THE CASCADE – PINECONE MACRO RESEARCH June 17th, 2019 · I said to buy BTC and ETH about 3 months...

THE CASCADE – PINECONE MACRO RESEARCH JUNE 17TH, 2019

www.pineconemacro.com @pineconemacro [email protected] 1

Ramblin Man

Time for another Ramblin Man where I hit on a few topics and updates instead of focusing on one theme. First up…cryptos.

Bitcoin – Weekly

I said to buy BTC and ETH about 3 months ago and have mentioned when I added to my longs on the PMR twitter feed. The move a couple weeks ago had me nervous, but we made new highs last week. This is more of a position trade than a swing trade for me and I trade these as real buys and not as trades. With that said, at some point I will offload these like I did a couple of years ago. The charts are great and demand your attention – as does the macro play on flight capital from China/Turkey etc.

China

There have been a couple signals of possible new stimulus out of China – but so far the reaction has been muted enough to view it as too small to matter from a macro perspective. They freed up some money for infrastructure which



pushed up related stocks and iron ore – but so far base metals and copper specifically do not care and thus – neither do I. China is still holding firm on real estate and shadow banking and not giving in to the pressures to paper over the current pain from the trade war. Chinese food inflation is continuing to accelerate at a time when the PBOC is beating their chest about all of the policy room they have to make everything okay. It would be tough to fire up the liquidity guns with food inflation near double digits and CPI well over their 3% bogey (currently 2.7%).

Source: Trading Economics

Agriculture Update I am still loving the price action in the ags. Since my ag special – the price of corn and wheat have gone up 15% and 12% respectively and both are now above their 200 month moving averages, which wheat just got above last week. I got long hogs about a week ago and am about even on that one. Beans have broken out but I have not bought because the swine flu issue scares me away. That brings me to sugar which I am about to pull the trigger on.



Sugar Futures – Weekly

If we get a new high this coming week I will likely go long and use that horizontal line as an area to base a stop off of. I have not done a dive into sugar fundamentals in a few months, and really need to look into weather in Brazil and India to see how things are shaping up. Regardless of the story – the chart is shaping up for a nice move as it stands now.

The Fed Meeting

All eyes will be on the Fed this week of course. I have no edge in knowing what the Fed will say or do this week. All I know is there are a lot of metrics (I shared plenty last week) that show that the economy is in pretty good shape. I know that one rate cut in July or September coupled with the end of QT will provide support for the economy and the markets. I know the S&P is about 2% from its all time high. So what do I expect for traders expecting about 75bps of cuts in the next 5 and half months? Dissapointment. Of course, I do expect J-Pow to throw the doves a bone to avoid a market tantrum – but I do still expect him to leave the



markets wanting. He has a really tough job this week and I find this meeting to be the most interesting of his tenure – including December’s. With volatility back under 16 – I am seriously considering a long vol trade heading into the meeting. If I do that, it would most likely be a one or two day trade to just try and capture a vol spike from about 15-20. If I do this, I will get long on Tuesday and hope to take the trade off on Wednesday or Thursday. Even if I do this – I would never advise trading vol ETFs or even futures/options to my clients. They are dangerous and tough to trade and only worthwhile in my opinion for short term mispricings. I may well be completely wrong and J-Pow could come out and spread dovish cheer and light the markets on a bullish fire for the weeks to come. I just think he will dissapoint and vol will spike. We shall see…

Turkey

As the folks on the PMR twitter feed know – I got short TUR again last week. After the credit downgrades after markets closed – I am hopeful Turkish stocks continue to struggle. The Lira is still in a downtrend although flat in early trading on Sunday night.

This chart from IIF shows the incredible credit boom and bust in Turkey –stunning in its violent bust of a parabolic rise. I do not think this is over yet.



US Stocks

S&P 500 – Weekly

Stocks are basically a nothing burger on a technical basis in my view. Bulls and bears could both make a case on direction at this point. I am still short the Dow – but have no opinion on the chart as of right now. I do think Powell will disappoint the militant doves this week – so that *could* be a catalyst for a new push lower – but I have no actual read on the Fed this week.



Bristlecone Index – Weekly

Cyclicals had a tight week that ended poorly last week, but are now in the middle of their range and not bearish currently. The move off the 200W was impressive.

