“Many people fail to achieve originality because they generate a few ideas and then obsess about refining them to perfection.”
-Adam Grant
If you spend enough time meeting with investors in California, you’ll realize that there’s far too much whining in the North East. I’m in LA this morning after doing two full days of meetings in San Francisco. Some people are absolutely crushing it out here.
That’s right. If you want be in one of the most lucrative businesses in the world, it’s either crush or be crushed. There is no whining in 2 & 20. This year in particular has been one of the best years to make money on the long side of #GrowthSlowing, ever.
But, but, “rates are too low… and valuations are too high.” C’mon man. Think about why “expensive” (bonds, utilities, etc.) is getting more expensive and why “cheap” (bank stocks) is getting cheaper and you’ll not only take share from your competition, but keep your premium fees.
Back to the Global Macro Grind…
That’s right, we have plenty of clients who are up high-single digits and low double-digits for 2016 YTD. If they’re long duration, Gold, and Low-Beta vs. short Japan/Europe/US Banks, I’m surprised more macro and/or generalist PMs aren’t up > 15%.
The problem here isn’t “low interest rates.” To a degree it’s been groupthink and herding into hedgie hotels (stocks everyone owns). But, especially where you’ve seen firms shutting down, it’s either the firm didn’t do macro at all, or macro did them.
I think this provides for a fantastic opportunity for both “active” long-only managers and alternative asset managers alike. What more can the said gods of financial market analysis want than taking the other side of an over-supplied consensus?
How do you generate ideas?
Do you have a top-down (macro) funnel that is designed to help you fish where the fish are (as opposed to where consensus has been fishing)? How broad based is your investment mandate? Funneling for ideas is easier when you have more places to fish!
As Adam Grant reminds us in a great chapter of Originals titled “Blind Inventors and One-Eyed Investors”, “Edison’s 1,093 patents notwithstanding, the number of truly superlative creative achievements can probably be counted on one hand.” (pg 37)
That’s the point about funneling, rinsing, and repeating in a high octane Bayesian investment process. I always have a lot of ideas – but when I find a big one that consensus loathes and/or doesn’t yet comprehend, I try to ride that sucker like Secretariat.
‘Yeah, I hear you KM, but in a profession where your competition is getting less confident, what up with playing confidently?’
It’s probably just me, because at the end of the day I’m not as book-smart as many players in this game, but I am constantly looking for ways to win. That starts with getting rid of losers. Losing sucks and, for me at least, confidence matters.
Am I confident that Janet Yellen will double-down on “dovish” during her House Financial Services Committee testimony today?
- No, but that’s the point
- If she talks hawkish (after acting dovish), I buy more bonds (at 1.65% or higher on the 10yr)
- Because I sold some bonds as they were melting back up to the top-end of my risk range
Data? Why am I confident that it will be more #GrowthSlowing data?
- Because Durable Goods are going to be reported this morning and they’re in a #recession
- US GDP is going to be reported tomorrow and it’s closer to 1% y/y than it’s been all year
- Personal Income and Consumption is set to slow (rate of change) on Friday
Now if you’re not confident in the trending data call and just reacting to every data point, you’re going to have a tough time buying what have become “expensive” exposures associated with the big #GrowthSlowing idea. You’ll be constantly whipped around by Fed rhetoric and rate moves, over-trading, and not maintaining the right core portfolio style factors.
So I have an even bigger idea for the hedgies who are whining but not paying for and/or reading this rant. Stop trying to refine your “valuation” models to perfection and consider the main macro reason why that strategy isn’t working.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.54-1.65%
SPX 2125-2179
VIX 12.01-18.31
USD 94.80-96.30
Oil (WTI) 42.76-46.50
Gold 1
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
