Exponential #Quad2

“Instead of adding a constant increment (as in linear growth) exponential growth involves multiplying by a constant factor.”
- Steven Strogatz

While I’m not sure how many more buying opportunities macro markets are going to give us on big #Quad2 Asset Allocations like Bitcoin and Small Cap US Stocks, my teammates and I will just keep doing the math and beating the bull market drums.

We don’t do the linear econ math thing. We do fractal math. We do our measuring and mapping stochastically. That doesn’t make what we do easy. There are plenty of squirrels to deal with in spreadsheets. Even exponential math can be funny.

“In exponential functions, the most commonly used base in precalculus mathematics is 10. There’s no mathematical reason for preferring 10 over any other base. It’s a traditional favorite because of an accident of biological evolution: we happen to have 10 fingers.” -Infinite Powers, pg 127

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye! For those of you who are new to our data-driven and mathematical process, thanks for joining us. On the 1^st day of every week, we put the prior week’s macro market moves in the context of The Cycle.

As usual, we start with what the Global Currency market was signaling last week (hint: Global #Quad2):

1. USD Index was down for the 3^rd straight week (-0.8%) and continues to signal Bearish TRADE and TREND
2. EUR/USD was up another +1.0% last week and remains Bullish on both our TRADE and TREND durations
3. Japanese Yen was +0.9% vs. USD last week moving back to Bullish TRADE (and Neutral TREND @Hedgeye)
4. GBP/ USD was up +0.3% last week and remains Bullish on both our TRADE and TREND durations as well
5. Canadian Dollar was +0.3% vs. USD last week and also remains Bullish TRADE and TREND in #Quad2
6. Sri Lankan Rupee was +1.5% vs. USD last week to +2.1% in the last month and is also Bullish TREND!

As you can see in today’s Chart of The Day, you know you have a correlating US Dollar Deficit Devaluation when the bloody Sri Lankan Rupee is signaling Bullish @Hedgeye TREND vs. USD.

Remember those linear chart guys were sending around “USD breakout” (and Copper “breakdown”) charts 4-5 weeks ago? Thanks for coming out. You need to do a little more than Moving Monkey charting in Global #Quad2.

Instead of a “mid cycle slowdown” last week, what you really got was a breakout to new Cycle Highs for Commodities. For those of you who do Global Macro, you get what that means:

1. Commodities Broadly (CRB Index) inflated another +1.5% to new Cycle Highs = +13.4% in the last 3 months
2. Copper inflated another +4.0% to new Cycle Highs last week too = +19.5% in the last 3 months
3. Corn inflated an epic +10.4% last week to new Cycle Highs as well = +26.8% in the last 3 months
4. Soybeans inflated another +6.6% last week to new Cycle Highs too = +16.8% in the last 3 months
5. Lean Hogs inflated another +4.4% last week towards new Cycle Highs = +21.8% in the last 3 months

Now you might argue that new Cycle Highs are going to eventually signal “PEAK Cycle” alongside New Home Sales in the USA doing the +66.8% growth rate thing (to… drumroll… new Cycle Highs too) in March…

But “mid cycle”? That’s just silly. Especially with both the US INVENTORY and EMPLOYMENT cycles at Cycle LOWS! Lol

Now if you’re just an “equity guy” or gal, you might get sucked into thinking any #Quad2 correction is the beginning of the end (BOTE) of The Cycle. But that’s just guessing, really.

Were last week’s lows in Small Caps (IWM) and/or Bitcoin buying opportunities or the BOTE?

Personally, for my family’s hard earned net wealth, I bought the damn dips in both those and European Equities last week. By the end of the week, the Russell 2000 (IWM) was actually up +0.4% but there were BOTE dip buying ops in:

A) SP500 (SPY), which corrected an eye-watering -0.1% on the week, just off its all-time closing high
B) EuroStoxx600, which corrected -0.8% on the week to +3.7% and +7.5% in the last 1 and 3 months, respectively
C) Energy Stocks (XLE), which corrected -1.8% to +13.0% in the last 3 months and +25.4% YTD

Alternatively, 3 other places bears may have chosen to hide last week (which didn’t pan out great) were long:

A) Gold, which was -0.1% last week to -4.5% in the last 3 months
B) Utes, which were -0.9% last week to +6.0% in the last 3 months
C) 10yr Treasuries, which were down 2 basis points last week to +47 basis points in the last 3 months

Obviously, that 2^nd set of A, B, and C will be things we are long of when we make the #Quad2 peak cycle call. In the meantime though, I’m going to just keep buying before things like Copper, Corn, and KOSPI go all exponential on mid cycle narratives.

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

UST 10yr Yield 1.53-1.72% (bullish)
SPX 4112-4209 (bullish)
RUT 2 (bullish)
NASDAQ 13,741-14,135 (bullish)
Tech (XLK) 140.01-144.22 (bullish)
Energy (XLE) 46.51-50.28 (bullish)
Financials (XLF) 34.60-35.91 (bullish)
Utilities (XLU) 64.91-67.98 (bullish)
DAX 15075-15498 (bullish)
VIX 15.29-18.99 (bearish)
USD 90.54-91.74 (bearish)
EUR/USD 1.191-1.211 (bullish)
USD/YEN 107.28-109.49 (neutral)
GBP/USD 1.371-1.403 (bullish)
CAD/USD 0.79-0.81 (bullish)
Gold 1 (bearish)
Copper 4.12-4.43 (bullish)
Bitcoin 49,007-66,951 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer