“It’s one thing to ask, another to answer.”
-Jordan Ellenberg
With the US 10yr at 2.28%, I was under the gun trying to answer Institutional Investor questions in the Midwest yesterday. Under pressure is usually right where I want to be. It forces me to try to rank order known-unknowns into rising or falling probabilities.
Jordan Ellenberg resonated with me in How Not To Be Wrong when he discussed probabilities in a chapter titled “Dead Fish Don’t Read Minds”: “… first we need to talk about improbability… probability is different… we certainly have built-in intuitions for thinking about uncertain things, but it’s much harder to articulate.” (pg 111)
Just because I’m forced to try doesn’t mean I’ll get to the right answer. But hearing everyone else’s questions (and implied answers) certainly helps my process more than it hurts it. Reality is that if you’re in my old seat, running money, even if you don’t have high probability answers right now, you might have to put your actions on the tape.
Back to the Global Macro Grind…
That’s right. There are thousands and thousands of Portfolio Managers, Asset Allocators, Wholesalers, Day Traders, etc. all putting what they think are the new answers to the generating alpha question on the tape (in the market), all at the same time.
Was everyone right coming into and out of the Trump Flow trade? Who made the right short-term pivots out of Staples, Real Estate, and Tech… and into the Financials? Did they go big enough? Who sold Gold, Bonds, EM, etc. and levered up long USD and the Russell 2000?
Oh, all over the course of 3-4 trading days, btw…
Today is Day 5. So ask me about Trump’s Flow again. I don’t mind. I’ll be in the gun, under center, LIVE on The Macro Show this morning at 9AM EST @HedgeyeTV taking a full Q&A. Then I’ll be hosting out Macrocosm 2016 conference in #NYC tomorrow!
Tomorrow’s Hedgeye Macro conference is especially well-timed (that’s about the only thing I’ve nailed lately, and it was pure #timing luck) as I won’t have to go it alone anymore. David Einhorn, Gary Shilling, Neil Howe, General Dan Christman and more will be in the house.
Shilling should be especially interesting as he’s the longest of long-term Long Bond Bulls. While I highly doubt 3-4 days of Trump’s epic flow will shake his position, you never know. I can tell you right now that I’m not buying bonds and/or Gold on today’s bounce.
Why?
- Chasing the 1st day of a bounce rarely pays when whatever that is has recently broken @Hedgeye TREND support
- Intermediate-term TREND for the 10yr UST Bond Yield = 2.04%
- Intermediate-term TREND for Gold = $1260/oz
“How could you be wrong NOT buying more bonds or Gold here, Keith?”
- Yes, I am going crazy talking to myself this morning – crazy people can always be wrong
- Long-term TAIL duration resistance for the 10yr UST Bond Yield = 2.31%
- Long-term TAIL support for Gold = $1206/oz
Not that I deserve any mental support, but it’s not like I just started buying long-term bonds and Gold from these levels. We’ve made people plenty of money during the #GrowthSlowing cycle of the US equity and bond market and had people book plenty of gains there this summer.
‘But what have you done for me lately – what do I do now – my boss and/or investors wants me to do something now.’
Sometimes there’s plenty of time to do nothing. Sometimes, if you do a lot of something fast… you can nail a top or a bottom. This isn’t easy (especially if you miss those). That’s why I always look to the market’s volatility signal (embedded in the price noise) for help post big moves:
- US Equity (SP500) 10-day realized volatility is 14 vs. 90-day = 10
- Long Bond (TLT) 10-day realized volatility is 24 vs. 90-day = 13
- Gold’s 10-day realized volatility is 19 vs. 90-day = 13
In other words, short-term volatility, across asset classes, is rising, not falling. Not that anyone is “overweight Energy” but Oil’s Volatility (OVX) just ramped right back up to 50! Evidently Trump’s Flow doesn’t like Energy Bulls inasmuch as it’s not friending the FANG.
Another thing I pay very close attention to (I write them down, daily, in my notebook) is the probable range, or what we call the Macro Risk Ranges of the big stuff. You can find some of those at the end of this note, every day.
We also have a Top 20 Risk Range product that has nothing but the math that is very popular with people who like my process but not my prose. That product isn’t just signaling bearish @Hedgeye TREND on Gold today – AAPL, AMZN, FB, and GOOGL are all bearish TREND too.
What does it all mean? Is Trump’s Flow epic for everyone who is bullish on everything, all of the time (including volatility)? Or is it bearish for Energy, REITS, and Big Cap Tech? The short answer is I don’t know. There will be long hours left trying to pin down the highest probabilities.
Our immediate-term Global Macro Risk Ranges with intermediate-term TREND signals (in brackets) are now:
UST 10yr Yield 1.65-2.31% (neutral)
SPX 2069-2190 (bullish)
RUT 1115-1316 (bullish)
NASDAQ 5021-5305 (neutral)
XOP 34.09-37.84 (neutral)
RMZ 1061-1120 (bearish)
Nikkei 167 (bullish)
DAX 103 (neutral)
VIX 12.37-23.89 (bullish)
USD 97.75-100.30 (bullish)
EUR/USD 1.07-1.09 (bearish)
YEN 104.52-108.96 (bearish)
Oil (WTI) 43.01-45.99 (bearish)
Nat Gas 2.51-2.95 (bearish)
Gold 1 (neutral)
Copper 2.15-2.55 (bullish)
AAPL 104.90-111.56 (bearish)
AMZN 711-760 (bearish)
FB 114-122 (bearish)
GE 27.80-31.13 (bearish)
SBUX 51.67-55.30 (bearish)
GOOGL 749-788 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
