“If you know where you are now, you know what to do next.”
- Steven Kotler
While Kotler is alluding to “The Flow Cycle” in that quote, I can easily transfer that thought to The (economic) Cycle and The Quads. It’s when you don’t know where you are that you run into serious performance problems.
While our processes, perceptions, and positioning will often differ, on Wall Street we all have one goal in common: #winning at the highest level. That’s why The Art of The Impossible – A Peak Performance Primer, is a must read.
Kotler explains The Flow Cycle through the lens of Harvard cardiologist, Herbert Benson: “flow is a 4-stage cycle, with each stage underpinned by different and precise changes in brain function. You have to move through each stage of the cycle before you can enter the next.” (pg 266)
Back to the Global Macro Grind…
Not unlike your sleep or life cycle, the economic and market cycle has a central tendency to… wait on it… cycle!
If you’re willing to accept the cycling of it all, why would you interrupt your Full Investing Cycle #process for short-term disruptions like “supply chain bottlenecks”, lockdowns, and hedge fund liquidations?
I get it. I can be as short-term as anyone who is open-minded enough to take the time to read this. When it comes to reinvesting in Hedgeye and riding my Quads, I can be the longest-term too.
Can you think short and long-term? Can you think fast, and slow? Can you separate The Signals from #noise?
If someone interrupted your entry into REM (think sleep cycle), would you project that as the future of your nights of sleep? If crowded hedge fund longs are getting liquidated into the holiday, why would you think of that differently?
For those of you who don’t know, now you know. There have been major liquidity issues in the past 2 weeks.
BREAKING: “Germany to consider lockdown”
And, the German DAX corrects towards the low-end of my Risk Range™ Signal on that noise this morning. What happens after Austria’s 10-day (short-term) lockdown btw?
Austrian stocks are up this week, but that’s not Macro Tourist news.
BREAKING: “Biden Taps The SPR”
And, Oil ramped higher on that news after testing the low-end of my Risk Range™ Signal. Is it headline Tourist “news” that the US is releasing “sour” instead of light sweet crude barrels? Oh damn the details.
While some may not agree with and/or struggle to understand my proprietary Global Macro risk management #process, make no mistake that I built it with some specific #behavioral design goals:
A) Fade my “feelings” and Macro Tourist type “thoughts”
B) Capitalize on other people’s emotional and/or performance problems
I built my Quad models from scratch. I run them within the OODA Loops of my proprietary Signaling #process. I learned all of this by doing it on the buy side: 1000s and 1000s or reps, running real money.
If you’ve never run money at a modern rules-based hedge fund, how would you know how to front-run their internal behavior? How would you capitalize on liquidation opportunities if you’ve never executed on many?
On The Macro Show yesterday I equated that to someone who drives automatic stealing a Formula One car and proclaiming to the world that they’re going to not only know how to drive it but win this weekend’s Grand Prix.
Like most of the emotional mistakes we all make in life, that’s just embarrassing.
If I turned Hedgeye into a hedge fund this morning, here’s a list of racing red flags I’d issue to my up and coming analysts and junior PMs (i.e. things you are NOT allowed to do because they’d be rookie mistakes):
- Do NOT hedge your books with SPYs with futures red and Implied Volatility at a +84% PREMIUM
- Do NOT keep selling SMALL CAP positions at the LRR into the holiday weekend
- Do NOT eat yellow snow if/when you have too many Thanksgiving cocktails while skiing
If I model SMALL CAP Factor Exposure through the lens of the Russell 2000 (IWM):
A) Implied Volatility (vs. 30-day realized) is trading at a +40% PREMIUM vs. a -1% DISCOUNT 1-month ago
B) #RussVol (RVX) is approaching the top-end of my Vol of Vol 22.01-27.44 Risk Range™ Signal
C) Russell is approaching the low-end of my Risk Range™ Signal = 2303 post a -5% correction
I’ve never driven a Formula One car, but I’d hope someone (who did so at the highest level) would show me how not to #accelerate my selling into the end of an episodic-and-non-TRENDING Vol Spike.
For what it’s worth, my former 30-year old self didn’t understand that it’s the TRENDING volatility of a market price that stops it from going up… not my economic Quad, a liquidation, or “valuation.”
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.51-1.68% (bullish)
UST 2yr Yield 0.47-0.63% (bullish)
SPX 4 (bullish)
NASDAQ 15,623-16,156 (bullish)
RUT 2 (bullish)
Tech (XLK) 164.29-172.08 (bullish)
Energy (XLE) 54.15-59.38 (bullish)
Financials (XLF) 38.99-40.71 (bullish)
VIX 15.04-19.98 (bearish)
USD 94.70-96.79 (bullish)
EUR/USD 1.118-1.148 (bearish)
Oil (WTI) 75.25-83.09 (bullish)
Gold 1 (bearish)
Copper 4.28-4.58 (bullish)
Bitcoin 55,009-68,033 (bullish)
Best of luck out there today and Happy Thanksgiving,
KM
Keith R. McCullough
Chief Executive Officer
