-end of their respective Risk Ranges
B) Long Utilities (XLU) which were up another +1.2% last week to a league-leading +13.3% in the last month
C) Long Commodities (Ag and Base Metals look great – so does Natural Gas)

And the Long China in #Quad1 view means we’re long EM (Emerging Markets) which were up another +1.1% last week (EM MSCI Index) vs. my European Shorts like Germany (DAX down -2.0% last week) which remains in #Quad4 for Q4 2020.

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

UST 10yr Yield 0.69-0.89% (bearish)
UST 2yr Yield 0.12-0.18% (bearish)
SPX 3 (bearish)
NASDAQ 11,330-11,885 (neutral)
Tech (XLK) 117.00-123.30 (neutral)
Utilities (XLU) 62.85-64.92 (bullish)
Financials (XLF) 24.35-25.43 (bearish)
Shanghai Comp 3 (bullish)
DAX 122 (bearish)
VIX 25.26-30.20 (bullish)
USD 92.40-93.49 (bearish)
EUR/USD 1.167-1.189 (neutral)
USD/YEN 104.39-105.84 (bearish)
GBP/USD 1.29-1.31 (bullish)
Oil (WTI) 38.51-41.95 (bearish)
Nat Gas 2.62-3.21 (bullish)
Copper 3.01-3.21 (bullish)
MSFT 211-224 (bullish)
AAPL 110-122 (neutral)
NFLX 469-511 (bearish)
TSLA 402-463 (neutral) 

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Rainbow's End? - Chart of the Day