“We make a living by what we get. We make a life by what we give.”
- Winston Churchill
Before giving you the “big call” on what I’ve already been explaining (daily on The Macro Show) and doing incrementally (selling some #Quad2 and buying more of what works in both #Quad2 and #Quad1), let’s take the time to give together.
We have been extraordinarily blessed here at Hedgeye. And with great blessings come great responsibility.
Our employee-driven charity Hedgeye Cares was formed for precisely this reason—to actively help those in need inside our community. 100% of the funds we donate will end up with the charities we support. Hedgeye will match the first $100,000 raised dollar for dollar donated. Donations can be made HERE.
Back to the Global Macro Grind…
As anyone who runs other people’s money successfully knows, you allocate capital incrementally. All-or-none and/or pie-chart “asset allocation” is for people on the sell-side who do things in theory.
In practice, real-time risk management of your (or their) hard earned capital happens this way:
A) You sell-some of this over here … and
B) You buy-some of that over there
Your MAX and MIN Asset Allocations should be rules based. So should how you touch your positions, incrementally.
Examples of selling incrementally was initially selling-some of my Financials (XLF), then selling the last of them on green. I’ve been selling-some of my Energy (XLE) and buying-more Consumer Discretionary (XLY) and Tech (XLK) on red.
Why? In addition to de-grossing my almost 18-month old Asset Allocation to Commodities, booking Full Investing Cycle gains and reducing Financials (XLF) and Energy (XLE) is what I do during a Quad Shift from #Quad2 to #Quad1.
Why now? A: cycle time is running out on the clock and my signaling process told me to.
Cycle Time, as in #Quad1 in Q1 of 2022 (or a very narrow #Quad4, which also has high expected returns in the things I’m buying on red now), often starts in t-minus a month before entering the new Calendar Quad.
The problem with Calendar Quads is that the market doesn’t care about the calendar. When it signals, it signals. That’s why I rarely know when I am going to pivot. I just pivot when The Game says pivot.
Imagine executing at the highest level of any other profession any other way…
Can Michael Jordan tell you precisely WHY and WHEN he’s going to make a certain play? Can Tiger Woods tell you WHAT hole he’s going to make a PARTICULARLY important shot? Of course not. They don’t do #PieCharts either.
I’m obviously not MJ or Tiger. I am just a Mucker. And I don’t have issues with trusting either my process or my timing.
It’s obviously not the “average” of Cycle Time or the “valuation” of things that matters to me when I make Asset Allocation pivots. It’s the particular things. And this particular ROC (rate of change) ramp in Oil Volatility definitely matters:
- Oil Vol (OVX) closed at 63.34 yesterday
- Oil Vol’s @Hedgeye TREND Signal = 42.19 (above that is bearish for Oil)
- Oil is the heaviest weight in our league leading INFLATION Nowcast model
Therefore there’s a rising probability that:
A) Both headline INFLATION and consensus Inflation Expectations peaked here during #Quad2 in Q4… and
B) A sequential #slowing of INFLATION from its OCT Cycle Highs would equate to either #Quad1 or narrow #Quad4
If that probability plays out, my Volatility Adjusted Signaling #Process (VASP) would expect:
A) Treasury Bond Volatility (MOVE) to peak and rollover as …
B) Fed “rate hike” expectations abate from the Q421 Inflation Cycle peak
That’s also why I was incrementally covering-some of my Utilities (XLU) short, then covered the rest (or all) of it as I was selling the rest of my Financials (XLF). It’s the same Quad Shift and rates trade and/or Asset Allocation move.
Don’t forget that #Quad1 is not the panic-attack that you “see” in the US Equity Futures this morning. Since inventing The Quads, I’ve called #Quad1 Goldilocks for that very reason. Your prior #Quad2 Rate Sensitive Shorts stop working.
And being long the inverse of Rate Sensitivity and Bond Market Volatility (i.e. buying Housing, ITB, for example) becomes another #Quad2 to #Quad1 Asset Allocation pivot that you start making incrementally, then more aggressively.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.42-1.72% (bullish)
UST 2yr Yield 0.44-0.65% (bullish)
SPX 4 (bullish)
NASDAQ 15,420-16,189 (bullish)
RUT 2 (bullish)
Tech (XLK) 164.44-172.32 (bullish)
Utilities (XLU) 66.22-68.23 (bullish)
Financials (XLF) 38.20-40.60 (neutral)
Shanghai Comp 3 (neutral)
VIX 13.52-27.99 (bearish)
USD 95.19-96.98 (bullish)
Oil (WTI) 67.91-84.02 (neutral)
Nat Gas 4.61-5.44 (neutral)
MSFT 329-346 (bullish)
AAPL 153-166 (bullish)
AMZN 3 (bullish)
Bitcoin 53,594-63,320 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
