Did You Re-Gross?

“It’s not if, it’s when. Chaos is the only sure thing in this world.”
- Lulu Miller 

Need a new market narrative this morning? Instead of reading Zero Edge or a Reddit board, how about Why Fish Don’t Exist, by American science reporter, Lulu Miller?

Since, when it comes to risk managing markets at least, I only read numbers… that’s the narrative I read this weekend. For those of you who built your investment #process on Chaos and/or Complexity Theory, it’s an absolute beauty of a book.

“My scientist father taught me early that there is no escaping the Second Law of Thermodynamics: entropy is only growing; it can never be diminished, no matter what we do… a smart human does not try to fight it.”

Back to the Global Macro Grind…

I love Chaos Theory and I love Macro Mondays @Hedgeye! Bring on the East Coast snow and #SilverSqueeze, baby. All moments of market entropy were born out of somewhere. It’s our job to measure and map that non-linear path.

Now that you re-grossed your Global #Quad2 Long Exposures, let’s start with the Global Currency market:

1. USD Index had another Counter @Hedgeye TREND bounce of +0.4% after being down -0.6% in the week prior
2. EUR/USD was -0.3% last week taking its Bullish @Hedgeye TREND gain to +4.0% in the last 3 months
3. Yen was -0.9% vs. USD last week to -0.1% in the last 3 months, moving from Bullish to Neutral @Hedgeye TREND 
4. GBP/USD was up another +0.2% last week taking its Bullish @Hedgeye TREND gain to +6.0% in the last 3 months
5. Chinese Yuan was up another +0.8% vs. USD last week taking its Bullish TREND gain to +4.5% in the last 3 months

Yeah, I heard – there was a Macro Tourist narrative out there for click-bait-suckers about China this weekend. What did I do with that? I kept reading about anti-gravity guy and Chaos fighter, David Starr Jordan, from Stanford University.

In other Full Investing Cycle return news, neither the Bond Market nor the Commodities Market cared about certain L/S Hedge Fund de-grossing of Equity books last week:

1. CRB Commodities Index was UP another +0.8% on the week taking its 1 & 3-month returns to +5.3% and +20.3%
2. Corn inflated another +9.3% last week taking its 1 & 3-month returns to +17.4% and +36.2%, respectively
3. Lumber inflated another +11.4% last week taking its 1 & 3-month returns to +14.2% and +88.2%, respectively

Oh, you mean being long Corn and Lumber didn’t need hashtags and Reddit reminders to get you paid? Ha. Bullish @Hedgeye TREND shoutout to Silver that inflated +5.3% last week taking its 1 & 3-month returns to +2.7% and +14.5%, respectively.

Unlike Gold, which is a currency, I call Bitcoin a Commodity too – no change to the L/S #Quad2 views on either:

A) LONG: Bitcoin inflated another +4.0% last week taking its 1 & 3-month returns to +29% and +157%, respectively
B) SHORT: Gold was down another -0.4% last week taking its 1 & 3-month returns to -1.6% and -1.1%, respectively

Respectively speaking, why weren’t more hedge funds with my Long/Short (L/S) setup on Long Bitcoin/Short Gold (or Short Long-term Treasuries, TLT) having a great time with those positions last week?

Oh yes, I know. There was blood in both US and Global Equities. But Hedgeye style hedge funds went net SHORT Equities at the end of the week prior (see “Sell Signals” call from the prior Friday), then re-grossed Long exposure into last week’s end into:

A) Emerging Markets Equities (MSCI) which corrected -4.5% to +13.7% in the last 3 months
B) US Energy Stocks (XLE) which corrected -6.5% last week to +37.7% in the last 3 months

And this morning’s narratives are Long India (INDA) +4.5% and Exxon (XOM) talking to Chevron (CVX) about merging (that would merge 2 tickers that = 44% of the XLE!)? Cool. I didn’t need a message board for those Full Cycle Investing ideas either.

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

UST 10yr Yield 1.02-1.15% (bullish)
SPX 3 (bullish)
RUT 2060-2199 (bullish)
NASDAQ 13,002-13,786 (bullish)
Tech (XLK) 127.66-135.68 (bullish)
Energy (XLE) 38.55-44.53 (bullish)
VIX 19.01-37.26 (neutral)
USD 89.84-90.93 (bearish)
EUR/USD 1.207-1.220 (bullish)
USD/YEN 103.27-104.99 (neutral)
GBP/USD 1.361-1.378 (bullish)
Oil (WTI) 51.88-53.66 (bullish)
Gold 1 (bearish)
Silver 25.74-30.86 (bullish)
Bitcoin 30,801-39,163 (bullish)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer