“As my instructor has long drilled into me: it’s not a to-do list, waiting for you to get around to it.”
- Robin Dreeke
Process, process, #process. Check, check, check. The aforementioned quote comes from The Code of Trust – An American Counterintelligence Expert’s Five Rules To Lead And Succeed. Do you trust your process?
What we do at the top of every risk management morning can be mundane, but A) it’s repeatable and B) it preserves & protects our hard earned capital. You can forget about compounding Full Investing Cycle returns, until you have your process down, cold.
“As a pilot, I fly with a set of laminated procedural checklists: personal pre-flight; aircraft pre-flight; warm-up; run-up; takeoff; climbing; cruise; and descent” (pg 50).
Back to the Global Macro Grind…
It’s another Macro Monday @Hedgeye, welcome back! As a matter of #process, on the 1st day of every week we measure and map what happened in Global Macro markets in the week prior, in ROC (rate of change) terms, across durations.
Let’s start with what’s clearly been perpetuating Correlation Risks here in #Quad2, the Global Currency market:
- US Dollar Index was down another -1.2% last week taking its 1-month drop to -2.9% = Global #Quad2
- EUR/USD was up another +1.3% last week towards the top-end of its Risk Range = Bullish TRADE and TREND
- Yen was -0.1% vs. USD last week and also remains Bullish on both our TRADE and TREND durations
- GBP/USD was up another +1.0% last week towards the top-end of its Risk Range = Bullish TRADE and TREND
- Argentina’s Peso was down another -0.8% vs. USD last week and is -3.9% in the last month = Bearish TREND
- Iceland’s Krona ramped another +5.9% vs. USD last week and is +11.3% in the last month = Bullish TREND
That’s right, if you are a low-to-no-income American being paid in Devalued Dollars, your Cost of Living is going up, in Dollars (just like it has for a long-time in Argentina). Don’t cry for me Argentina – smile if you bought or are earning Icelandic Krona!
Ye Olde Wall and its media are finally being forced to call out #InflationAccelerating expectations, if only because it’s on the tape, daily, at this point. For some major inflation components, 1-month price momo has been epic:
- Oil (WTI) inflated another +1.6% last week and has inflated +17.2% in the last month alone
- Lumber inflated another +7.6% last week and has inflated +25.9% in the last month alone
- Copper inflated another +3.1% last week and has inflated +13.4% in the last month alone
Obviously you don’t have to have some Fed head “see inflation” when you can just see either your Freeport-McMoRan (FCX) or long Energy Stocks (XLE) inflating in your Full Investing Cycle accounts.
That said, even your old linear and lagging econ teachers will have seen their “break-evens” inflating at this point (10yr Breakevens were +15 basis points last week to 1.91% and are +26bps in the last month alone).
Another way to look at NOT being long #Quad2 GROWTH & INFLATION accelerating is looking at it on a relative basis to US Equity portfolios that are long DEFLATION & DURATION:
A) Energy Stocks (XLE) inflated another +4.4% last week, inflating +37.4% (not a typo) in the last month alone
B) Vs. Utilities (XLU) which deflated another -2.1% last week, deflating -2.0% in the last month in kind
Being long deflation and duration means being long Sector Styles like Utilities (XLU) and Long-term Treasuries (TLT). That was not good last week with the UST 10yr Yield ramping +13 basis points on the week to +0.97%!
Instead of being long LOW BETA & LARGE CAP (i.e. boring Consumer Staples type names), what’s really getting you paid in #Quad2 is being long:
A) HIGH BETA US Stocks, which were up another +3.7% last week to +25.8% in the last month alone
B) SMALL CAP US Stocks, which were up another +2.6% last week to +18.9% in the last month alone
*mean performance of Top Quartile vs. Bottom Quartile, SP500 Companies
Another way to think about your Full Investing Cycle investments is to go all Global on whoever thought Emerging Markets were shot for dead back in June of 2020 when the US Dollar started breaking bad to Bearish @Hedgeye TREND.
India’s stock market was +3.1% last week and is +10.2% in the last month vs. a Low-Beta Equity market like Switzerland, which was down -1.3% on the week and is only +0.8% in the last month.
Fully equipped with my procedural checklist, it took me 42 minutes to write this note this morning. That’s because all I did was re-write the notes from my weekend work. Process, process, #process. Check, check, check.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.82-0.99% (neutral)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 11,923-12,583 (bullish)
Tech (XLK) 121.18-127.27 (bullish)
Energy (XLE) 35.96-41.37 (bullish)
Utilities (XLU) 62.05-64.70 (bearish)
VIX 19.92-23.41 (bearish)
USD 90.15-92.12 (bearish)
EUR/USD 1.191-1.222 (bullish)
USD/YEN 103.48-104.92 (bearish)
GBP/USD 1.324-1.348 (bullish)
Oil (WTI) 43.21-46.98 (bullish)
Gold 1 (bearish)
Copper 3.28-3.60 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
