Our Process Is Different

“Because our process was so different… we felt it had real power.”

-Ed Catmull

 

As I grind through the end of it, Creativity Inc. is turning out to be one of the best business books I’ve read in a long time. Chapter 4, “Establishing Pixar’s Identity”, is all about process – “trust the process.”

 

For my team, that’s going to sound very familiar. As real-time market prices, volumes, and volatilities change, we feel that our process is better than our #OldWall competition’s, if only because we change.

 

Our Process Is Different - Busines


“What is the nature of honesty? If everyone agrees about its importance, why do we find it hard to be frank? How do we think about our own failures and fears? Is there a way to make our managers more comfortable with unexpected results?” (Catmull, pg 82)

 

Back to the Global Macro Grind

 

This is going to be one of the shortest Early Looks of the year because a European Central Planner can change my decision making process by doing something drastic to the Global Currency Market in the next few hours.

 

While I’d only have to work 6 hours a day if I had the inside information that Mario Draghi may have whispered to his favorite cronies, I still wouldn’t know how to position until I saw the reaction to this version of “whatever it takes.”

 

That’s the main point about my process. I react to what Mr. Macro Market tells me to do – I don’t tell him what to do. It’s taken me a long time to embrace the reality of not only information surprises, but how the market scores them.

 

Just to set the manic media’s volume on this ECB decision right:

 

  1. “Euro, stocks, hostage to ECB’s ability to surprise” –Reuters
  2. “Draghi’s rate tonic seen piquing taste for the stronger stuff” –Bloomberg
  3. “Live Blog: ECB’s Draghi poised to unveil stimulus” –CNBC

 

In other words, no one needs moarrr central-planning-cowbell moarrr than those trying to sell advertising. And everyone in the financial media is leading every lemming who will trade alongside the implied trend of the headline, until the market goes the other way.

 

That’s why contextualizing the #behavioral side of markets across multiple factors and durations is as critical as it has ever been. I’ve been doing this for almost 17 years now and I have never seen macro consensus positioning get run-over so consistently.

 

That’s not to say that Draghi can’t do something wacky this morning and burn the Euro through my $1.35 EUR/USD long-term TAIL risk line of support. It’s simply to remind you that everyone and their brother is worried that he will, at the same time.

 

“So”, deal with it. How do I deal?

 

  1. Have a process
  2. Have a plan
  3. Plan to change the plan, if the market tells you to do so

 

On the process, I’m constantly vetting, evolving, and hopefully improving ours by stress testing it with the best buy-side minds in the world. Yesterday I was in Boston. Coming out of every meeting I was told that our “macro calls” for 2014 have been different.

 

Being different can also mean being wrong. “So”, what’s the plan if I am wrong this morning and the EUR/USD doesn’t hold $1.35?

 

  1. If it snaps $1.35 in the moment, I won’t freak-out – I’ll wait and watch for confirmation
  2. A sustained breakdown in the Euro would probably mean a breakout in the US Dollar
  3. A breakout in the US Dollar would probably mean a breakdown in commodity #InflationAccelerating

 

In other words, the plan is that the plan could change. If I take myself out of the emotion of what will be this morning’s moment, there are other big time macro events that could then change the plan yet again:

 

  1. US Employment Report is on Friday
  2. US Federal Reserve June meeting (where I think Yellen will get incrementally dovish)
  3. Stanley Cup Finals

 

Yes, the process of printing moneys, destroying currencies, and compromising the trust of The People who have to eat the cost of living born out of that has real power too. Our job is to help you risk manage it.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.41-2.61%

SPX 1

RUT 1104-1151

USD 80.16-80.79

EUR/USD 1.35-1.37   

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

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