“Life happens as much in the transitions as it does in the poses.”
-Arnold Schwarzenegger
That was an excellent one-liner about #process from Arnold’s #behavioral book: Be Useful.
It comes from a chapter he called “Have A Clear Vision” where he recounts when he and Franco Colombu were in a studio in New York City learning about movement from a ballet instructor. “We were trying to get better at posing.”
“It was the perfect metaphor. Life isn’t just about the high points or the big moments… it’s all one long performance. You can’t grow unless you watch yourself do the work. This doesn’t mean conforming to the world’s expectations.” (pg 37)
Back to the Global Macro Grind…
Preserving and protecting your pile isn’t about all the “great calls” you’ve had in your portfolio. By the time you’re on the wrong side of the grass, it will be in your accounts. “It’s all one long performance”, of your hard-earned capital.
The #1 thing that differentiates a Full Investing Cycle Portfolio from a pro-cyclical one is that it doesn’t crash and/or have major drawdowns from all-time bubble highs.
No. That doesn’t mean that when everyone else is chasing the same bubbles that you’re going to “look” or “feel” as smart as they do in those “victory” poses. But you need to be both aware of that and ok with it.
If you spend your life trying to be what consensus is chasing, you’re not going to build anything that’s unique.
What’s most interesting about #MOAB (The Mother of All Bubbles) is that it just keeps coming back.
That shouldn’t surprise anyone reading this. Every time my #VASP (Volatility Adjusted Signaling Process) goes Bullish TRADE and TREND on Tech (XLK) it bubbles right back up. It’s the most over-owned, pro-cyclical, Asset Allocation in human history.
Oh, you have friends who are long of it and think their position is unique today? Cool. But it’s not.
Here are some ALL-TIME (which is a very long time) facts to consider about current consensus positioning:
A) Hedge Fund Mega Cap Tech share of Total US Hedge Fund Single Stock Net Exposure % rank is at 99%
B) US Equity CALL OPTION Volume is also at an ALL-TIME HIGH
While I can waste your time recapping what most money managers already know about the record weights of these #BubbleCaps in the major US Equity Indexes, American 401ks, etc., just take another minute to think about points A and B…
To give you some context on both the short-term FOMO, chasing, and levering up on the Long Side (0DTE CALLS!) of the same bubbles, see today’s Chart of The Day from Tier 1 Alpha showing you where Call Options have been historically…
Additionally, realize that at the beginning of 2023, #BubbleCap Tech share of total US Hedge Fund Single Stock Net Exposure % rank was only 12%! (Source: Goldman Prime Brokerage Services)
Bobby Axelrod: “Guys, I know it’s been a tough year, but I have a plan.”
All the more impressive is that the average “Fundamental” Long/Short Hedge Fund is up less than 4% this year (you’re up +5% by owning T-Bills that have had no risk and/or volatility)…
And, now they’ve taken off their protection!
If you can’t (or don’t want to) believe that, that’s fine. But that doesn’t make it not true. As my good friend Mike Green just tweeted this morning (must follow @profplum99):
“Zero demand for tail puts… implied correlation at the 0.55%ile since 2006. Really incredible when considering how much more concentrated the index is vs 2006. But also hard to argue it's a catalyst unto itself.”
You can also see both the complacency and the capitulation in my daily IVOL Table that I review on The Macro Show:
A) Implied Volatility for #BubbleCap Tech (XLK) just collapsed to a -10% DISCOUNT vs. 30-day Realized Vol
B) GOOGL’s Implied Volatility just crashed to a -32% DISCOUNT vs. 30-day Realized Volatility
‘Oh, but KM… it’s different this time – these companies aren’t cyclical.’
LOL. I’m old enough to remember when AAPL guided Q4 to a recessionary ZERO growth rate. I’m also old enough to remember 1-month ago today when the same Hedge Funds were on their knees owning this same #BubbleCap exposure:
A) Tech (XLK) was in the midst of an -11% Drawdown from its July highs
B) Tech’s (XLK) Implied Volatility ripped to a +33% PREMIUM vs. 30-day Realized Volatility
Yes, risk happened slowly, then all at once…
THEN they bought protection at the OCT lows!
And now, we play The Game all over again. But this time, we’re actually heading into the real risk: a #Quad4 US Recession (that some of the largest Tech companies, like CSCO and AAPL, are ALREADY guiding towards)…
I’m not Short Tech (XLK) because I don’t short things that are signaling Bullish TRADE and TREND in my risk mgt #process, but I’ll be shorting it as soon as my immediate-term TRADE momentum signal breaks.
Imagine treating OPM (Other People’s Money) like a fiduciary and actually risk managing this epic bubble?
At a bare minimum, if you’re like all the Chart Monkeys on Twitter (i.e. you weren’t long Tech (XLK) from AUG-OCT, bought it all back on my Bullish TRADE Signal, and are long it here), why not book-SOME gains?
Like NOV of 2021, NOV 2023 may be a “pose” of short-term #MOAB performance that history never forgets.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.58-4.95% (bullish)
UST 10yr Yield 4.44-4.75% (bullish)
UST 2yr Yield 4.80-5.10% (bullish)
High Yield (HYG) 73.32-74.79 (bearish)
SPX 4 (bearish)
NASDAQ 13,266-14,175 (bullish)
RUT 1 (bearish)
Tech (XLK) 170-184 (bullish)
Energy (XLE) 81.39-86.35 (bearish)
Utilities (XLU) 59.37-62.90 (bullish)
Shanghai Comp 3005-3077 (bearish)
Nikkei 31,702-33,569 (bullish)
BSE Sensex (India) 63,876-65,999 (bullish)
DAX 14,903-15,843 (bearish)
VIX 13.80-18.55 (bullish)
USD 103.95-106.54 (bullish)
Oil (WTI) 74.09-81.39 (bearish)
Gold 1 (bullish)
Copper 3.57-3.83 (bearish)
MSFT 350-376 (bullish)
AAPL 177-191 (bullish)
AMZN 137-147 (bullish)
META 316-340 (bullish)
GOOGL 128-137 (bullish)
NFLX 425-465 (bullish)
TSLA 202-245 (bearish)
NVDA 450-504 (bullish)
Bitcoin 35,206-38,492 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
