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Editor's Note: Hedgeye CEO Keith McCullough titled his February 10, 2022 Early Look morning note "Short QQQ's Now" Since then, the Nasdaq has crashed over -10%. Read McCullough's full note below for context on why he signaled to subscribers to short QQQ. |
“At the end of the day, this is a book about integrity.” - Geoffrey Moore
THE BIG PICTURE
We all have a lot of issues. I don’t have issues with my company’s founding principles or being transparent and/or clear about my positioning. I assume the title of this Early Look makes that crystal clear, indeed.
For those of you who don’t know who Geoffrey Moore is, he wrote a book in 1991 called Crossing The Chasm. When we founded Hedgeye in 2008, I’d often cite Moore’s ground-breaking views on revolutionary and disruptive startups.
His quote is from his Introduction to a new book by Sabrina Horn titled Make It, Don’t Fake It – Leading with Authenticity For Business Success. Hedgeye was built on our independent research #process and integrity. No one can steal that from us.
MACRO GRIND
While a better question might be “why did you wait to short QQQ’s until this morning?”, here’s the straight to the point answer on why now:
- I prefer to short things when they are approaching the TOP end of my Risk Range™ Signal
- QQQ’s have +1.5% upside to the TOP of my range and -8.3% of immediate-term downside from there
- Implied Volatility on QQQ just dove to its 2022 LOW at -23% vs. 30-day realized
Oh, and there’s this economic Nowcast thing called #Quad4 in Q2. That’s it, really. Make a call. Take your position. And stay with it through the Full Investing Cycle.
No, I’m not talking at you. I’m talking to myself. If I can stay with #Quad4 like I stayed with #Quad2 at this time last year, I’ll be doing my job. I’ll be executing on my #process.
If I am right, I won’t be surprised. Our performance in January wasn’t luck. If I’m wrong and either my #VASP (Volatility Adjusted Signaling Process) or the economic Quad data changes, I will change. I always do.
That’s the best part about The Game. You can always change your position. What you can’t change in life are the decisions you make when no one is looking. That will define whether or not you have integrity.
On today’s CPI print:
A) After 20 months of our proprietary INFLATION Nowcast signaling US #InflationAccelerating, everyone expects it
B) If it’s +/- 30 basis points from a chasing consensus of +7.2% year-over-year, that doesn't matter… because
C) All that matters, from here, is the market’s reaction to the report
Many of your competitors think “the market” is what QQQs are doing right now. That’s actually not even funny. It’s sad and embarrassing. But that said, it’s my job as a Canadian/American Capitalist to capitalize on that behavioral reality.
While the bond market has now “priced in” an eye-popping +5.46 rate hikes THIS YEAR:
- The Yield Curve has FLATTENED to a new #Quad4 CYCLE LOW of +58bps wide on 10s/2s this morning
- High Yield OAS Spread of +334 basis points over Treasuries continues to signal #Quad4
- Both High Yield (HYG) and Junk (JNK) continue to signal Bearish on both my TRADE and TREND signals
“But, but, the CPI…”
Yes, let the Macro Tourists eat that cake today, while you execute. These are the same Tourists, Fed prognosticators, and Old Wallers that were calling CPI of +2-3% “transitory” last year.
Why are you wasting your precious life and Cycle Time listening to them?
Just like I’d write and say pretty much EVERY day at this time last year: “just wait until our nowcasts for INFLATION double from here, then we’ll see what the transitory Tourists think…”
Now, instead of staring at a bunch of incompetent “short-selling” hedgies cover-high yesterday, just wait until the March-May US GROWTH #slowing data hits. Then we’ll see how these 5-6 rate hikes go!
Yesterday was a super short-term move in US Equities that Global Equity markets yawned at overnight (KOSPI up a whopping +0.11%) and this morning in Europe, with the DAX in Germany showing no follow-through and failing at TREND.
Full Cycle Investors (i.e. those of you who rode #Quad2 for 5 of the last 6 quarters and crushed it) are focused on the markets intermediate to longer-term #VASP Signals and pending Quad Conditions.
In today’s Chart of The Day (slide 64 of yesterday’s Hedgeye Macro Mid Quarter Update presentation), we’re showing you that the bond market really gets the big bang risk here of the Fed tightening into a big time GROWTH slowdown.
Yes, looking at the UST 10yr OIS minus the 2yr, 1-year forward (i.e. the Expected Yield Curve 1yr ahead), the real market is effectively expecting the curve to begin INVERTING a year from now.
Don’t let either your pending performance or integrity as a person ever look like that chart.
