• The call plus

    IT'S FINALLY HERE!

    The Call @ Hedgeye Plus

    Our favorite, high-conviction stock ideas and CEO Keith McCullough’s Macro overlay. Exclusively on Hedgeye TV.

    LIMITED-TIME OFFER… $3 FOR 3 MONTHS

“Truth is much too complicated to allow for anything but approximations.”
John von Neuman

Key Takeaways

  • Is your hard earned net wealth at least partially positioned for #Quad4 in both China and the USA in Q2? You don’t need to be a contrarian to see that Long US Dollars, Treasuries, Gold, Utilities, and REITS continues to work for the right reasons.
  • If whatever you are reading about the revised-virus this morning doesn’t preface the narrative with those conditional expectations built into futures and options markets, you’re not seeing the drop in both Oil and US Equity futures the way I am this morning.

The big picture

Is your hard earned net wealth at least partially positioned for #Quad4 in both China and the USA in Q2? You don’t need to be a contrarian to see that Long US Dollars, Treasuries, Gold, Utilities, and REITS continues to work for the right reasons.

Looking at yesterday’s short-term spike in US Equity complacency (I’ll quantify that in the heart of the note), I guess some people believed the Chinese methodology on measuring and mapping the ROC (rate of change) of the virus…

Upon China’s “revised methodology” I’m with von Neuman on this one. The truth is much too complicated to allow for anything but approximations by both the Quad nowcasting and macro market Signaling #process.

Complacency Spikes - 03.19.2019 did do the math cartoon  1

Macro grind

John von Neuman was a polymath. I love polymaths. When they speak, their words generally mean something, mathematically. On ye Olde Wall, not so much. The baby boom generation of investors in particular loves qualitative narratives.

Q: “So… can you talk about how the economy feels, Ed?”  
A: “Well, I was in Hamburg and the restaurants were packed – the German economy feels likes its booming”

Yep. At the 95th percentile of all post-WWII German GDP readings (end of 2017, pre the European slow-down and Industrial/Manufacturing #recession in 2019), the economy “felt” absolutely fantastic!

Our GDP Nowcasts and my multi-factor, multi-duration, price/volume/volatility models “feel” absolutely nothing.

Btw, there are plenty baby boom money managers who feel the same way about that. I’m just a Gen-X guy who remembers my Wall Street friends losing ½ of what was in their 401k, twice in the last 20 years, without going through a divorce.

The von Neuman quote comes from chapter four of The Man Who Solved The Market. You don’t have to take my word for it on thinking stochastically. Here’s how Jim Simons thinks about “feelings”:

“If you make money you feel like a genius – if you lose, you’re a dope… It’s just too hard to do it that way… I have to do it mathematically.” (pg 67)

Mathematically speaking, here’s what I meant about a “short-term spike in US Equity complacency”:

A) Short-term = day-over-day within a 30-day duration window or time
B) Implied Volatility (IVOL) on SPY dropped to a -8% DISCOUNT vs. 30-day realized volatility (vs. +2% on the day prior)
C) Implied Volatility (IVOL) on Tech (XLK) and Energy (XLE) dropped to -11% and -8%, respectively
*I shorted Energy Stocks (XLE) in Real-Time Alerts on my vol of vol signal yesterday

If whatever you are reading about the revised-virus this morning doesn’t preface the narrative with those conditional expectations built into futures and options markets, you’re not seeing the drop in both Oil and US Equity futures the way I am this morning.

And, to be clear, that’s totally cool with me.

While I try my best to educate both myself and our paying subscribers in this open-architecture-data-and-content-platform every day, I really don’t get paid (in my p.a.) unless the crowd has no clue as to what I’m talking and writing about.

Quads, Risk Ranges, and short-term windows of IVOL complacency (bulls) and/or capitulation (bears)?

Singularly, I know what all of these quantifications mean. If I ran a hedge fund instead of Hedgeye, I wouldn’t have to write about it at all. But, fully loaded with all of my human faults and communication challenges, I’m just trying to help you see what I see.

If you get it, and think I’m looking at the data/math the wrong way, please let me know.

Especially if you’re an Institutional Subscriber (and many of you know this already), you know that I know what I don’t know. It’s manifest. And I only learn through collaborative debate. I learn absolutely nothing hearing about how GDP and sentiment “feels.”

Our levels

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:

UST 10yr Yield 1.48-1.68% (bearish)
SPX 3290-3418 (bullish)
RUT 1651-1695 (bearish)
Utilities (XLU) 68.11-69.70 (bullish)
REITS (VNQ) 94.58-98.31 (bullish)
Consumer Staples (XLP) 63.01-64.95 (bullish)
Tech (XLK) 97.06-103.45 (bullish)
Shanghai Comp 2750-2965 (bearish)
USD 97.60-99.32 (bullish)
Oil (WTI) 49.02-51.97 (bearish)
Nat Gas 1.72-1.92 (bearish)
Gold 1559-1595 (bullish)
Copper 2.48-2.62 (bearish)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

Complacency Spikes - Chart of the Day