This note was originally published at 8am on October 12, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Investment success doesn’t come from buying good things, but rather from buying things well.”
In Chapter 4 of Howard Marks’ “The Most Important Thing” he discusses a very hot topic at our Yale campus headquarters these days – the relationship between price and value.
American shoppers tend to get this concept much more readily than some American Institutional Investors do. Why? Probably because Americans shop using their own money as opposed to other people’s money. A subtle difference that focuses the mind.
Rather than opining on why I’ve been bearish on the “buy stocks because they are cheap” thesis since the February-April 2011 highs, I’ll submit one more concise thought from Marks that summarizes the crux of the matter:
“An accurate opinion on valuation, loosely held, will be of limited help. An incorrect opinion on valuation, strongly held, is far worse.” (The Most Important Thing, page 23)
Back to the Global Macro Grind…
Today, I’ll probably “sound” as bearish as I sounded bullish covering shorts last Tuesday. Plenty of people can’t reconcile how someone can be that way. They didn’t teach us how to be Duration Agnostic on a Keynesian campus, thankfully.
Plenty of people like to label people in this business too. That’s usually easier than taking the time to understand what it is that they do. We get it. This is Old Wall Street, until it isn’t.
On Wall Street 2.0, there will be Time Stamps.
To review, Hedgeye has made 3 “Short Covering Opportunity” calls in the last 2.5 months:
- August 8th
- September 12th
- October 4th
These were accurate immediate-term TRADE opinions about the relationship between price and value. On October 3rd, the Hedgeye Asset Allocation Model held a 73% position in Cash. On October 11th (before yesterday’s open), my Cash position was 61%.
On Old Wall Street 1.0, there are no Time Stamps. That’s dying on Opacity’s Vine.
Fully Occupied Transparency comes next.
Why be bullish, on the margin, before an +8.7% short squeeze, and be bearish, on the margin, after it? Price/Value matters – and everything about managing risk in a Globally Interconnected Macro market happens on the margin.
I wrote about being multi-factor and multi-duration as a matter of process yesterday. Nothing has changed on that front today. Across my Top 6 Global Macro Factors (and across durations), here’s what I see this morning:
- SP500 = bullish TRADE (1167); bearish TREND (1228) and TAIL (1266)
- VIX = bearish TRADE; bullish TREND and TAIL
- German DAX = bullish TRADE; bearish TREND and TAIL
- EUR/USD = bullish TRADE; bearish TREND and TAIL
- Copper = bearish TRADE, TREND, and TAIL
- 30-year US Bond Yields = bearish TRADE, TREND, and TAIL
So if those who are paid to think in a marketing vacuum want to call me Rosie or Roubini, they can whisper amongst themselves and have at it. No Duration Differentiation. No Real-Time Risk Management.
If you are reading this today, you’re paying for my rants … and on behalf of my research team, I sincerely thank you for having an open mind. We couldn’t Occupy Hedgeye without you.
Having been bearish in 2011 doesn’t mean we can’t help you buy “good things” well. We bought Starbucks in April of 2009 when no one wanted to touch it – that’s an American brand that means something, and will continue to for a long time.
In the last few months we’ve also bought Utilities (XLU), Target (TGT), and Marriott (MAR) well. These are 3 of the 10 LONG positions we have in the Hedgeye Portfolio that do stand the chance of actually being held for the “long-term.” Good balance sheets, dividends, and, most importantly, bought at good prices.
We get Graham and Dodd. It’s not that complicated, really. Buy low. But we also get Buffett and Munger’s #1 rule of investing that supersedes all of the vaunted “value” investing rules – DON’T LOSE MONEY.
Oh, and their second rule of investing is don’t forget rule #1.
My immediate-term support and resistance ranges for Gold, Oil, German DAX, and the SP500 are now $1646-1684, $84.42-89.71, 5614-6069, and 1167-1212, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer