The Faster, The Steeper

“The higher it gets, the steeper it climbs.”
- Steven Strogatz

That’s the thing about exponential functions, they wreak havoc on the linear mind!

As my math man Strogatz goes on to teach in Infinite Powers: “as the graph of this exponential function soars higher and higher, it’s slope always tilts to match its current height.. no other function can say that – it’s the fairest of them all.” (pg 137)

If you have friends who need a chart to make those words come to market life, send them #Quad2 in Q2 charts of Ethereum (vs. USD), Corn, and the 10yr German Bund Yield this morning.

Back to the Global Macro Grind…

Math is fun and so are Macro Mondays @Hedgeye! Let’s get after it. On the 1^st day of the week, we measure and map last week’s macro market moves within the context of The Cycle and our TRADE and TREND durations.

As usual, let’s start with the Global Currency market which continues to signal Global #Quad2:

1. USD Index had a Counter @Hedgeye TREND bounce of +0.5% last week for its 1^st up week in the last 4
2. EUR/USD corrected -0.6% to +2.6% in the last month and remains Bullish on both our TRADE and TREND durations
3. Canadian Dollar appreciated another +1.5% vs. USD last week and remains Bullish TRADE and TREND
4. GBP/USD corrected -0.4% to +0.6% in the last month and is still Bullish TRADE and TREND as well
5. Taiwanese Dollar was up another +0.9% vs. USD last week to +2.4% in the last month = Bullish TRADE and TREND

In other words, even on small “up weeks” for USD, it continues to depreciate against most currencies on a trending basis.

What’s even better than that is that Commodity Inflation continued for us last week:

1. CRB Commodities Index inflated another +1.9% last week to +14.7% in the last 3 months
2. Oil (WTI) inflated another +2.3% last week to +23.1% in the last 3 months
3. Copper inflated another +2.9% last week to +25.6% in the last 3 months
4. Corn inflated another +6.4% last week to +25.5% in the last 3 months
5. Lumber inflated another +11.1% last week to +80.9% in the last 3 months

It’s a good thing there’s no Full Cycle #InflationAccelerating in your accounts. Since they don’t “see it” yet,  maybe the government shouldn’t tax us on any of the capital gains associated with being long of inflation.

While being long the index was boring last week (SPY was flat week-over-week), being long of the Sector Style horses that run when inflation runs hot got you paid again last week:

A) Energy Stocks (XLE) were up +3.9% last week to +25.6% in the last 3 months
B) Financials (XLF) were up +2.5% last week to +25.3% in the last 3 months

I know. Some people get all hot and heavy when a 50-day Moving Monkey “breaks” (how did that work out for whoever sold Bitcoin -15% lower on the recent “breakdown”?), but you don’t do that. You do fractals.

In sharp contrast to being long of inflation in both Commodity and Equity terms, here are 2 Sector Styles that haven’t done much in the last 3 months relative to the aforementioned alternatives:

A) Utilities (XLU) were +0.2% last week to +7.4% in the last 3 months
B) Healthcare Stocks (XLV) were down -1.9% last week to +5.5% in the last 3 months

With US Equity Volatility (VIX) having crashed -44% in the last 3 months, it’s pretty hard to have a negative absolute return on anything equity, so relative returns certainly matter for those of us who hedge.

Next to Gold and Long-term Sovereign Bonds, the worst place you could have been long or overweight in the last 3 months has been Chinese Equities – they’ve pulled EM down, despite the US Dollar being down:

A) Gold was down another -0.6% last week to down -4.6% in the last 3 months
B) China’s A-Shares in Shanghai were down another -0.8% last week to down -1.0% in the last 3 months

Unlike Germany, who just reported an epic ramp in Retail Sales of +11.0% year-over-year growth this morning (vs. -6.6% in the prior month when in lock-down), China’s economic data remains mired in #Quad3 Stagflation.

The faster economic growth accelerates alongside inflation, the steeper bond yields tend to rise on the long-end of the curve. Germany’s 10yr Bund Yield is up another +4 basis points this morning to a fresh new Cycle High.

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

UST 10yr Yield 1.57-1.71% (bullish)
SPX 4129-4232 (bullish)
RUT 2 (bullish)
NASDAQ 13,798-14,227 (bullish)
Tech (XLK) 139.22-144.08 (bullish)
Energy (XLE) 46.73-50.99 (bullish)
Financials (XLF) 35.03-36.90 (bullish)
Utilities (XLU) 65.24-67.88 (neutral)
DAX 15096-15469 (bullish)
VIX 15.74-19.12 (bearish)
USD 90.32-91.50 (bearish)
EUR/USD 1.198-1.216 (bullish)
GBP/USD 1.380-1.401 (bullish)
CAD/USD 0.79-0.81 (bullish)
Oil (WTI) 62.04-65.16 (bullish)
Gold 1 (bearish)
Copper 4.24-4.61 (bullish)
Bitcoin 50,957-60,196 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer