Dear Investor,

It’s FREE All Access Week here at Hedgeye.

That means you have unfettered access—right now—to 8 actionable investing products every day until Monday, February 27th. There’s no better time to proactively prepare your portfolio for the next big market move.

Make no mistake, we’re at a critical juncture in this market environment—Phase III of the Bear Market is on.

We transcribed a critically important series of excerpts from Wednesday's complimentary edition of The Macro Show hosted by Hedgeye CEO Keith McCullough below.

Here’s a taste…

“If we’re right, the Fed should be cutting rates as we head into Q4, but that’s after the shit hits the fan and the Nasdaq is down 40% or -50% versus currently -30% from its Cycle peak.

This part has to happen for you to get the dovish Fed that all the bulls are begging for.”

Read the entire transcript below then go watch this free edition of The Macro Show below.

(Three months from now you’ll be glad you did).

Keith McCullough: A big thing I’m watching today is you’ve got cross asset class volatility rising across fixed income, foreign exchange, commodities and voila, U.S. equity vol.

The real question here is whether Nasdaq volatility is headed into the 30s. That’s going to eradicate the bulls. Anyone who bought the top at the YTD lower high is getting plowed.

What we care about is where are your Full Investing Cycle returns? Where is Keith McCullough’s pile going back 25 years? 25 years ago my net worth was negative. All I had was debt. I’m not going to sit there and chase other people’s performance problems to the YTD highs. No.

From February 2nd to today, the S&P is down almost -4.5%. The Nasdaq is down -28.5% from where it started crashing. We haven’t had to deal with everyone else’s baggage the whole way down.

If Nasdaq volatility goes into the 30s, oh boy. What you saw yesterday – which was one of the worst days for the bulls of the year – is going to happen again and again and again because markets crash from oversold levels.

Remember February 3rd? I went to this page in The Daily Stoic which has a single page of Stoic philosophy for every day of the year. On February 3rd, I wrote an Early Look titled, The Mother of All Bubbles Lives.

In that Early Look, the day after the market’s YTD near-term peak, I noted the anxiety of young investing bears and quoted the Daily Stoic from that day which said…

“Getting worked up, excited, and nervously pacing – these intense, pained, and anxious moments show us at our most futile and servile… staring at the ticker… it’s as if we all belong to a religious cult that believes the gods of fate will only give us what we want if we sacrifice our peace of mind.”

I want you to think about that as we traverse Phase III of the Bear Market.

If you’re bullish, think about this. Yesterday, if you were long the profitless Tech basket, you were down -6%. Just yesterday. The Bitcoin Sensitive Basket was down -5%. The rolling Short Squeeze Basket was down -4%. That’s 2 to 3 times worse than the -2% of the S&P 500.

If you really needed to take that risk on, you’re not doing it the right way. Go back. Review your own behavior. What did you do on February 2nd?

Now, this is some Bear porn on Profitless Tech. Everyone on CNBC talks about the YTD. Profitless Tech was down -77% from its 2021 Cycle peak to trough. Do this for me. Calculate the return you need to get back to breakeven if you bought that peak.

It’s 335%. So you’ve got to be up 335% to get back to the peak.

So at the YTD peak, Profitless Tech went up +22%, not 335%. Now it’s up 11% YTD. The only way that’s a good outcome is if all these stupid pundits on CNBC sold the top and bought the YTD bottom. That is some seriously stupid s#!t.

ICYMI | McCullough: Market Crash Ahead? - profitless

McCullough: Here’s two examples you need to be thinking about here.

  1. Home Depot: The company comp’d negative for the first time in 12 years.
  2. Existing Home Sales: -37% year-over-year at a 12-year low.

“The economy is great. It’s hanging in there.” People who say that, what the f#$k are you talking about?

Let’s talk in numbers not narratives.

You know this. The Federal Reserve is out-to-lunch on inflation. Our Nowcast has inflation moderating but going from 5.92% to 4% by year end. 4% is not the Fed’s 2%.

ICYMI | McCullough: Market Crash Ahead? - cpi

McCullough: Think about this. It’s the window time that the Fed is tightening into that matters. The Fed is tightening into the deepest part of the slowdown.

I had four institutional client calls on this yesterday. I didn’t need more than 5 ½ hours of sleep last night. Are you kidding me? I’ve got energy. It’s game time.

The bottom line here is the U.S. economy is slowing toward Doctor Zero. If you look at the sequential quarter-over-quarter numbers, our forecast is -2.37% in the first quarter and the Atlanta Fed is at +2.5%. There is almost 100% certainty that the Fed is going to be tightening into that time and space.

So start to think about markets in terms of Cycle time and Clock time. Don’t think about theory. In theory, if we’re right, the Fed should be cutting rates as we head into Q4 but that’s after shit hits the fan and the Nasdaq is -40% or -50% versus currently -30% from its Cycle peak. This part has to happen for you to get the dovish Fed that all the bulls are begging for.

I am certain that a lot of investors aren’t positioned for this. But stick with it. This is a critical part of the game to get right. This is a particular point in Cycle time when the Fed is tightening that matters most.

ICYMI | McCullough: Market Crash Ahead? - qoq