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“This American world was not made for me.”

-Alexander Hamilton

I’ve been hearing a lot of whining lately. That tends to happen when people aren’t winning. It’s not the attitude that I put up with as a coach. But, especially in non-contact activities, it’s a consensus attitude that winners should capitalize on.

For Big Government, Big Bailout, central-market-planning apologists, Alexander Hamilton has made quite the come-back on the American pop-culture scene. He’s currently crushing it on Broadway. People in Washington must love the guy too.

That doesn’t surprise me. More and more people in America think that more government is the answer to #GrowthSlowing again.

The aforementioned ‘give up because it’s not going your way’ quote comes from a book I finished reading on my vacation called Revolutionary Characters. The author, Gordon Wood, questions whether Wall Street leans Hamiltonian or Jeffersonian:

“Most present-day Republicans, for all their enthusiasm for Hamilton’s vision of a powerful military machine, do not want a Leviathan state that manages the economy and taxes people. So for the foreseeable future Hamilton seems to have few friends among those who would use The Founders to further their political causes.” (pg 123)

Play The Game You're In - alexander hamilton

Back to the Global Macro Grind

As opposed to whining about what many on Wall Street continue to beg for (Fed Intervention, Dollar Devaluation, Debt Monetization, Levered Buybacks, etc.), I say we just deal with it and play the game we’re in. There’s a lot of money to be made.

After being devalued by a “dovish Fed” to 16 month lows last week, the US Dollar spent the last few days wreaking havoc on whoever chased the highs of the “reflation” trade in April.

The way we played this in Real-Time Alerts was as follows:

  1. Friday – SELL signals in Oil and Copper
  2. Monday – BUY signal in US Dollar (cover Oil)
  3. Tuesday – COVER signal in Copper
  4. Wednesday – SELL signal in USD, COVER signal in SPY; Buy Signal in Energy (XLE)

Oh you little day-trader, you. Not really. I’m just signaling how I’m reading and reacting to the game in real-time. In late April and early May, I’m seeing the game as well as I did in late December, early January (after not seeing the game very well at all in March).

But it’s really NOT ok to speak openly about making good shots and bad shots, is it? This isn’t a game where everyone is striving for excellence like say, professional golf, where players can bluntly tell you they’re playing great or terrible, is it?

Since our performance as a profession has become so bad, we’ve almost reduced ourselves to a level of mediocrity that can only be considered a massive market and mind share opportunity. I say whoever stops whining and starts winning is going to crush it.

Back to why I made the decisions I made yesterday:

  1. US DOLLAR – could easily get smoked back to YTD lows on a bad jobs report tomorrow
  2. SPY (SP500) – tapped the low-end of my immediate-term risk range yesterday (top-end of the range = 2079)
  3. Energy (XLE) – like SPY, signaled immediate-term TRADE oversold yesterday and is a Down Dollar call too

Q: “Where could you be wrong Keith?”

A: On all of it

If I didn’t think I was going to be right, why would I waste my time A) signaling what I did and B) reiterating it this morning? I spent some time on The Macro Show yesterday discussing how I think about probability-weighting my decisions:

  1. If I think the probability of something happening is 33% or less, I do nothing
  2. If I think the probability of something happening is 66% or higher, I usually do something

In the Superforecasting book I’ve been citing as of late, Phil Tetlock makes the case that human beings naturally have 3 options: Yes, No, or Maybe. Since I don’t do maybe, I like to boil it down to Yes or No.

In other words, when I make a decision I have a confidence interval that is A) better than a coin toss and B) better than most people’s batting averages in the league. That doesn’t mean I’m going to be right. It simply sets a standard to be right.

A better question you can ask me on where I “could be wrong” is: since you have at least a 66% chance implied in hitting the button on that call, what are the Top 3 things that wouldn’t give you 99% conviction?

That way I can separate the risks to the position I take into a more tangible set of “thirds thinking” of the Top 3 ways I could be wrong. For example, if the Top 3 ways I can be wrong are highly unlikely, I’ll have Madoff type conviction = 99%

If you want these percentages to be 100% accurate, you’re missing my point entirely. This game is non-linear, so there is no super-secret calculation for conviction. However, there is a consistent #process here to calibrate my conviction.

In both tone and #timestamps, I’d be hard pressed to find my greatest loather in life who wouldn’t acknowledge that our highest conviction Global Macro idea for the last 6 months has been #GrowthSlowing.

While some sequential head-fake data points in the last 3 months have been “bullish”, most of them have mean reverted back to intermediate-term TREND bearish. Of the Top 3 things where I could be wrong from here, #EmploymentSlowing is one of them.

In other words, if NFP (non-farm payrolls) ramps to a rate-of-change acceleration ABOVE last year’s peak growth rate (+2.3% year-over-year NFP growth), my conviction on US #GrowthSlowing could fall below 66%, but would have to TREND that way.

There’s a difference. That’s why the data matters inasmuch as every decision you make during every market day does. You have to play the game you’re in, not the one you are positioned for.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.73-1.86%

SPX 2040-2079


VIX 14.60-17.81
USD 92.01-94.38
Oil (WTI) 42.34-46.63

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Play The Game You're In - 05.05.16 EL Chart