“I am going to speak of two; the bright side of life and the dark side.”
-Booker T. Washington
Sometimes I re-read my best books. This Memorial Day weekend I was looking for something Old School #behavioral – something that’s inspired generations and, unlike a “Meme Stock”, stood the test of time. Character Building by Booker T. Washington is excellent.
On what he called the Two Sides Of Life, “it is not wise to go too far in either direction. The person who schools himself to see the dark side is likely to make a mistake, and the person who schools himself to look only upon the bright side, forgetting all else, also is apt to make a mistake.”
In markets, we make lots of mistakes. The goal, across a Full Cycle Investor’s life, is to neither be dark, nor too bright. The goal isn’t to chase returns and/or have devastating drawdowns of your hard-earned capital. It’s to have balance, patience, and #process.
Back to the Global Macro Grind…
Do you have balance, patience, and #process?
Unfortunately, if you’re being honest with yourselves, some of you might have Two Answers In Life: your personal and/or “retail” investor life vs. your Institutional Investor life.
Personally, I’ve never liked the term “Retail Investor.” Why? It’s demeaning and often misrepresents what a sophisticated and self-directed individual investor does with their hard-earned capital as they’re making it.
That last part is key. Who’s a better steward of capital:
A) A person who built their own business who has earned excess hard-earned capital to invest
B) A person right out of school who has never put their own hard-earned capital at risk
C) A person with multiple cycles of Institutional Investing experience
I don’t know what the answer is. I can only tell you who I have become as a Full Cycle Investor. And I’d absolutely mercy crush my former self (a person right out of college who never had hard-earned capital to put at risk!).
How about the Institutional Investor who wouldn’t do with his/her hard-earned capital what they are forced to do with OPM (other people’s money) in VERY short-windows of performance-time? Oh boy. I could trigger a LOT of people with this. But I’ll try not to.
Instead, the easy point to make this morning is that the bad #behavior kind of “Retail” investor is converging with some Institutional ones who are forced to chase a narrowing group of US Equities with #BubbleCaps.
What’s a “bad” individual or Retail “investor”? A: they aren’t diversified Full Cycle Investors – they’re gamblers. And, on some days, a crowd of gamblers makes so much noise and flow that the Institutional Investor has to play The Game.
Yesterday was a glaringly obvious example of that. Fidelity’s “retail” investor data showed as much “flow” (notional and Call buying) in NVDA, AMZN, and APPL as there was in SPY, QQQ, and IWM, combined!
Why? A: Gamblers chase. And Institutional Investors have to keep up with the chase. Look at these Goldman Baskets:
- High Retail Sentiment basket was +5.4% on the day
- Liquid Most Short basket was +3.6% on the day
- Bitcoin Sensitive basket was +3.4% on the day
And that was with SPY dead flat at 0.00% on the day.
What is “High Retail Sentiment”? A: most widely held names by “retail” or individual investors. They are names that “everyone knows” and no one needs to analyze. Tell me a story about AI, and I need/want to believe you.
Then there’s the Institutional Investors who are called “CTAs.” Who are they? A: momentum chasers. I’m not saying they are “bad” people. I’m just telling you what they do. They chase charts that are going up (I.e. momentum as a Factor Exposure).
CTAs are currently MAX Long. And any Prime Brokerage data can tell you that the Gross Exposure of the Hedge Fund Universe is running at a 5-year high right now too.
What does that mean? When AAPL + MSFT = 15% of SPY, both “retail” and Institutional investors are converging in the same bubble.
I don’t know how this is going to end. But with the Titanic on #PeakTilt, if everyone is chasing the same things right now and it’s nothing but bright lights, rainbows, and “generative” AI puppy dogs… I’m thinking there will be some darkness to follow.
In other Full Cycle Investor news this morning, the former bright light that was supposed to be a “super-cycle” in Commodities has crashed to new #Quad4 Cycle Lows (in demand) with China, Europe, and the USA all #slowing at a faster pace in Q2.
From their Inflation Cycle peaks, CRB and Oil have crashed -23% and -44%, respectively. After being long Commodities for 2 years prior (i.e. in Quads 2 & 3), we remain short of them in #Quad4.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.83-4.00% (neutral)
UST 10yr Yield 3.47-3.82% (neutral)
UST 2yr Yield 4.01-4.61% (bullish)
High Yield (HYG) 73.31-74.67 (bearish)
SPX 4079-4231 (bearish)
NASDAQ 12,314-13,066 (bearish)
RUT 1 (bearish)
Shanghai Comp 3159-3273 (bearish)
Nikkei 30,392-31,501 (bullish)
VIX 16.47-20.59 (bullish)
USD 102.67-104.74 (bullish)
EUR/USD 1.066-1.087 (bearish)
Oil (WTI) 68.51-73.04 (bearish)
Oil (Brent) 72.12-77.18 (bearish)
Nat Gas 2.26-2.66 (bearish)
Gold 1 (bullish)
Copper 3.53-3.76 (bearish)
Silver 22.85-24.51 (bullish)
AAPL 171-178 (bullish)
AMZN 112-123 (bearish)
NVDA 335-417 (bullish)
Bitcoin 26,004-27,822 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
