“Learning organizations are possible because, deep down, we are all learners.”
- Peter Senge
If you didn’t know who American Systems Scientist, Peter Senge, is… that’s ok, I didn’t either. Until one of our subscribers sent me his book, that is: The Fifth Discipline. From a #process perspective, this is a wow book for me. I had no idea he wrote this in 1990.
I have no idea about a lot of things. That’s why I make the time to read so many books. It’s also why I’ll never stop learning how to challenge my teammates and I to continue to evolve our multi-factor, multi-duration process.
We show you a lot of our rate of change models and market timing tools because they are all designed to help us learn faster. Senge gets this about interconnectedness. He wants you to “destroy the illusion that the world is created of separate unrelated forces.”
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! I wanted to sincerely thank all of you who supported our Hedgeye Cares effort during Thanksgiving. Your donations will go directly to The People who are in need.
For those of you who are new to our Global Macro Risk Management #process, on the 1st day of every week we review the week-over-week ROCs (rate of change moves) so that we can try to contextualize them within interconnected macro TRENDs.
Let’s start with the most causal & correlating @Hedgeye TREND right now in Global Macro (i.e. the direction of the US Dollar):
- US Dollar Index was devalued another -0.7% last week taking its 6-month drawdown since signaling Bearish TREND to -7.3%
- EUR/USD was up another +0.9% last week and remains Bullish TRADE and TREND @Hedgeye
- Japanese Yen was -0.2% last week vs. USD and also remains Bullish TRADE and TREND @Hedgeye
- GBP/USD appreciated another +0.3% vs. USD last week and is +2.0% in the last month alone = Bullish TREND
- Argentina’s Peso depreciated another -0.8% last week vs. USD and is -3.9% in the last month = Bearish TREND
- Swedish Krone appreciated +1.4% in the last week vs. USD and is +2.7% in the last month = Bullish TREND
‘But, but… this was supposed to happen to that… and this money printing country and that…’ blah, blah, blah. Telling yourself what you think should be happening to Global Currencies isn’t going to help you learn about what IS happening!
It’s ok, remember, we’re all learning together this morning! The most obvious of learnings about a Down Dollar is #InflationAccelerating in, drumroll, Dollars:
A) CRB Commodities Index inflated another +3.1% last week taking its inflation to +6.8% in the last month alone
B) Oil (WTI) inflated another +7.3% last week taking its 1-month inflation to +14.2%!
C) Copper inflated another +3.2% last week taking its 1-month inflation to +10.3%!
D) Coffee inflated another +5.2% last week taking its 1-month inflation to +13.4%!
So… you’re saying Copper and Coffee have causal & correlating impact on future inflation expectations, real interest rates, etc.? Yep. If they didn’t, Gold and Silver wouldn’t be getting pounded:
A) Gold lost -4.4% of its value last week taking its 1-month decline to -6.3%
B) Silver lost -7.6% of its value last week taking its 1-month decline to -8.4%
‘But, but… when I look at the historical Quad back-test, Gold is bullish in every Quad.’ Yep. But it’s a short A) when my @Hedgeye TREND signal flips from Bullish to Bearish and B) Real rates are rising from the depths of negative real rates (in rate of change terms).
Imagine all I did was take our Quad Map and make decisions without any cross asset class price, volume, and volatility signals? That would have made for a short history of Hedgeye! Haha
When you look at the interconnectedness of the Global Macro market signal, what’s readily apparent at this point is that:
A) The Cycle Lows for Global Bond Yields are in inasmuch as the …
B) The Cycle lows for both US and Global Deflation are in …
That should make globally interconnected sense if you just look at either slide 20 (G20 countries) or slide 23 (EM countries) of our Quad Map for Q1 of 2021 where quite literally every country currently has a modal outcome of #Quad2.
Oh yeah, baby, now those Quads are helping us learn, faster, again, as we enter the last month of 2020.
Not only is the US stock market minting daily all-time closing highs on this Down Dollar and accelerating GROWTH & INFLATION outlook (NASDAQ was +3.0% last week and is +6.8% in the last month despite “rotation” fears):
A) Japan’s stock market was up another +4.4% last week and is +13.5% in the last month = Bullish TREND
B) Russia’s stock market was up another +3.1% last week and is +15.1% in the last month = Bullish TREND
Russia Up on Down Dollar + Oil Up? Yep. How about US Energy Stocks (XLE) inflating another +8.7% last week to +34.5% in the last month (not a typo) vs. Utilities (XLU) only +0.3% last week and down -1.4% in the last month.
Unless one thinks the world is created of separate and unrelated “valuation” forces, I’m thinking you’re smiling as you are learning about this epic #Quad2 Global Economic Phase Transition this morning. What we just saw in November was a lot of fun!
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.82-0.94% (neutral)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 11,729-12,254 (bullish)
Tech (XLK) 119.55-124.21 (bullish)
Energy (XLE) 34.29-40.93 (bullish)
Utilities (XLU) 62.10-66.40 (bearish)
Nikkei 259 (bullish)
VIX 20.30-25.56 (bearish)
USD 91.64-92.73 (bearish)
EUR/USD 1.183-1.196 (bullish)
USD/YEN 103.37-105.02 (bearish)
GBP/USD 1.318-1.341 (bullish)
Oil (WTI) 41.46-46.58 (bullish)
Gold 1 (bearish)
Copper 3.19-3.48 (bullish)
Bitcoin 15,793-19,978 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
