“The human brain tends to organize around metaphors.”
- Bob Shiller
As Shiller goes on to explain in Narrative Economics, “contagious narratives often function as metaphors. That is, they suggest some idea, mechanism, or purpose not even mentioned in the story, and the story becomes in effect a name for it.”
“Neuroscientist Oshin Vartanian notes that analogy and metaphor reliably activate consistent brain regions in fMRI images of the human brain. That is, the brain seems wired to respond to stories that lead to thinking in analogies.”
“So”… as they like to preface stories on ye Olde Wall… let me tell you a short-story about what’s going on in Global Macro markets this morning. It’s called #Quad2!
Back to the Global Macro Grind…
While I do not expect consensus Wall Street talking points and fear-mongering marketing narratives to adopt The Quads as a summary for their backward-looking storytelling anytime soon, I am sure thankful that many of you save precious time in your lives incorporating them into your Full Cycle Investing and risk management #process.
From a Global Currency market perspective, last week was what we call a Counter @Hedgeye TREND week where:
A) The US Dollar Index bounced +0.7% on the week to a lower-highs (and has since dropped -0.3% already this morning)
B) EUR/USD corrected -1.1% last week to +3.2% in the last 3 months and remains Bullish @Hedgeye TREND as a result
C) Yen was actually up +0.1% vs. USD on the week and also remains Bullish TRADE and TREND @Hedgeye
D) GBP/USD was also UP +0.2% on the week to +5.3% in the last 3 months and remains Bullish TREND as well
E) Brazilian Real was UP another +2.3% vs. USD last week to +6.0% in the last 3 months, moving to Bullish TREND
F) Sri Lankan Rupee was -2.6% vs. USD last week and is down -4.4% in the last 3 months …
“So”… if Janet needs a narrative with her CTRL+Print MMT speech this morning, maybe she should say that she has “no intention on devaluing the Dollar” vs. Sri Lankan Rupees.
The empirical (Quad) takeaway from both the Global Currency and Commodities markets is that even on a “Dollar Up” week, plenty of Currencies & Commodities continue beat the US Dollar like a rented mule.
Have you ever beat a rented mule?
Probably not, but the analogy triggered something in that brain of yours, didn’t it? Sort of like #Quad2 = Buy Commodities, eh?
A) CRB Commodities Index inflated another +1.1% last week taking its 3-month inflation to +15.5%
B) Oil (WTI) inflated +0.2% last week, taking its 1 and 3-month inflations to +9.6% and +25.1%, respectively
C) Corn inflated another +7.1% last week, taking its 1 and 3-month inflations to +25.1% and +30.1%, respectively
Sure, there’s a fictional Fed narrative that there’s no inflation. But, if there clearly is INFLATION, weekly, monthly, and on a TRENDING (3-months or more) basis, all you need to do is giggle when a Linear Econ says that in a meeting (and whisper #Quad2).
Even the beloved Old Wall “break-evens” saw inflation rise on a Dollar UP week! The UST 10yr Breakeven was +2 basis points week-over-week, taking its 1 and 3-month inflations to +17 and +39 basis points, respectively.
When numbers do something for 1-week, 1-month, and 3-months, they become the non-fictional narrative.
But what about stahks? Well, despite the Dollar Up week, it was still a #Quad2 week for plenty of Global Equity exposures that Full Cycle Investors are long of:
A) US Small Cap Factor Exposure (Russell 2000) was up +1.5% taking its 3-month TRENDING gain to +29.6%
B) Emerging Market Stocks (MSCI) were up +0.3% last week to +21.2% in the last 3 months
C) US Energy Stocks (XLE) were up another +3.2% last week, taking their 1 and 3-month inflations to +5.7% and +38.4%
Energy, as a core Full Investing Cycle Asset Allocation, has returned you +38.4% in the last 3 months vs. Gold (in a dead heat with Sri Lankan Rupees) down -4.2%? What the (….) narrative do Gold Bugs who thought Gold was an inflation hedge say about that?
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.00-1.22% (bullish)
UST 2yr Yield 0.12-0.16% (bullish)
SPX 3 (bullish)
RUT 2093-2193 (bullish)
NASDAQ 12,765-13,310 (bullish)
Tech (XLK) 126.45-131.56 (bullish)
Energy (XLE) 39.98-45.13 (bullish)
Financials (XLF) 29.52-32.33 (bullish)
Gold Miners (GDX) 33.72-36.99 (bearish)
VIX 20.74-26.07 (bearish)
USD 89.21-90.79 (bearish)
EUR/USD 1.206-1.236 (bullish)
USD/YEN 102.70-104.40 (bearish)
GBP/USD 1.350-1.372 (bullish)
Oil (WTI) 49.65-54.46 (bullish)
Gold 1 (bearish)
Copper 3.56-3.72 (bullish)
Bitcoin 34,044-40,995 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
