Dear Investor,
Since the start of 2022, Hedgeye CEO Keith McCullough has been steadfastly telling subscribers that this is the "biggest bubble in capital markets history."
Despite periodic bear market bounces, the S&P 500 peaked in January and has fallen ever since, down -16% as of today's selloff. So, while Keith McCullough has been warning subscribers about the dangers of buying risk assets, no-nothing pundits and so-called Wall Street strategists have been trying to call a stock market bottom all year.
While we've warned of emerging risks, they've been pumping unsuspecting investors into the bubbliest parts of the stock market. We've been right. They've been wrong.
The Hedgeye Macro team didn't make this bear market, recession risk rising call by accident. Our repeatable, risk management process has been identifying emerging risks like this since our first bear market call in 2008. 2022 was just one more bear market for which our subscribers were proactively prepared.
In addition to risk management, we pride ourselves on market timing. Here's CEO Keith McCullough from a January 27th complimentary edition of "The Macro Show" this year:
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“If the Fed raises rates into a slowdown, they would not only be a catalyst for a stock market crash but also a slowing economy, threatening a recession.” |
Want more?
Below we've unlocked this entire January 2022 edition of "The Macro Show" for you to study how we prepared subscribers for this market selloff. Below we've also transcribed for you a key excerpt. Check it out. We think you'll like what you see.
A final note. If you're at all interested in learning a better way to invest, we're here when you're ready. We don't think this bear market is over. Still, risk managing it requires steady and knowledgeable guidance from a true pro.
We've got good news. CEO Keith McCullough has been teaching investors our go-anywhere Macro approach to risk management since our founding in 2008. If you're interested in becoming a better offer (and preserving and protecting your hard-earned capital), here's a special offer on all Hedgeye research.
Enjoy this complimentary edition and transcript of "The Macro Show."
Keith McCullough: No one else is going to talk about the yield curve this morning. We’ll start with that. Number two is going to be stock market crashes, which are either in motion or already happening. In this case, that's a great opportunity for you to capitalize on with the futures higher. And then finally, I’ll hit on Gold, which is a big buying opportunity here.
So, the Yield curve. This is what Powell did to the yield curve. For those of you that don't stare at the yield curve, you should. So, again, that is taking the ten-year yield minus the two-year yield. It has gone down 12 basis points already this week.
That's a lot. And again, if the Fed wants to raise rates three, four or five times, I think that they're going to make that dead flat to invert it. So, in other words, the Fed would be not only a catalyst for a stock market crash, but would be a catalyst for a very slow U.S. economy that is threatening on going on a recession.
McCullough: So, again, you look at today's GDP number and a lot of people are like, actually, I even heard one guy say on CNBC, “Absolutely no one was calling for this kind of acceleration in GDP in the fourth quarter.” Well, that's total bullshit. I mean, on September the 23rd, we made the call, when the Atlanta Fed went to 0% GDP growth, that GDP was going to rip to the upside.
And that's absolutely what happened. Now that's the point. GDP is going from the high point towards 2% and maybe lower the longer oil stays higher. Don't forget, on a real basis, GDP is reported. So you subtract sticky and high inflation. That's a point we're going to get questions on. You can have Quad 3 factors with a Quad 4 market.
Got it? Quad 3, in our vernacular, is when you have stagflation. In other words, inflation won't go down yet while it's peaking. But, at the same time, you can get broader Quad 4 market conditions. And Quad 4 is the Quad we’re going to be in. So again, Quad 4 is deepening as oil stays higher. Got that? Write it down.
Now, let’s get to point number two. Don't buy things that are crashing. We got wild Bill Ackman who always blows up in Quad 4 talking about going big time on Netflix (NFLX). A stock like that is crashing and if it A) says bearish trend in our Risk Range™ Signals and; B) has a lower low in the range don't be that guy. Don’t be Bill Ackman.
But this is The Macro Show. This is pre-game. We're trying to play the game that's in front of us today. We're not day traders. We’re risk managing our asset allocations and longer-term positioning around the immediate term. What else why else are you watching anything in the immediate term if that's not what you're doing?
So again, crashes. We saw it again in South Korea last night down -3.5%. If you look at South Korea, obviously that's in Quad 4 back-to-back. If you look at slide 20, and go down the line, you can see back-to-back Quad 4s in Russia. Its stock market has crashed again down more than -20%.
South Korea is now down -21% from where its cycle peaked. The Russell 2000, in short order, will be down -20% or more from its cycle peak. I think the Nasdaq is going to crash too. It won't take long.
So again, when you look at the futures, don't have an emotional reaction to that it's not about the color coding or the cheering. It's about understanding where the puck is going next.
Point number 3 is Gold. If you don't want to learn about Quads, buy Gold. Got it? Buy it now. Why now? It’s at the low end of the range.
Okay. So again, that's what we're looking for here. Top end of the range. We'll see if the ten year yield starts to come down. But we're certainly at the top end of the range on twos here. And that's why gold is getting upset for a day and a half. That's certain to say it's a buying opportunity. And for those of you that remember this time last year, I was saying sell it. Every time I told you to sell gold last year, on the short side, it worked.
And those are your top three things.
Here’s another point: volatility. If the volatility of the VIX range is still in what we affectionately call the F$%k bucket (i.e. north of 30) rising and staying there because you're in Quad 4 the S&P 500 is going to go lower.
So the range of volatility, or the vol of vol, is how I derive the range for the S&P 500. It's mathematically derived. It's not about feelings. I know my style can excite people, irritate people, whatever. Focus on the results.
Again, the F%$k bucket of volatility is a very bad place to be. It's not about picking stocks like Bill Ackman buying Netflix. It's about picking the right portfolio. There's a big difference between running money for real when the Macro environment changes to growth and inflation slowing at the same time (i.e. Quad 4).
So let’s review the set-up. You can have sticky and high inflation, a Quad 3-type characteristic, but don't be so intellectual about it. Be like mucker. Go to where the puck is going. The market is pulling forward a deep Quad 4.
Look at the volatility of the Russell. I mean, that's a crash call, an easy one there with Russell Volatility at 37. Nasdaq Volatility is at 38. These are not buy signals. So don't be again viscerally impacted by the color of the Futures or the commentary of people have never run money commenting on that. It means nothing. It's noise. It's called Brownian motion at best. That would be a compliment.
So short the Financials (XLF) here. They were up yesterday. Short anything that's up.
When you look at all of global Macro and cross asset class volatility, and you're not just a stock chart monkey, you start to see some similar sets. You’ll start to see a breakout in high yield spreads, for example, alongside a breakout above 30 on the VIX. That's a real gnarly similar set if you're going into Quad 4, never mind back-to-back Quad 4s with the Fed tightening.
So that's a major risk signal. It's not a setup we've seen in the modern era. It doesn't mean it can't happen.
