This note was originally published
at 8am on January 09, 2015 for Hedgeye subscribers.
“If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience and ability.”
For those of you that are currently employed on the buy-side, replace “money” with “performance” and “independence” with “job security” and re-read that quote.
Thought-provoking, isn’t it?
I borrowed that quote from the late Henry Ford to help make the following point: the buy-side and, to a large extent, the sell-side (via commission dollars) can be an ultra-competitive environment.
Specifically, it can be argued that no other industry has such an overt focus on consistently producing favorable outcomes as the financial services industry – well, maybe with the exception of NFL head coaching. Moreover, we can all agree that consistent production is integral to remaining gainfully employed in such a competitive industry.
That’s certainly not to say anyone who’s ever been let go was incapable of producing; in fact, I’ve seen some really sharp, incredibly outgoing people let go, and if you’ve been in the industry long enough, you have as well. The good news is that the good ones always land on their feet.
Back to the Global Macro Grind…
Keeping with the theme of consistent production, has your favorite macro strategist(s) consistently produced for you over time?
While I have no frame of reference on how to answer that question, the following chart can be used as a rough proxy to reasonably conclude that there is a possibility you have been overpaying for macro research and should strongly consider narrowing your list of service providers to those that consistently add value:
Contrast that performance data that with the following sampling of key research calls our macro team has made since inception:
- July ’08: moving to 85% cash in our model asset allocation (CLICK HERE to review)
- March ’09: bullish on the S&P 500 (CLICK HERE and HERE to review)
- May ’10: bearish on Eurozone periphery sovereign debt (CLICK HERE to review)
- June ’11: bullish on long-term Treasury bonds (CLICK HERE to review)
- November ’12: bearish the Japanese yen/bullish on the Nikkei (CLICK HERE to review)
- December ’12: bearish on Gold (CLICK HERE to review)
- January ’13: bullish on the S&P 500 (CLICK HERE and HERE to review)
- April ’13: bearish on Emerging Market assets (CLICK HERE and to review)
- May ’13: bearish on U.S. Treasury bonds (CLICK HERE and HERE to review)
- February ’14: bullish on U.S. Treasury bonds (CLICK HERE to review)
- August ’14: bullish on the U.S. dollar and defensive large-cap U.S. equities/bearish on commodities and commodity-linked assets (CLICK HERE to review)
That’s certainly not to say that our performance would have been any good (or bad) if we were running a fund instead of our mouths over the past five-plus years!
In fact, we tip our hats to anyone who’s performed even modestly well throughout this era of centrally-planned markets. Moreover, we would tend to agree with the general assertion that the post-crisis era has provided investors with a difficult macro environment to consistently produce positive absolute returns and/or generate alpha in.
Rather, we highlight these calls to showcase that no matter the setting – i.e. buy or sell side – we’d employ the same top-down quantitative + bottom-up fundamental framework that led us to each of the aforementioned research conclusions.
If Henry Ford were alive today, he’d likely agree with our paraphrasing of his “knowledge, experience and ability” clause as the most important possession anyone in our industry can have – i.e. a #RepeatableProcess.
Will we always be on the right side of such integral macro market moves? Absolutely not! Just as in years past, there will be plenty of things that we completely miss or are flat-out wrong on.
The only thing we can promise you is that our six-person macro team will work tirelessly on your behalf. And in terms of manpower, analytical depth and #RepeatableProcess, we’ve come a very long way over the years; for example, please note the following juxtaposition:
To the extent you have not yet reviewed our 1Q15 Macro Themes, which we introduced yesterday afternoon, we encourage you to do so. As always the presentation is jam-packed with cutting edge data analysis and thoughtful, well-researched assertions.
The thematic investment conclusions of that presentation are as follows:
- LONG U.S. Treasury Bonds (TLT)
- LONG U.S. Dollar (UUP)
- LONG large-cap Consumer Staples (XLP)
- LONG large-cap Health Care (XLV)
- LONG Homebuilders (ITB)
- SHORT TIPS (TIP)
- SHORT Japanese yen (FXY)
- SHORT Emerging Markets (EEM)
- SHORT High-Yield Credit (JNK)
- SHORT large-cap Industrials (XLI)
Email us if you’d like to discuss these views further. As always, we encourage thoughtful pushback and appreciate a healthy debate. That’s what makes a market.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.89-2.11% (bearish = bullish Long Bond)
SPX 1995-2090 (bullish)
EUR/USD 1.17-1.19 (bearish)
YEN 118.10-121.01 (bearish)
WTI Oil 46.43-51.86 (bearish)
Gold 1175-1225 (bearish)
Keep your head on a swivel,
Associate: Macro Team