“Your instincts are telling you something. Trust and listen to them.”
- Ed Viesturs
In markets, that is not the case.
If your “instincts” are your “feelings”, that is…
While there are many analogies to be made between mountaineering at the highest level and risk managing all of Global Macro, my 23 years of experience says ‘your signals are telling you something. Trust and listen to them.’
Back to the Global Macro Grind…
Viesturs aforementioned quote came, ironically, right after he summitted K2 and became the 1st American to get “The Big 3” 8,000ers under his belt of oxygen-less high-stakes-high-altitude professional climbing experience.
“Yet nothing would ever convince me that pushing on to the summit on K2 on August 16, 1992 had been anything other than a mistake. Today I regard it as the biggest mistake of his climbing career.” -No Shortcuts To The Top (pg 34)
What he meant by that was that he took on way too much risk for the ultimate reward. This isn’t like risking 1% of your capital on GME yolo call options. He was putting his life at risk.
With that in mind, I have some base-pack Portfolio Construction coaching questions for you this morning:
- How much risk are you comfortable taking in your portfolio?
- What Asset Classes are you going to risk manage and invest in?
- What is your MAX Asset Allocation by both Asset Class and Single Position?
- What is your MIN Asset Allocation by both Asset Class and Single Position?
- If you are Long and Short, do you have a MIN and MAX Gross and Net Exposure?
If you do not have answers to these questions, you’ll need answers to get to the places that our climbers will. Here are mine:
A) The risk I’ll take is a function of both the historical Volatility and TRENDING Volatility of whatever I’m risk managing
B) All of them. I’ll buy or sell (or climb) anything.
C) Examples: In Global Equities my MIN = 2%, MAX 6%. In Fixed Income MIN = 4%, MAX = 10%
On Gross Exposure I rarely use leverage (i.e. I don’t need supplemental oxygen) and I never “target a net exposure.”
Yep, that makes me different. We’re all different. That’s the best part about The Game. Most of you don’t have Ed Viesturs lung capacity (you’re born with that) or anything close to his VO2 MAX, so don’t try to do it like he does or you might die.
Inasmuch as 2022’s Captain Stock Picker (i.e. my former self circa 1) can’t “believe” I don’t ramp up my Gross Long Leverage like they do, I can’t believe they can’t consistently run Net Short in #Quad4 like I do.
There is a time to go Gross and Net LONG. That’s not on K2 during an avalanche (#Quad4). It’s called #Quad2.
While it might seem like forever ago, it was only 6-7 months ago that I summitted my 1st All-Time Bubble High running MAX Gross and Net Long. That was one hell of a rush and Full Investing Cycle Return!
That was the Cycle Peak of #Quad2 in NOV in 2021:
A) Bitcoin was > $68,000
B) NASDAQ and Russell 2000 were at all-time bubble highs
C) Elon’s Storytelling sucked almost all of the Oxygen out of the Summit at 30,000 feet
And, yes, a LOT of people went LONG at those altitudes. Many of them saw their portfolio and/or life savings die from there:
A) Bitcoin has crashed -56% and Luna Coin went to ZERO
B) NASDAQ and Russell 2000 are down -29.1% and -27.3%, respectively, from their #Quad2 Cycle Peaks
C) Elon’s Storytelling Stock has crashed -42% after summitting 5 days before Bitcoin on NOV 4th, 2021
That’s right. I know some super-smart people still aren’t paid to believe this is happening (or that that was a bubble altogether), but TSLA is down -42% from its $1230 close on that day in 2021.
This brings me back to something that Viesturs and I are in complete agreement with when it comes to risk managing either your life or life’s savings (these are his 2 Rules of Summitting at the highest level):
- Rule #1 = Getting to the top is optional
- Rule #2 = Getting down is mandatory
I am in no way trying to trivialize doing this job as an easy one.
I am simply being transparent and accountable about how I think the job should be done over a 20-90 year market life span. Over your longest-term, my job is to help you preserve and protect your hard earned capital so that you can live to compound it.
Know and evolve your timing and sizing (climbing) #process. Know your MIN and MAX levels of oxygen (positioning). Listen to your signals, fade your feelings, and always have a Core Asset Allocation to #patience.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 2.79-3.09% (bullish)
UST 2yr Yield 2.52-2.73% (bullish)
High Yield (HYG) 75.73-77.58 (bearish)
SPX 3 (bearish)
NASDAQ 11,103-11,996 (bearish)
RUT 1 (bearish)
Utilities (XLU) 70.26-72.65 (bullish)
Shanghai Comp 2 (neutral)
VIX 26.12-36.03 (bullish)
USD 102.52-105.13 (bullish)
EUR/USD 1.035-1.062 (bearish)
USD/YEN 127.33-131.12 (bullish)
Oil (WTI) 99.95-115.28 (bullish)
Gold 1 (bullish)
TSLA 653-746 (bearish)
Bitcoin 26,073-32,701 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
