“Is avoid too strong a word?”
- Michael Greger, M.D.
How about the words “get out”? Or “sell” it, then “short” it? Who on ye OIde Wall or Bitcoin Maxi Space gets you out, btw?
The aforementioned quote comes from a book I just finished reading called How Not To Die. The first time I cited this book, I couldn’t believe how many people I triggered.
Like opinions on unhealthy “market valuations” and where we are in The Cycle, I guess everyone has one about food and their diet!
Back to the Global Macro Grind…
While there’s plenty in a book about How Not To Die that I didn’t know, Dr. Greger completely missed the part about shorting the NASDAQ and/or not being long a steady diet of TRENDING inflation when in #Quad2 and #Quad3.
Old Wall’s graveyard is packed with former “portfolio managers” who didn’t have a process to generate alpha across cycles.
What I like about Greger was that he has his own #process. To execute on his process he uses a Dining by Traffic Light decision making tree. “Just as on the road, green means go, yellow means caution, and red means stop…”
“In this case, stop and think before you put it in your mouth.” (pg 258)
This is somewhat similar to what I call being Macro Aware. Before you buy-the-damn-dip in Gold today, be aware that it A) may not be a dip and B) if the US economy Phase Transitions from #Quad3 in Q3 back to #Quad2 in Q4, I’m going to short Gold.
And yes, this is why I trigger people. I’m the guy who gets you out, because my process goes both ways.
Obviously if you are wed to one strict diet or “valuation” driven Asset Allocation, you’re going to miss owning and experiencing many things that will eventually give you (if you’re the type) FOMO. Imagine not being Long Commodities this whole way up?
We’ve been Short US Dollars & Long Commodities since June of 2020. Why would I change the discipline of that diet this morning? Oh, and what if the CPI “slows” sequentially (i.e. finally slows, for a month, from its most recent Cycle High) this morning?
A) That will UP the probability of the Dollar going down again (market will read it as the Fed Dovish = Down Dollar)… and
B) UP the probability that Commodities, priced in Dollars, will continue to inflate to new Cycle Highs
Since REAL GROWTH #slowed during #Quad3 in Q3 (our nowcast is currently at +5.88% year-over-year growth, down from the Cycle Peak of +12.18% during #Quad2 in Q2) and INFLATION #accelerated (our nowcast is currently at 4.95% year-over-year = new Cycle Highs):
A) It would only take 9 basis points of REAL GDP GROWTH #accelerating in Q4 vs. Q3 to deliver a #Quad2 in Q4… and
B) That would likely signal breakdowns in things (like Gold) that work in #Quad3 but don’t in #Quad2
It would also likely signal a Bearish to Bullish @Hedgeye TREND reversal to the upside in things like SMALL CAP (Russell 2000), HIGH BETA (Energy Stocks), and HIGH SHORT INTEREST.
And guess what… the beginnings of those Signals front-running The Quad Shift are already in motion…
So what do you do with that? Well I always say that watching me do what I do with my process might help. As an older man, I have a lot more patience than I’ve had in prior years of my career, mainly because I earned my patience (i.e. I don’t have a boss).
Here are 6 thoughts about moves I’ve been making and/or will make in my portfolios as the probability of a Quad Shift changes:
- I’ve avoided shorting the Russell (IWM)
- I’ve reduced my Asset Allocation to Gold on green days
- I will not buy-more Gold if today’s CPI slows and Gold breaks @Hedgeye TREND support of $1786/oz
- I’ll stay long everything that works in both #Quad3 and #Quad2 (QQQ, SPY, XLRE, XLI, etc.)
- I’ll probably sell the rest of my Utilities (XLU) at some point (sold a bunch higher at #Quad3 in Q3 Cycle Highs)
- I’ve avoided shorting the Financials (XLF) and will go long of them again in #Quad2 vs. Short Utes (XLU)
And if it’s another Cycle High for the CPI this morning, then I may or may not make different moves than what I just outlined. That’s the best part about not being addicted to a dogmatic diet. I can buy, sell, or eat whatever I want, when I want.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.27-1.39% (neutral)
UST 2yr Yield 0.19-0.25% (bullish)
SPX 4 (bullish)
RUT 2 (neutral)
NASDAQ 15,028-15,470 (bullish)
REITS (XLRE) 46.58-49.35 (bullish)
Tech (XLK) 156.11-160.47 (bullish)
Utilities (XLU) 67.79-70.45 (bullish)
Energy (XLE) 47.25-50.49 (bullish)
VIX 14.52-20.99 (bearish)
USD 92.00-92.91 (bearish)
EUR/USD 1.176-1.190 (bullish)
GBP/USD 1.371-1.389 (bullish)
Oil (WTI) 67.73-71.66 (bullish)
Nat Gas 4.49-5.38 (bullish)
Gold 1 (bullish)
Copper 4.20-4.46 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
