“I have a friend who’s an artist, and he sometimes takes a view which I don’t agree with.”
-Richard Feynman
One of the greatest data-driven and practical thinkers in American history (Feynman) has been getting a lot of Early Look air time as we dig deep into #Quad2 in Q2.
Why? Because the man had his own decision making #process and thought for himself within that process. The aforementioned quote comes from a book written in 1988 titled What Do YOU Care About What Other People Think…
Where Feynman reiterates that it’s not what everyone is looking at that matters – it’s what YOU see: “I see much more in the flower than he sees. I can imagine the cells inside, which also have beauty. There’s beauty not just at the dimension of one centimeter; there’s also beauty at a smaller dimension.”
Back to the Global Macro Grind…
There’s zero irony in the words Feynman used to simplify the complex. For those of you who do what I do, you appreciate the beauty of fractal dimensions too.
Mandelbrot taught me about fractals. He didn’t teach me how to see. He taught me that a fractal dimension is a measure of how complicated or complex a self-similar figure is.
When I see #Quad4 manifesting, I know it.
Yes, I absolutely appreciate all of the analysis, conversation, and debate that is born out of The Quads. Every day I am humbled by how thoughtful some of our power-users are in considering The Signal within the noise.
But, at the top of every risk management morning, I’m still tasked with making “the call” on what I see.
Why not #Quad4?
A) There are 112 slides in our new Macro Themes deck that attempt to consider the complexity of the economic outlook – if you’d like to listen to the replay of that presentation, ping
B) Both the NASDAQ and Tech made new ALL-TIME and Cycle Highs yesterday
C) Oil is making new Cycle Highs, inflating another +0.9% to $73.50/barrel this morning
D) Dr. KOSPI (+0.4% overnight to +3.8% in the last month) is also making new Cycle Highs
E) Both Oil and Global Equity Volatility continue to break-down on a TRENDING basis
F) Mongolia’s stock market was -1.6% overnight to -8.6% in the last month
Mongolia breaking down? Haha. Yeah, I just put that in there to make sure you are paying attention. I do that (citing Bosnia and Herzegovina on Twitter yesterday, for example) not to trigger people…
I do it to remind people that get The Process that they can’t see what I see unless they’re looking at everything.
Smaller dimensions are leading indicators for larger Phase Transitions. Partly why Mongolia flashed this recent negative equity divergence is its proximity to the ONLY major economy that’s already experiencing #Quad3 Stagflation (China).
Part of it is that their very small stock market is levered to lots of Copper…
People who don’t do anything remotely close to what I do (and by the way, you need a LARGE research team of analysts, software engineers, and data scientists to do it), call me arrogant, cocky, etc. I get why, but the facts of the matter are that:
A) I’m not. I’m just Irish… and
B) How arrogant is it to NOT look at everything in Global Macro AND have highly “convicted” opinions?
While even a Moving Monkey can tell you that:
A) NASDAQ, Tech (XLK), KOSPI, etc. ramping to new Cycle Highs is an explicit GROWTH Signal … and
B) Oil & Natural Gas signaling Bullish @Hedgeye TREND breakouts is an explicit INFLATION Signal
There are still a LOT of people out there who don’t get that if all you saw were those simple BIG macro things, you would not be positioning for the BIG bang drawdown #Quad4 events that I’ve made the call on many times before.
Ok, so how do we hedge the risks associated with an eventual economic Phase Transition out of Global #Quad2? That’s easy:
A) AFTER things go up, we sell-SOME…. And
B) We sell-MORE aggressively as we run out of time and space and/or break @Hedgeye TRENDs
Yes, there’s an embedded risk management #process in seeing the market for what it is. It’s implicitly designed to impose the most amount of pain on the largest group of unprepared people, all at once.
Example: #Bitcoin:
A) Whoever saw the top-end of the Risk Range™ Signal sold-SOME > $62,000…
B) Got out on the @Hedgeye TREND Signal break-down at $49,034 in May… and
C) Bought-SOME back yesterday at the low-end of the Risk Range™ Signal
Oh sure you did. Yep, that last part I explained live on The Macro Show yesterday when the price was at the low-end of the Range and the crowd was busy whining and crying about it.
I said I was going to buy 25-50bps of it (bps are basis points of my hard earned capital at risk). And I did. I’ll be happy to sell all of that anywhere between here and $38,024, or not. What do I care about what other people think about that?
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.42-1.61% (bullish)
UST 2yr Yield 0.16-0.30% (bullish)
SPX 4181-4290 (bullish)
RUT 2 (bullish)
NASDAQ 13,967-14,320 (bullish)
Tech (XLK) 140.39-144.96 (bullish)
Energy (XLE) 52.19-56.91 (bullish)
Utilities (XLU) 63.27-65.90 (bearish)
VIX 14.32-19.41 (bearish)
USD 89.59-92.58 (bearish)
Oil (WTI) 69.89-73.96 (bullish)
Nat Gas 3.11-3.39 (bullish)
Gold 1 (bearish)
Copper 4.06-4.65 (bullish)
Bitcoin 30,258-38,024 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
