“No, you must do whatever has to be done.”
- Rene Loyau
That’s a great practitioner’s quote from a legendary wine trader in France. He was introduced to me while I was on vaca earlier this month via a great book titled Adventures On The Wine Route (pg 37).
That’s the best part about meeting people through books. You don’t have to stand in long lines with a bunch of Macro Tourists chasing Old Wall media’s latest “market” headlines.
I’m not on vaca anymore. I am grinding and making money here in #Quad3. There’s nothing better than making money for the right #process reasons. As Loyau also said about you, our clients, “you must explain that to them.”
Back to the Global Macro Grind…
Yes, I’d say we do a fair amount of explaining, educating, and evangelizing about our proprietary Full Investing Cycle & Risk Management #Process. Lol
When I wrote Diary of a Hedge Fund Manager alongside Rich Blake in 2010, ultimately answering this question was A) the point of the book and B) the inspiration to create Hedgeye: “What Is Your Process?”
And yes, it was a challenge to everyone in our profession. If people don’t like to play The Game that way, too bad. I do. God willing, I wakeup with two-feet on the floor in the morning, trying to be the best.
That said, over the years I’ve learned (as I always do, from you, the subscribers to our process), that Hedgeye’s transparency & accountability project has been much bigger than I’ll ever be. #HedgeyeNation is a huge idea.
Why? That’s easy. We’re not a closed community. We’re wide open, learning from each other, faster, every day.
When I’m getting something wrong, I know why, way faster than I would have if I was operating behind closed doors with no Twitter trolls rolling into my stream like daily sewage flow. I fail fast and pivot faster to winning again too.
This recent pivot from #Quad2 in NOV 2020 to Q2 of 2021 into #Quad3 here in Q3 has been a beauty.
Oh, does that sound too “confident” for your buddy who got this all-time SPY high note forwarded to him? Ha. Too bad, eh bud. In hockey, a “beauty” is a player who is loved not only for his or her skills … but their personality, eh!
If you don’t call yesterday’s all-time closing Tech and REITS highs a beauty, let me know what you call it:
A) REITS (XLRE) inflated another +1.2% to all-time highs and +6.9% for #Quad3 in Q3 to-date
B) Tech (XLK) ramped another +1.1% to all-time highs and +8.2% for #Quad3 in Q3 to-date
Not only were the Financials (XLF), which #HedgeyeNation was long of for all of #Quad2 (until we replaced them with Utilities which are +8.5% for Q3 to-date) DOWN -1.4% on the day in the face of that…
But consensus continued to bet against and/or “hedge” this melt-up as we ride it higher:
A) Implied Volatility on XLRE was priced at a +31% PREMIUM vs. 30-day realized volatility yesterday
B) Implied Vol on Tech (XLK) was priced at a +34% PREMIUM vs. 30-day realized vol yesterday
“But “why”, why KM? What does that bloody table of behavioral volatility data mean? How do I read that?”
Well, the simple answer is to read it how I read it and do what I do with it! If you want to pay for daily coaching on it, I review the ROC (rate of change) of that data LIVE on The Macro Show @HedgeyeTV daily.
The way we play The Game is by paying attention to the particular moves in particular things at particular times in The Cycle. We don’t play the Old Wall way looking at moving averages and multiples of things…
And, yes, playing The Game this way is harder. You have to work harder. You have to fail faster. If this was easy, Hedgeye wouldn’t be turning 14 years old soon. Someone would have created something better too.
What would drive this melt-up higher, faster, like my “big PA idea” AAPL went yesterday? A: #Quad3.
Remember, in #Quad2 you want to be long of Asset Allocations like:
A) Small Caps… and
B) Levered Crap
As the Phase Transition manifests into #Quad3 you want to replace those Factor Exposures and allocations with:
A) Large Cap Liquidity … and
B) Quality Balance Sheets
How’s that beauty pivot looking for you this morning?
A) QUALITY was up another +0.6% yesterday, taking its 1 and 3 month returns to +3.2% and +14.1%, respectively
B) LEVERAGE was DOWN -1.1% yesterday, taking its 1 and 3 month returns to +1.6% and -3.6%, respectively
*Top Quartile vs. Bottom Quartile (SP500 Companies)
“Quality” means LOW DEBT (to Enterprise Value) companies whereas “Leverage” means HIGH DEBT to EV. And, yes, APPL will signal immediate-term TRADE #overbought within my Risk Range™ Signal today…
But, no this “Quality Party” (no joke, that’s what the Yale Hockey House parties were called during my team’s Championship years in New Haven – big banner saying that hanging out my window actually!), isn’t over yet…
Why? Everyone isn’t at the party yet! AAPL’s implied vol PREMIUM went out at +26% vs. 30-day realized last night. One-month ago when you should have been buying the damn dip, that was +7%, eh.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.21-1.37% (neutral)
UST 2yr Yield 0.20-0.26% (bullish)
SPX 4 (bullish)
RUT 2135-2302 (bullish)
NASDAQ 14,801-15,397 (bullish)
REITS (XLRE) 46.45-47.91 (bullish)
Tech (XLK) 154.67-160.99 (bullish)
Utilities (XLU) 68.03-69.91 (bullish)
VIX 14.11-19.26 (bearish)
USD 92.19-93.56 (bearish)
EUR/USD 1.168-1.187 (bullish)
Oil (WTI) 62.79-71.14 (bullish)
Nat Gas 3.88-4.47 (bullish)
Gold 1 (bullish)
Copper 4.09-4.47 (bullish)
MSFT 292-310 (bullish)
AAPL 147-155 (bullish)
Bitcoin 44,901-50,686 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
