“It is impossible to produce superior performance unless you do something different from the majority.”
Key takeaways
- A #Quad4 to #Quad3 Shift is here: Quad4 → Dovish Policy → $USD ↓ → things priced in $’s ↑…
- Highest/lowest expected values: Gold, Fixed Income (Munis, EM Debt, Long Bond, Investment Grade Credit, etc.), US Equity Sectors: Utilities, REITS, Staples, Healthcare
- For those of you who’d like to watch a Real Conversation on “Market Structure”, I had one with our Content Partners at Tier 1 Alpha and Mike Green yesterday. Personally, I couldn’t do my job without their US Equity Options and flows data.
The big picture
If you’ve had major Asset Allocations to FX (Pounds and Euros), Gold, Bonds, US Equity Bond Proxies, India, Indonesia, etc., you’ve had superior performance in Q3 of 2024. We’ll see if this #Quad3 Shift produces similar results (in the US) in Q4.
My brother from another Canadian mother, Dr. Peter Attia, used the Templeton quote in a chapter of Outlive that he titled “Training 101.” In writing about exercise, he wrote: “we are seeking to optimize our exercise regimen around the principle of longevity.” (pg 235)
Selfishly, I am seeking to optimize my family’s hard-earned pile of capital around the principles of risk management. Don’t confuse that with being “risk averse” (Long India and EM is far from that). If you could avoid double-digit drawdowns in Bitcoin, the NASDAQ, NVDA, etc. during #Quad4 in Q3 of 2024, you would have.
Macro grind
While Attia is focused on proactively risk managing your long-term health, I’m focused on doing the same for your long-term wealth.
Gone are the days when you had to have a relationship with the Old Wall’s TINA (“there is no alternative” to US indexes or 60/40 Asset Allocations). The future of a Globally Diversified Asset Allocation Model and risk management process is here.
Let’s review the sequence and signaling on “how” and “why” you know a #Quad4 to #Quad3 Shift is here:
A) Quad4 → Dovish Policy → USD ↓ → things priced in $’s ↑… and
B) There are plenty of #GrowthSlowing Asset Allocations you keep in both Quads
We’ve backtested the highest/lowest expected values by US Quad Regime and here are some of the larger Asset Allocations you can ride if you bought them when you should have when #Quad4 in Q3 started in July:
- Gold
- Fixed Income (Munis, EM Debt, Long Bond, Investment Grade Credit, etc.)
- US Equity Sectors: Utilities, REITS, Staples, Healthcare
Across 34 Asset Allocations, including both EM Equity (INDA, SMIN, IDX, EWM, EZA) and EM Debt (EMB), I am long all of those things already so there’s not much to do here on the Long Side other than wait for Buying Opportunities in new things like:
- Commodities
- Secular Growth
- Momentum
Every time I write that, some people will almost beg me to be bullish on all the GROWTH and MOMENTUM exposures that always blowup and/or drawdown like Bitcoin, QQQ, and NVDA just did in this most recent #Quad4.
I’m not PE Powell. You don’t need to beg me for cowbell. When any and/or all those exposures signal Bullish @Hedgeye TREND, I will be bullish on them in unemotional terms.
On the big ones that consensus always owns, we built this product call the Hedgeye Momentum Tracker. After a day when AAPL + NVDA + MSFT = +30% positive impact on US Equity Beta (SPY), here’s how the #BubbleCaps score:
- MSFT 408-447 (bullish)
- AAPL 217-232 (bullish)
- AMZN 175-193 (bullish)
- META 518-563 (bullish)
- GOOGL 145-165 (bearish)
- NFLX 668-713 (bullish)
- TSLA 214-250 (bullish)
- NVDA 105-125 (neutral)
While many Old Wall types (who neither understand nor measure and map The Flows of The Machine) will only ask “why” on the “fundamental” differences between GOOGL and NVDA when they see that… that’s not what I see.
No. I’m not saying the fundamentals don’t matter. I’m reminding you that both the flows and fundamentals matter.
Fundamentally, its not new news that neither of our analyst models on GOOGL or NVDA no longer have #Pod1 year-over-year REVENUE #accelerations. From a flows perspective, we’ll continue to measure and map these stocks daily.
For those of you who’d like to watch a Real Conversation on “Market Structure”, I had one with our Content Partners at Tier 1 Alpha and Mike Green yesterday. Personally, I couldn’t do my job without their US Equity Options and flows data.
Here are some of the bigger things that had the Tier 1 Alpha “Regime Model” move away from where it was for most of #Quad4 in Q3 (i.e. “Risk Off”) to Neutral and potentially “Risk On” for #Quad3 in Q4:
A) The “hedged pot” (going into the Fed Cut) didn’t boil, so super-short-term VIX just went from 25 to 15
B) Dealer Gamma remains in a positive position and their GVT (Gamma Volatility Throttle) is at +8
C) 1-month realized SPX Volatility is breaking down below 3-month realized Vol
On that last point alone, the “fundamental research why” doesn’t matter. Volatility Control Funds don’t do channel checks on iPhones. Instead, they do things like Volatility Scaling that are purely algorithmic and rules-based decisions.
If and/or WHEN these signals within my multi-factor #VASP (Volatility Adjusted Signaling Process) change, I’ll change. This is much different than how the majority of the establishment’s Asset Allocators make investment decisions.
Over the intermediate to long-term, I think it will continue to produce superior risk-adjusted performance too.
Our levels
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 3.60-3.75% (bearish)
Investment Grade (LQD) 112-114 (bullish)
SPX 5450-5746 (bullish)
NASDAQ 16,839-18,173 (bullish)
RUT 2092-2275 (bullish)
Shanghai Comp 2701-2775 (bearish)
BSE Sensex (India) 81,875-83,998 (bullish)
VIX 15.07-19.99 (bearish)
USD 99.81-101.47 (bearish)
Oil (WTI) 65.78-72.21 (bearish)
Nat Gas 2.16-2.45 (bullish)
Gold 2544-2644 (bullish)
Copper 4.07-4.39 (bullish)
Silver (SLV) 29.08-32.44 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