Credit Spreads

Spreads widened last week and finished with a nice candle. Will be watching to see if spreads can break again.



VIX – Weekly

VIX made its way back into the three year range last week but is still above the 200W – which has been support for three of the last four weeks. So now VIX, spreads, and Bristlecone are all back into bullish territory. I would get excited about that and cover my shorts and go long if I felt like J-Pow was going to give the doves what they want this week – I just do not see that happening.



The Dollar

$DXY – Weekly

It was a fun week for the dollar as half of FinTwit called the top and taunted Dollar bulls just in time to get offside – many of them long Euros. We are just above the range as I write this and I had to morph my UTL – which now uses wicks way more than I usually do but it clearly correlates better with price action than my old slightly steeper line. Regardless – the horizontal lines are more important anyway and look for the 6th test of the resistance just above 98 soon.

Had to have fun with my buddy Alex



Bonds

2yr Yield – Daily

The 2yr is now in a rectangle and how it resolves will likely determine the next bigger move. I now favor higher yields and would love to get short on a break higher but the big wicks on the bottom side suggest the next move could be lower. Watch the rectangle.

5yr Yield – Daily

Same story on the 5 year – the rectangle will tell the story.



10yr Yield – Daily

Same story on the 10 – but the bottom of the rectangle is the 61.8 Fib retrace level. That and the top of the rectangle is not as clean. Regardless this is what I will be watching to figure out the next impulse move.

30yr Yield – Daily

The 30 is a bit of a triangle or flag within a possible rectangle. Watching closely.



Currency of the Week

USDARS – Argentine Peso – Weekly

The Peso had a great week last week and as you can see on the chart inside the chart (ARGT) – it was great for Argentine stocks. Despite that, this move could still easily be a bull flag that sees another low in the Peso. The winner of the DTL (flag) and the horizontal line will determine the next few weeks for Argentina. The currency move could be instructive for stocks. The ARGT chart has been great lately and the break higher last week was textbook.



Commodity of the Week

DBB – Base Metals – Weekly

This is an ugly chart. We are now below the 200W and the bottom of a 3yr rectangle – and even retested that rectangle and failed. When you look at the trade war and demand for base metals – this price action makes sense and suggests much lower levels if China does not go all-in on infrastructure spending.



Stock of the Week

DHI – DR Horton – Weekly

As I mentioned last week – mortgage rates have fallen by over 100bps after they peaked at over 5% less than a year ago. This has given homebuilders a major tailwind. Here – Hedgeye’s Josh Steiner makes a very bullish case for housing that is worth a look and he specifically mentioned DHI on Macro Voices due to their building of millennial friendly smaller homes. The chart looks great and above the rectangle would be a must buy in my opinion. This is also a great trade to protect from my current bearish view on bonds.

https://www.macrovoices.com/guest-content/list-guest-publications/2867-josh-steiner-hedgeye-june-2019/file



Ratio of the Week

Gold to Silver Ratio - Monthly

A lot of macro folks and metals folks have been trying to call a top in this ratio to support a bullish silver thesis. There will certainly be a time for that call – but it just is not ready yet. We have one more level in the cascade of lines before we test the highest level of my lifetime – back in 1991. As you can see we blasted to new cycle highs in May and have continued higher so far in June. The 93.1 level on my chart (note I use futures which is likely very imperfect) looks like it could be a substantial level and could be an area to fade this ratio for a pullback.



Dumpster Fire of the Week

FCAU – Fiat Chrysler – Weekly

This is a rare situation where I show a dumpster fire I would love to get long. Last week I showed Netflix which I wanted to get short – which I did at the end of the week as it looks like it could see a big move down as soon as this week. Fiat Chrysler has a great chart (I love the demand zone I colored) – and it is a great value play. I am not a smart value investor, but I know some and they all seem to like this company so I decided to draw up the chart and find a place I would be interested in buying. From a macro perspective – autos have been beaten down, in part because of the spike in rates that has since unwound. That could provide a tailwind for autos, especially in the US soon. I will be watching this dumpster fire (down nearly 50%) to hit my demand zone so I can snatch it up.



Charts of the Week

This chart will not surprise Cascadians – because we know that rates having dropped violently by over 100bps, coupled with high government spending on infrastructure should combine for a hot labor market in construction.

