Static Fear

This note was originally published at 8am on August 16, 2013 for Hedgeye subscribers.

“Fear is static that prevents me from hearing myself.”

-Samuel Butler

 

Scared yet? For parts of yesterday, I certainly was. I was buying into some really red stuff. And I felt alone. But I wasn’t.

 

It took me a lot longer (10-15 years) to not live in complete terror of my investment process than it did putting on a pair of skates. Imagine suiting up for every game in complete distrust of everything you have prepared for; imagine every time you were down by a few goals and were getting yelled at, you just left the game altogether (or Twitter)…

 

I am far too human to explain how and why I make all the mistakes that I make throughout my business building and market timing day. All I can tell you is that when I can’t hear myself – and I mean my process and my principles – I have no business leading anyone into making game time decisions.

 

Back to the Global Macro Grind

 

In yesterday’s Hedgeye Poll I asked whether the SP500’s correction from its all-time closing high (1709) would be:

 

A)     1%

B)      2%

C)      4%

 

I chose B. #Wrong again. (No one chose 4% this time, just fyi).

 

The correction is marked to market now at -2.8%. So now it’s probably time to freak right out.

 

Since the most differentiated call Hedgeye has had on the US side of growth in 2013 is employment #GrowthAccelerating, I also ended yesterday’s rant by emphasizing the importance of yesterday’s US weekly jobless claims report (pre-open).

 

If you would have personally handed me the report (that’s illegal) 3 hours before game time, I would have chose option A) and, having perfect “fundamental” economic data in hand, I would have been dead wrong on the market outcome.

 

In an intraday jobs note, our Senior USA Macro Analyst, Christian Drake, dissected the difference between NSA (yes, we are watching you) and SA:

 

1.    NSA:  Non-seasonally adjusted claims, our preferred read on the underlying labor market trend, made a new absolute low for the cycle at 280K -  marking its third consecutive sub-300K reading in a row and the lowest since September 2007.  On a YoY basis, initial claims accelerated to -11.7% from -9.9% the week prior with the 4-week rolling average improving 50bps to -8% from -7.5% the week prior.

 

2.    SA:  The seasonally adjusted, headline claims number printed its best number of the year, and best number since October 2007, at 320K.  This week’s data represents an accelerating YoY rate of improvement of  -12.8% YoY (vs -9% the week prior) with 4-wk rolling average down 4K WoW.   

In other words, the latest bear market crash call has now been edited to “the US employment data is too good.” Alrighty then.

 

Obviously, if you’ve had this right for the last 9 months, the legitimate “market top” call (that approximately 116 pundits have now tried to make on the US stock market YTD) was to call the all-time top in bonds in November of 2012.

 

Top calling is not a risk management process. Markets that eventually top:

  1. Start putting in a series of lower-all-time highs
  2. Then snap their immediate-term TRADE lines of support
  3. And finally crash through their long-term TAIL lines of support on accelerating volume

If you haven’t read that in a book – that’s because I made that up myself. Cool, eh!

 

What isn’t cool is trying to sell advertising or “thoughtfulness” based on one-way fear. With Twitter, this bearish style is basically the upside down version of what has becomes formally known as perma-bull. Zero Hedge minces no words on this. Sharp guy. Dead wrong on the market this year because perma-bear on US stocks doesn’t work any better than the bullish version does.

 

Perma-uncertainty? I’ll roll with that instead.

 

This way we can buy red and sell green; fade fear and book hope. It’s not for everyone. I know. But being everyone’s everything is no way to live anyway.

 

What to do from here? I’ve already made my move. I put up an intraday note titled “Buyem” yesterday at 1104AM EST. I think the actions (#timestamps) alongside the word were straightforward. The most important new Macro moves I made were:

  1. Buying the Nasdaq (QQQ)
  2. Buying British Equities (EWU)
  3. Shorting Fear (VXX)

For better or worse, I’m one of those players in this game who is maybe dense enough to just make calls. But, make no mistake, there is a tested and tried process behind every move I make. And I didn’t learn how to shoot on the #OldWall either – a long time ago, Gretzky taught me that you’ll miss 100% of the shots you don’t take.

 

Our immediate-term Risk Ranges (we have 12 big Macro ranges in our Daily Trading Range product too) are now:

 

UST 10yr 2.66-2.79%

SPX 1654-1691

FTSE 6467-6578

VIX 12.95-15.22

USD 80.89-82.06

Gold 1315-1368

 

Best of luck out there today and enjoy your weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Static Fear - COD

 

Static Fear - V. VP 816


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