“Understanding the origins of the genus Homo and filling in the details of its subsequent evolution is a never-ending quest as new findings push back many old markers.”
- Vaclav Smil
When you push back or knock down the received wisdoms of ye Olde Wall, you’ll find that all-time highs are rarely understood (on the way up) and/or contextualized properly within either The Cycle or our Quad Map.
While all-time (stock market highs) remains a very long time, that time-series has nowhere near the time and space of learnings that the human race does.
“In 2015, the oldest reliably dated hominin remains were those of Ardipithecus (4.4 million years ago, found in 1994) and Australopithecus anamensis (4.1-5.2 millions years ago, found in 1967).” -Energy & Civilization, A History, pg 21. Think about that for another few seconds!
Back to the Global Macro Grind…
What we do know about yesterday’s all-time closing SP500 high of 4423 is that A) there have been a lot of bearish and variant narratives fighting it the whole way up and B) we can contextualize it best using 2 words: Quad Three.
Some people have been “calling” for 10-12% corrections the whole way up. Others are trying to call it a bubble or “mid cycle” or something like that. There’s nothing mid about all-time and/or new Cycle Highs, obviously.
If you measure and map the Micro Quads of The Cycle, you’ll find that there are plenty of things (like the employment and inventory cycles) that are still Early Cycle. If you look at bigger things like GDP and Earnings, those are Peak Cycle.
Again, you can call the market’s score whatever you want. What matters most is:
A) How much of the Full Investing Cycle Return you capture … and
B) When you pivot out of certain Asset Allocations, Sector Styles, and Factor Exposures
Before realizing drawdowns of your hard earned capital, that is…
While I have been more bullish than I’ve ever been in my going on 22 year investing career, I don’t think it’s fair to confuse me with someone who doesn’t know how to risk manage drawdowns.
What you see in me is someone who:
A) Got fired (by Carlyle) for making the “top is in” bear call in the summer of 2007… and
B) Learned (and evolved) from that
Whether or not it has Zero Edge or it is loaded with political spew, what we know about the behavioral side of genus Homo on Old Wall Street is that bearish “research” sells via ad-rev-driven clickbait.
But, since founding Hedgeye in 2008, we also know that a Full Investing Cycle #process-as-a-service sells too!
Btw, we have plenty of SELL and/or SHORT ideas that are A) already working and B) don’t need some fear-mongering or valuation driven narrative to continue to work. Some of those big macro positions currently include:
A) Short China (FXI), Hong Kong (EWH), and Japan (EWJ)
B) Short Spain (EWP), the Russell 2000 (IWM), and US Bank Stocks (KRE)
I’ll review all 6 of those shorts on tomorrow’s Q3 Mid Quarter Macro Update presentation that will be LIVE @HedgeyeTV at 11:30AM ET. If you’d like access, ping .
We’ll also review all of our current high conviction longs, which will still include Country Exposures like Australia (EWA), France (EWQ), and the Netherlands (EWN), whose stock markets are also registering new CYCLE HIGHS this morning.
The top performing US Equity Factor Exposure during this #Quad2 to #Quad3 Phase Transition has been QUALITY:
A) QUALITY (as in low debt to enterprise value balance sheets) is +2.2% in the last week vs. HIGH DEBT at -0.3%
B) QUALITY is +4.2% in the last month of the Quad Phase Transition vs. HIGH DEBT (low quality) at -3.1%
For those of you looking to play The Game at the highest performance level, those are +250 and +730 basis point perf spreads on a 1 week and 1 month duration, respectively, during the Quad Shift. Those are big.
Those performance shifts to LARGE CAP and QUALITY GROWTH are a big reason why SPY is at all-time highs. Those frequently happen during #Quad3. So get Homo Erectus to call it “Mid #Quad3” and then we’ll have some evolution on Wall Street!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.17-1.38% (bearish)
UST 2yr Yield 0.16-0.24% (bullish)
SPX 4 (bullish)
RUT 2182-2245 (bearish)
NASDAQ 14,574-14,894 (bullish)
Tech (XLK) 151.23-155.18 (bullish)
REITS (XLRE) 45.71-46.97 (bullish)
Utilities (XLU) 65.38-67.60 (bullish)
Shanghai Comp 3 (bearish)
Nikkei 27,180-28065 (bearish)
VIX 15.71-19.95 (bearish)
USD 91.49-92.77 (bearish)
USD/YEN 108.78-109.98 (bearish)
Oil (WTI) 69.36-75.16 (bullish)
Nat Gas 3.84-4.17 (bullish)
Gold 1 (bullish)
MSFT 282-292 (bullish)
AAPL 144-151 (bullish)
FB 349-380 (bullish)
GOOGL 2 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
