“All that matters is that lines obey the laws of lines.”

-Jordan Ellenberg

As opposed to macro tourist theories and “valuation” calls, we’re math and process guys. We measure and map the rates of change in growth and inflation – and we check ourselves with real-time, proprietary, quantitative market signals.

Inasmuch as I’ll always be bullish on stocks (bearish on bonds) when A) growth and inflation are accelerating and B) my market signals confirm that, geometry students will always subscribe to the principle of what is called the Fano Plane.

Fano was the 19th century mathematician who founded finite geometry. “For Fano, it doesn’t matter if a line “looks like”, a circle, a mallard duck, or anything else – all that matters is that the lines obey the laws of lines.” (How Not To Be Wrong, pg 268). Do you obey your process? Or do you get whipped around by other people’s opinions?

Laws of Lines - gino fano

Back to the Global Macro Grind

To be clear, “valuation” is an opinion. Rates of change are facts. After watching the Nasdaq close at an all-time high of 5483 yesterday, “valuation” bears may not like those growth and inflation accelerating facts, but they are still facts.

It’s also a fact that you didn’t have to pivot as fast as we did to have captured the 3% gain the Nasdaq. That’s all been realized in December. Unlike the 2nd week of November (for me), it’s been a great month.

What’s also been realized is the Nasdaq’s 30-day volatility of 12.8%. Since implied volatility (on the same duration) is 12.3%, that means the Nasdaq just saw implied volatility get smashed into a “discount” position of -4.5%.

As you can see in the Chart of The Day, these are the realized vs. implied” volatilities we’re looking at when we consider buying/selling opportunities. No, we don’t wait on someone else’s “exhaustion” signal – we do our own work:

  1. Unlike the Nasdaq’s implied volatility discount, SP500 front-month implied vol (30-day) trades at a big +26% implied volatility premium to trailing (30-day) realized vol of 7.6%
  2. Energy (XLE) has a -27% implied volatility discount; CORN has a -34% implied volatility discount (30-day)
  3. Whereas Wheat (WEAT) has an implied volatility premium > SPX, at +36% (30-day)

Wheat? Why wheat? “Wheat, lots of wheat. Fields of wheat. A tremendous amount of wheat.” –Woody Allen

That’s right. I care as much about what Woody was thinking in “Love and Death” (1975) as I do someone’s “valuation” view on a macro move. From a signaling perspective, all that really matters to me is:

  1. PRICE

And that, of course, is after my team and I have done all of the fundamental rate of change research.

I’m not saying this is easy. What’s easy is finding other people’s research to support your position. That’s called having a confirmation bias. And it’s not something that will make you a perennial all-star in this game.

‘But Gundlach disagrees, KM.’

That’s great. He’s a great macro investor. But Druckenmiller and Dalio are great too – and they agree with me right now.

Inasmuch as they don’t wake up in the morning caring about what I think, I respectfully don’t make my decisions based on what they think. If I did, I wouldn’t have built Hedgeye. No one should pay me for other people’s process and/or opinion.

There is no doubt that this is what makes the game The Game for me. My teammates and I have everything to lose (and believe me, people wake up hoping I get crushed, daily), but a lot to gain. That’s evolution’s reward.

Hedgeye’s founding principles are simple: Transparency, Accountability, and Trust. We have to earn those stripes every day. They will not be allocated to us. Much like “valuation”, many will have changing opinions on whether we’re earning them.

As for me personally, I realize that I have many years left to prove myself. But I signed up for that. The way I see it is that if you swim and quack like a duck (and tweet too!), they’ll eventually stop calling you a bull or a bear.

In the end, the goal is that they call what we’ve built a repeatable process that obeys the laws of the rate of change lines.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 2.36-2.66%



VIX 11.20-13.99
USD 101.05-104.01
Oil (WTI) 50.04-54.24

Best of luck out there today,


Laws of Lines - 12.21.16 EL Chart