Editor's note: This is an excerpt from Hedgeye CEO Keith McCullough's "Morning Newsletter" from yesterday morning. If you would like more information on how to subscribe click here.
Buying-the-damn-bubble #BTDB may not be chicken soup for your soul, but it has certainly paid the bills in 2013. From a behavioral market practitioner’s perspective, I have developed an affinity for doing precisely the opposite of how I think this ultimately ends. Weird, but it works.
To review, the multi-disciplinary triad of our Global Macro Research Process, there are 3 big parts:
- History
- Math
- Behavioral Psych
History provides us context (economic/market patterns, mean reversion risk, etc.); math (fractal dimensions and risk ranges) signals timing; and behavioral, well, that’s a learning process.
How else would you define what it is that you do? Other than Embracing Uncertainty and constantly re-evaluating your position relative to the information surprise (price, volume, volatility) of the day, is there an alternative to mental flexibility? There isn’t for me. I’m not smarter than the market. And it took me a good long while to accept that.
In terms of our current strategy, quite simply put in our Q413 Macro Theme of #GetActive, it’s to do just that. Unaccountable and un-elected @FederalReserve policy making means we need to engage in unconventional market strategies.
In practice, in our Hedgeye Asset Allocation Model, what does that mean?
- At the US stock market highs we moved to 58% Cash (last Friday)
- After a 4-day US stock market correction we moved back to 42% Cash
Don’t lose the message of mental flexibility in the absolute numbers. If you want to be in 90% cash or 10% cash makes no difference to the point I am trying to make. It’s how you move on the margin that counts. I call it Fading Beta.
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