Germany is a tire fire – yet half of FinTwit apparently bought euros last week.



Source: @MillennialMacro

Seriously…people are buying the euro as they enter a recession…because they think the US is entering a recession (it isn’t) and will have to cut rates by a lot. Again, imagine the European economy with a higher Euro during a trade war that necessitates China dump cheaper exports into Europe and crushes demand for European exports. You would get a massive wave of deflation and a recession that would push debt to GDP ratios to levels that would give the fiscal priests ulcers in Europe.

If rates keep moving lower – you want to own real estate and housing stocks.



Source: Samuel Rines

We need to see labor roll over a lot harder before the Fed starts slashing rates and as you can see – wages are still in a firm uptrend.

Source: Samuel Rines



I found this chart to be incredibly interesting.

This chart was from a Richard Koo paper and it shows just how extended commercial real estate is in major cities. The price gains dramatically outpace San Francisco housing gains, which many view as a bubble. This is one of the reasons I doubt the Fed slashes rates – it would create financial stability issues in areas like commercial real estate.



As we can see here – China has still not floored it on stimulus. What we also see on this chart is the diminished returns on stimulus. We will continue to see lower highs on this chart.

Just one corner of China – but you can see the slowing as new tariffs hit.



Tweet of the Week

Read of the Week: BBG piece on the slowdown in China – Industrial growth just hit 2002 levels. Listens of the Week: I was on with Zach Abraham on Know Your Risk Radio. Danielle DiMartino-Booth on Macro Voices All Stars. Her analysis on the changing language at the Fed is really good. For example zero lower bound – effective lower bound. A lot of information in that kind of language change. Watch of the Week: MMT Godfather Warren Mosler on Real Vision – you cannot miss this one.

I love this because I feel like all I am hearing from Wall St and FinTwit lately is that the market is always right and the Fed will catch up soon. Consensus I am seeing is that we will need rate cuts of as much as 100bps in 2019 and maybe all the way back to zero…pardon…the effective lower bound – to arrest this doom laden recession heading right for us. Only a few crazy people think 50bps in cuts. Then there is me saying one 25bp cut and a couple criminally insane people saying zero cuts.

https://www.bloomberg.com/news/articles/2019-06-14/china-s-industrial-output-growth-slows-to-weakest-since-2002

https://www.stitcher.com/podcast/know-your-risk-radio/e/61921164?autoplay=true

https://www.macrovoices.com/110-macro-voices-all-stars/597-macrovoices-all-stars-17-danielle-dimartino-booth



https://www.realvision.com/tv/shows/interviews/videos/theory-vs-practice-the-father-of-mmt-on-policy-profits-and-politics



Thank you for you business and for reading my research. If you are enjoying the letter, I would appreciate you letting someone you think could benefit from it – know about it. Your Macro Analyst, -Chase Taylor

Quote of the Week

“It is in no man's power to have whatever he wants, but he has it in his power not to wish for what he hasn't got, and cheerfully make the most of the things that do come his way.”

― Seneca

Disclosure: Pinecone Macro Research, LLC is an independent research firm. Pinecone Macro’s letters are based upon information gathered from various sources believed to be reliable but are not guaranteed as to accuracy or completeness. There are risks in investing. Any individual report is not all-inclusive and does not contain all of the information that you may desire in making an investment decision. You must conduct and rely on your own evaluation of any potential investment and the terms of its offering, including the merits and risks involved in making a decision to invest. The information in this letter is not intended to be, and shall not constitute, an offer to sell or a solicitation of an offer to buy any security or investment product or service. The information in this report is subject to change without notice, and Pinecone Macro assumes no responsibility to update the information contained in this report. There is risk in trading markets. Pinecone Macro is not an investment advisor. My letters are based upon information gathered from various sources and believed to be reliable, but are not guaranteed as to accuracy and completeness. The ideas and trades I share are my own and are for informational and educational purposes only and should not be construed as investment advice. Accordingly, you should not rely solely on the information in making any investment. You should always check with your licensed financial advisor to determine the suitability of any investments.

THE CASCADE – PINECONE MACRO RESEARCH June 17th, 2019 · I said to buy BTC and ETH about 3 months...

Documents

Transcript of THE CASCADE – PINECONE MACRO RESEARCH June 17th, 2019 · I said to buy BTC and ETH about 3 months...