“If we wish to be great, we must first learn how to conquer fear, or at least rise above it in the moments that matter.”
-Ryan Holiday
How good are you in the “moments that matter” in markets? Are you panic-covering and/or chasing high? Are you capitulating and/or short-selling at the LOW ends of my Risk Ranges?
It’s ok, you can always #GetBetter at The Game. You’re human. You need a risk management #process to conquer both your fears and feelings.
“We have to study fear to get familiar with it, grapple with its causes and symptoms. This is why Spartans built temples to fear. To keep it close. To see its power. To ward it off.” -Courage Is Calling
Back to the Global Macro Grind…
My experience in The Game is mine. Yours is yours. For the 1st part of my career I was in the seat most of you are in today (the Buy Side and/or running money). Now I sit in this seat. I get to speak to many of you every day.
I have “feelings” too. Sometimes I feel like a bloody shrink. For the last year in particular, I’ve spent 80% of my time talking Institutional Investors off a cliff. Most didn’t fear The Mother of All Bubbles imploding. They feared the rallies.
For those of you who want to listen to what we call a Real Conversation @HedgeyeTV, I had a good one with long-time hedge fund veteran of former Millennium fame, Mike Taylor, yesterday. It’s free on our website.
“That is my greatest fear.”
-Mike T
What’s that Mike? That’s the #1 thing we all fear – THE FED PIVOT!
That’s why we’ve had countless bear market rallies for the last 6 months. The 1st 6 months of my #Quad4 Bear Market Crash call (12 months ago) was easy. Few were positioned for it. So from JAN to JUN 2022, that was that…
Then, for the next 6 months, EVERYONE who needs easy money, leverage, etc. started whining and complaining about it on CNBC (see Barry Sternlicht for replays)… and EVERYONE trying to trade it from the bear side feared their begging!
So, for the umpteenth time yesterday, they ramped every Bearish Factor Basket into a hoped-for-dovish Fed Minutes (the BITCOIN EQUITY SENSITIVE BASKET led the charge!)… and those Fed Minutes were decisively hawkish.
Then the market sold off from there… especially in what Consensus Bulls still own… but the Bear Factor Baskets punched higher into the close… because that’s how The Machine works (in the very short-term).
I know, I know. “No one owns” Microsoft (MSFT). That was a Top 5 DOWN day (relative to SPY) for the last decade!
Every single bear market bounce (for the last 6 months) has ended with capitulatory short-covering of these Bear Baskets (Bitcoin Sensitive, High Short Interest Retail, Profitless Tech, etc.).
So, what’s a PM’s (Portfolio Manager’s) greatest fear from here?
A) Is it still the “Fed Pivot”?
B) Is it “inflation slowing so the Fed could pivot”?
C) Is it “employment could slow so the Fed could pivot”?
Newsflash: answers A, B, and C are all the same answer people fear.
Let’s go alternative and contrarian on that Consensus Fear for a minute. What should they fear?
A) The Fed isn’t going to pivot (i.e. cut rates) anytime in the investable future?
B) The US Recession and commensurate Corporate Profit Recession?
C) The ongoing and commensurate CREDIT EVENT that always happens during B?
If you’re running a levered business that is hostage to a Regime Shift in both the COST of CAPITAL and access to it (Sternlicht, BREIT, MPW, etc.)…
While your CASH FLOWS are going NEGATIVE year-over-year, you should be afraid – very afraid.
And since I’m big on The Gravity of it all winning over the self-interested whining, I’ll stay with what shouldn’t be an alternative and/or contrarian view. It’s The Cycle stupid.
And this one was the most levered and speculative in human history.
For 128 slides of long-term, Full Cycle Investing, content on the aforementioned, tune in at 11AM ET. (As a reminder, we're hosting our 1Q 2023 Macro Themes presentation today at 11am ET. Contact for access.)
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.65-4.06% (bullish)
UST 10yr Yield 3.59-3.97% (bullish)
UST 2yr Yield 4.21-4.46% (bullish)
High Yield (HYG) 72.58-74.76 (bearish)
SPX 3 (bearish)
NASDAQ 10,178-10,711 (bearish)
RUT 1711-1788 (bearish)
Tech (XLK) 120-126 (bearish)
VIX 20.22-25.06 (bullish)
USD 103.27-106.65 (bullish)
CAD/USD 0.730-0.741 (bearish)
Oil (WTI) 72.04-77.99 (bearish)
Gold 1 (bullish)
Silver 23.23-24.61 (bullish)
MSFT 225-241 (bearish)
Bitcoin 16,289-17,022 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
