“Your number one goal as a leader is to develop a work environment of stunning colleagues.”
Key takeaways
- But the real #Quad4 money is made being Long Treasury Bonds and Low Volatility Equity Bond Proxies. To realize those Full Investing Cycle returns, what do we need? A: Treasury Bond Volatility (MOVE index) to break-down.
- Yeah, I heard. “Bitcoin is like Gold, it’s protection against a crash…” and “Fed is behind the curve – it would be healthy for both the economy and markets to have 4 rate hikes.” The Fractal gods are daring you to HODL that.
The big picture
As opposed to being stunningly Macro Unaware of what #Quad4 does to super cool growth stock picks, Reed Hastings built Netflix on a culture of healthy competition. Internally, the score always mattered, big time.
In No Rules: Netflix And The Culture of Reinvention, Hastings goes on to write that “stunning colleagues accomplish a significant amount of important work… Jerks, slackers, sweet people with non-stellar performance, or pessimists left on the team will bring down the performance of everyone.”
Especially in markets, there are always jerks, slackers, and performance problems to address. Obviously some firms will have major drawdowns if they aren’t proactively prepared for TRENDING volatility in #Quad4. But performance doesn’t have to stay wrong if it has the humility to change its portfolio positioning.
Macro grind
What is a TRENDING Volatility Signal @Hedgeye?
A) It’s NOT episodic-and-non-TRENDING
B) It’s when my #VASP (Volatility Adjusted Signaling Process) is front-running a #QuadShift
C) It’s when the probability rises for major portfolio drawdowns and market crashes
What are the 3 Buckets of Volatility @Hedgeye?
A) Investable Vol Bucket (i.e. Captain Stock Picker “feels” good, buy-the-damn-dips, etc.)
B) The Chop Bucket of Volatility (i.e. when the VIX is in the high teens to high 20s)
C) The F Bucket (that’s where market prices crash)
What major US indexes or prices are currently in the bad word bucket?
A) Small Caps (Russell 2000’s front-month volatility went out at 30.59 yesterday)
B) NASDAQ (#NazVol ramped to close at 29.36 yesterday)
C) Bitcoin’s 30-day realized volatility was 53 yesterday!
What are the current drawdowns of those widely owned assets from their #Quad2 Cycle Peaks?
A) Russell 2000 down -14.2%
B) NASDAQ down -9.3%
C) Bitcoin’s has crashed -39%
Notice the Fractal Pattern (#Quad2 in Q4 vs. market prices) associated with those 3 things?
A) The Russell 2000 and Bitcoin put in their all-time highs within the SAME day of each-other
B) NASDAQ closed at an ALL-TIME high of 15,982 on that same day (November 8th, 2021) too
C) NASDAQ eventually (and barely) made its ATH on November 19th at 16,057
Yeah, I heard. “Bitcoin is like Gold, it’s protection against a crash…” and “Fed is behind the curve – it would be healthy for both the economy and markets to have 4 rate hikes.” The Fractal gods are daring you to HODL that.
I’ve said it enough times since those 4 Rate Hikes got priced into the bond market, but I will say it again…
If/when the Fed confirms that they’ll raises rates into a #Quad4 economic slowdown, volatility should TREND higher, and drawdowns should become crashes.
Give it another 6% to the downside and the Russell (IWM) is already there alongside our Russia Short (RSX).
Then what? I don’t know. But, in the meantime, what are you going to do with your performance problems (if you have them)? Complain about other people losing more money than you are?
Or are you going to try to make money? I lost 11 basis points of my hard earned capital yesterday because:
A) Prior to the QQQ and Tech (XLK) drawdown, I sold all of those #Quad2 Longs
B) Prior to the ramp in USD yesterday, I loaded up on Raising Cash via UUP
C) Prior to yesterday’s ramp in Bond Yields, I sold most of my SHY (2yr) and TLT (20yr)
Why I can’t really “make money” under these #Quad4 conditions is that bond yields won’t go down (yet) until the Fed sees what our GIP Model (Quads) sees.
Sure, being long Gold (my #2 Asset Allocation yesterday, which helped me not really lose money) has been fine relative to being long a basket of cool and over-owned stock picks and cryptic NFTs…
But the real #Quad4 money is made being Long Treasury Bonds and Low Volatility Equity Bond Proxies. To realize those Full Investing Cycle returns, what do we need? A: Treasury Bond Volatility (MOVE index) to break-down.
Until PE Powell stops peacocking on CNBC about his rate hikes, I don’t know when that will happen.
That said, at 1.06% on the UST 2yr Yield this morning… that’s implying MORE than 4 rate hikes. That’s just nonsense if both I and the US Equity market are right on #Quad4 deepening throughout the 1H of 2022.
So, at a measured and incremental pace, I’ll start selling-SOME USD here and buying back some SHY.
Our levels
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.64-1.91% (bullish)
SPX 4521-4746 (bearish)
NASDAQ 14,401-15,262 (bearish)
RUT 2064-2215 (bearish)
Tech (XLK) 159.25-170.01 (bearish)
Consumer Staples (XLP) 75.59-77.91 (bullish)
Shanghai Comp 3510-3617 (bearish)
Nikkei 27,202-28,958 (bearish)
VIX 17.76-24.77 (bullish)
USD 94.58-96.61 (bullish)
Oil (WTI) 77.71-86.97 (bullish)
Gold 1787-1841 (bullish)
NFLX 491-578 (bearish)
Bitcoin 39,102-45,996 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
