The Secret

This note was originally published at 8am on December 09, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The secret is to work less as individuals and more as a team. As a Coach, I play not my eleven best, but my best eleven.”

-Knute Rockne

 

Born in Voss, Norway, Knute Rockne was an American immigrant who coached college football in this country when the US Government didn’t have a perma-central plan for losers on the fields of finance to win.

 

Between 1918-1930, Rockne’s Notre Dame football teams amassed an amazing win/loss record of 105-12. He was not a qualitative analyst of the game. He was a chemist who learned how to change the game.

 

Re-think, Re-work, and Re-build – whether it was Rockne’s introduction of the forward pass, or Hedgeye’s vision of real-time risk management – this is the America that most of us love and believe in.

 

It was a great year…

 

I can say that tonight at the 4thannual Hedgeye Holiday Party. I can say that because we hired, net, more Americans than Bank of America, Citigroup, and Morgan Stanley, combined. I can say that because my team did so profitably (paid up +24% year-over-year). I can say that because we are building something, as a team, that no one can centrally plan away from us.

 

The Secret to our success is very simple. Whether you like our hockey learnings in life or not, my defense partner, Daryl Jones, summarized it best at our Company Meeting this week in New Haven:  

 

“It’s the name on the front of the jersey that matters more than the name on the back.”

 

That’s what USA Olympic Hockey Coach, Herb Brooks, famously said. It’s different than what Knute Rockne or Vince Lombardi said about winning – but it’s really all the same thing. It’s The Secret of American success.

 

Back to the Global Macro Grind

 

Yesterday’s intraday spanking of the S&P Futures came right on time with our catalyst – a failed European Summit. Failure, of course, being measured versus the market’s consensus expectations. With the SP500 dropping 34 handles from its Tuesday and Wednesday intraday highs, a -2.6% draw-down left a mark on Santa’s sleigh.

 

But where is old Saint Nick? We’ve done battle in the corners with any bull that wanted a piece of us in November. We’ve banged the boards for the home team on the “sell-high” side for the first 10 days of December. With the US and Global Equity markets down for both November and December, we’re calling this a win.

 

That’s just measuring success, of course, on our most immediate-term duration – at Hedgeye we call it the TRADE. And while many “long-term investors” don’t TRADE (or manage risk – same thing) like we do, we get that and also have a risk management framework that incorporates longer-term investor durations:

  1. Immediate-term TRADEs = 3 weeks or less
  2. Intermediate-term TRENDs = 3 months or more
  3. Long-term TAILs = 3 years or less 

Like Rockne’s vision of the forward pass, our vision of risk management has more to do with Embracing Uncertainty across durations than it does locking ourselves into a certainty of style. Our style isn’t to be bullish. It’s definitely not to be bearish either. It’s simply to be right – and being Duration Agnostic helps accomplish that.

 

In US Equities, across durations, what’s the score?

  1. TRADE = The SP500 is down -1% for December, 2011
  2. TREND = The SP500 is down -9.5% from its YTD high (April 2011)
  3. TAIL = The SP500 is down -21.2% (still in crash mode) from its October 2007 high

Since we’re one of the only teams that writes what we think to you in real-time that nailed both Global Growth Slowing calls of 2008 and 2011, we can celebrate our process tonight for what it’s accomplished – helping become a part of your risk management process.

 

That’s The Secret. We can collaborate and partner with our clients in a way that Marcus Goldman could. We can learn much more from your teams, collectively, than you can learn from ours – and we like that. It’s ok to learn. It’s ok to say I don’t know. It’s ok to say hey, we’re winning out there, together, and we’re proud of it.

 

I personally want to thank my teammates and all of you. As a Canadian immigrant to America, it’s both a pleasure and a privilege to wear this Made in the USA jersey every day.

 

My immediate-term support and resistance ranges for Gold (bearish TRADE and TREND), Brent Oil (bearish TAIL and TRADE), Gemany’s DAX and the SP500 are now  $1699-1743, $107.11-110.31, 5776-5986, and 1231-1251, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Secret - Chart of the Day

 

The Secret - Virtual Portfolio


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