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“Trends. Trends are what you’re looking for.”

-David Harding

With some CTAs and Quants having a good run here to kick off 2016, last night I reviewed an excellent interview Lasse Heje Pedersen did with long-time British math/science/markets man, David Harding, who runs Winton Capital Management in London. Since I love studying other people’s #process, I was particularly interested in how Harding came up with his:

“I was looking at long strings of numbers going up and down and drawing charts. I was trained as a scientist, and I had learned a lot in my physics degree about methods of analyzing data… and I couldn’t help but wonder if this could be applied to these time series. I spent two years in the mid-80s drawing charts by hand every day which is a very laborious process. That certainly gave me a lot of time to look at time series. When you press a button on your computer and a chart appears, you don’t interact with the data in a very detailed way. Whereas if you draw these graphs day by day by hand, you reflect on the empirical nature of the data more deeply.” -Efficiently Inefficient (pg 226)


Writing it down – day by day, by hand. Now that is my type of #process! I’m hardly David Harding, but this is precisely what I believe to be one of my advantages vs. our competition in the Macro-Strategist space. I have written down every relevant number, every market day, of my professional life. I know the time series of market prices, deeply. But I believe that only gets me prepared for game time. How I play the game from there is entirely more challenging.

Back to the Global Macro Grind

The most causal intermediate-to-long-term TREND (not to be confused with 3-6 week bounces in US equity centric charts) in all of Global Macro has been #GrowthSlowing from its 1H 2015 peak.

Drawing Trends - Growth cartoon 06.03.2015 large  1

If you have friends in our profession who don’t quite get this yet, give them 3 pieces of paper and have them draw what Long-term US Treasury (and Global Sovereign) Bond Yields have done on a 6, 12, and 18 month duration, then connect the dots.

My dots, not to be confused with the erroneous Fed forecast “dots” of what didn’t happen, are the dots you can draw on a time-series of data that identifies lower-highs and lower-lows. Those are called Bearish TRENDs @Hedgeye.

*A Bullish TREND @Hedgeye = upside down of that = Higher-lows, Higher-highs (across intermediate-term to long-term durations)

While it may be more challenging for your friends to see this in the mother of all navel-gazing “charts” (Dow Bro), the Bearish TREND in a wider sample size of stocks (Russell 3000) is obvious. That peaked when the US GDP & Profit Cycle did in Q2 2015.

Not to be confused with the obvious, the Bearish @Hedgeye TREND in the following major Global Equity Indexes is VERY obvious:

  1. Japanese Stocks (Nikkei down another -0.7% overnight and -19.7% since July 2015)
  2. German Stocks (DAX down another -0.6% this morning and -19.4% since April 2015)
  3. Italian and Spanish Stocks (MIB and IBEX both down -24-25% since their 2015 #bubble highs)

Bubbles? Yes. We were the only firm to identify many market things in 2015 as bubbles (see hashtag #Bubbles @Hedgeye Global Macro Themes call from Q4 2014 for timestamps) after being one of the most vocal US #GrowthAccelerating bulls in 2013.

What former bullish TREND bubbles have imploded?

  1. Commodities
  2. Emerging Markets
  3. China
  4. IPOs
  5. MLPs
  6. Junk Bonds
  7. Ackman
  8. Etc.

Oh, right. If you go back to the middle of February 2016 (I know, it was so long ago and shouldn’t be considered a bearish TREND anymore, Ex-Energy, right?), the weekly closing low for the Russell 2000 was 971.

Q: What was its % crash/decline from its all-time #bubble high of July 2015?

A: -25%

Right in line with where Europe’s ugliest country indexes are right now – isn’t that ironic? Not at all. Since the rate of change in US #GrowthSlowing should mostly affect the securities (debt or equity) most levered to a US (not Chinese or Russian) domestic slow-down, the Russell has drastically underperformed her International Sister, the SP500.

To be fair to the CTAs and Quants who don’t really do fundamental research and focus mostly on shorter-term price-momentum, it’s a lot easier to chase charts higher (or press them lower) after they’ve started moving than it is to call tops and bottoms.

As long-time readers of my rants know, tops and bottoms are processes, not points. And I humbly submit you need both a long-cycle fundamentals research AND a quantitative signaling process (multi-duration) to consistently identify them.

Just to give you my freshest idea on that front – how about shorting the Nasdaq (QQQ)?

Since I missed making the short call on the QQQ in July of 2015 (I said short SP500 and Russell instead), and the Nasdaq is -6.7% from that #Bubble peak, I missed the 1st part of the move. But I don’t want to miss the next one.

I shorted it in Real-Time Alerts yesterday and here’s why:

  1. We have the most bearish forecast on Wall Street for US Growth for Q2
  2. I want to be short High-Beta, High-Multiple, Over-Owned Growth in Q2
  3. My immediate-term TRADE signal said short some within its developing bearish @Hedgeye TREND

While your friends are doodling on long-term time-series, ask them if someone were to be right on US #GrowthSlowing at an accelerating rate in Q2, if they’d want to be buying QQQs at their 1st trending series of lower-highs since 2008?

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.79-1.90%

RUT 1068-1118


Nikkei 161

DAX 99

VIX 13.02-19.92
Oil (WTI) 36.70-40.22

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Drawing Trends - 03.31.16 chart