“I came out mature.”
-Nelson Mandela
That’s what Mandela said after his autobiographer, Richard Stengel, asked him how prison changed him. “How was the man who came out in 1990 different from the man who entered in 1962?”
“Emotional? Passionate? Sensitive? Quickly Stung? The Nelson Mandela who emerged from prison is none of those things… time and again the words I heard him use to praise others were balanced, measured, and controlled.” (Mandela’s Way, pg 15)
When it comes to running your (or other people’s) money, how would you describe yourself? I know how I used to be. And it was me, but it was not good. Playing this game with the emotion I had on the ice didn’t work. Becoming measured did.
Back to the Global Macro Grind…
It’s been 8 years since I left my own emotional prison. Being that young gun at a major hedge fund who was supposed to make money every day was no life to live. The short-term performance expectation wasn’t realistic; the stress impossible to sustain.
Not losing money, over time (and compounding returns along the way). For me, that’s achievable. It’ll take every lick of what I have in me to get it done, but until I retire I know I can do that provided that I’m balanced and controlled at major pivot points.
Pivot points (i.e. when I start being wrong, losing, etc.) are what have made my career modestly successful. As my friend, behavioral economist, and psychologist, Dr. Richard Peterson wrote last night in his MarketPsych letter:
“In his “Belief in Fallibility" George Soros (1995) explains that to others being wrong is a source of shame. But for him, recognizing his mistakes is a source of pride. Soros explains that realizing that imperfect understanding is the human condition leads to no shame in being wrong, only in failing to correct our mistakes. It requires remarkable courage to consider one's imperfections and mistakes impartially. And evidence suggests that the ability to reappraise one's circumstances is an important tool for reducing common financial biases.”
Don’t get me wrong. Losing sucks. And I hate losing more than I like winning. The only thing worse than being emotional about a losing position, is riding that loss all the way down to the lows, then capitulating.
Been there, done that.
It’s a lot easier to change your position and start winning again. You should feel no “shame” in doing so. You shouldn’t make apologies for it either. If mature market people want to understand why, you should be able to explain it to them, measurably.
Can I explain this epic breakout in #StrongDollar? That’s easy:
- US #GrowthSlowing data stops slowing at an accelerating rate (Q3 2016)
- Business & Consumer Confidence #GrowthAccelerating becomes obvious (Q4 2016)
- Macro Market Returns reflect a Quad2 environment
To review, Quad2 is when both US growth and inflation are accelerating. And they’re accelerating, in rate of change terms, at the same time. That “news”, whether marked to market or in the reported data itself, is most obviously 6 weeks old.
I get it. Six weeks does not an intermediate-term TREND make – 3 months or more does. What’s interesting about this market move is that again, in rate of change terms, things started getting less bad (less of a slow-down, etc.) in August.
Since the August data wasn’t reported until September/October, that explains partly why being long “US domestic growth” and/or value really didn’t pay off like it has here in November-December.
While most major Global Macro pivots (from bearish to bullish on growth for example) rarely get “priced-in” this fast, the #TrumpTrade did. And when rarely happens for real, you better react, the fastest.
What if all this November-December data and market signaling slows after Trump’s coronation in January? Well, for one, you won’t get the data part until at least February. The accelerating December data gets reported in January, don’t forget.
And what if you don’t get a slowing of the acceleration whatsoever?
Looking at current consensus macro positioning (CFTC futures & options data), I’d bet that the current net SHORT position of -127,358 contracts in the SP500 Index burns off. And the bull will mature, no matter how many people missed making the pivot.
Our immediate-term Global Macro Risk Ranges (with TREND Research Views in brackets) are now:
UST 10yr Yield 2.34-2.66% (bullish)
SPX 2218-2275 (bullish)
RUT 1330-1393 (bullish)
NASDAQ 5360-5480 (bullish)
XOP 41.06-43.98 (bullish)
RMZ 1110-1161 (bearish)
Nikkei 18995-19693 (bullish)
DAX 10999-11521 (bullish)
VIX 11.30-14.12 (neutral)
USD 100.80-103.85 (bullish)
EUR/USD 1.03-1.05 (bearish)
YEN 113.21-119.20 (bearish)
Oil (WTI) 49.80-54.16 (bullish)
Nat Gas 3.29-3.76 (bullish)
Gold 1123-1157 (bearish)
Copper 2.48-2.69 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
