Cut Your Way In

“We cut our way in and we can cut our way out.”

-Ulysses S. Grant

If you have friends who’ve missed the last 4-5 months of this epic ramp in US #GrowthAccelerating, make sure they realize they can A) change their mind as the trending data has and B) cut their way into this ramp. They just have to buy the damn dips.

Differences of macro opinions go way back (well before the Civil War!). One super-high-conviction-best-idea that both Lincoln and The Union Army had was that “we must have the Mississippi.” Simple strategy, but what did that mean?

“Grant understood that whoever controlled the Mississippi would control the emerging heartland of America. It’s not easy for readers of the 21^st century to realize the importance of rivers for Americans in the 19^th century. Rivers became their interstate highways.” (American Ulysses, pg 162)

Back to the Global Macro Grind…

Buying SPY and shorting TLT (in the p.a.) yesterday was a simple strategy too:

A) If I’m still bullish on US #GrowthAccelerating, I buy US Equity Beta (SPY) and short Long-term Treasuries (TLT)

B) If I’m not, I cut my way out of that and do the opposite

No, 1 monthly data point of “credit growth slowing” off its highest growth rate of the cycle does not a change in an intermediate-term TREND view @Hedgeye make. All that does is give the bears a data point they’ve been begging for, for 4 months.

What’s interesting about data mining, anchoring, etc. is how wound up some super-short-term hedgies get on some of this stuff. Can you blame them? It’s all about how smart you are this week vs. the next 30-days (or less); price momo rules their day.

To each their own. When I think about what it is that I do, think, and put my name on (in terms of macro market positioning), no offense, but I couldn’t care less if your duration is 4 hours, 4 months, or 4 years. I’m going to do what I do.

Trending rate of change data can change my mind and positioning, not inbound email emotion.

“Whether navigating the Hudson River in New York, piloting the Mississippi River, or traveling the Missouri River to discover the West, explorers, pioneers, and settlers used rivers to reach their destinations.” (American Ulysses, pg 162)

And, like navigating those rivers, I think the most successful pioneers in modern day macro do a combination of fundamental research and price/volume/volatility signaling (across multiple factors and multiple durations), to achieve the almighty alpha.

They don’t fish for other people’s opinions that confirms their positioning and beliefs.

It wouldn’t be so fun to poke at the Old Wall’s ways if it wasn’t so profitable. I’ve never seen so many short-term moves be faded by so few. There are legions of Macro Tourists out there who routinely chase macro moves high and sell them low.

One great place to observe the teeming crowds of Macro Tourism in their natural habitat is in CFTC Futures & Options positioning. Right before this week’s big macro reversals, what did these day-trippers do?

1. They bought US stocks at last week’s highs (net LONG SPY position ramped to +145k contracts)
2. They shorted Gold at the March lows (net LONG position dropped by -44k contracts)
3. They shorted British Pounds at the March lows (net short position ramped to a new high of -106k contracts)

Some out-of-towners wonder why the “average return of a Global Macro Hedge fund is flat to negative for 2017 YTD” or really just not that good and/or consistent if you go back to 2007’s economic cycle peak…

Too many leaf-peepers.

The way to cut your way into the alpha generating side of this Global Macro business is to build a repeatable process that is not only data driven, but uses modern-day mathematical tools to figure out where consensus is.

One you-gely obvious consensus concern for the last 4-5 months of this equity ramp has been Trump. But guess what, that consensus anxiety was already embedded (priced in) in at-the-money Implied Volatility Premiums:

1. SP500’s 30-day implied volatility premium = +26% this morning
2. Nasdaq’s 30-day implied volatility premium = +31% this morning
3. Tech’s (XLK) 30-day implied volatility premium = +44% this morning

So that’s one of the reasons why I’ll be shifting my focus back to buying Best Tech Ideas this morning (last 2 days I have been focused on signaling buy again in The Financials (XLF) and the SP500 (SPY), mainly because the corrections in both were deeper).

But, to be crystal clear on this, that’s only one of the many reasons non-sightseers of the macro gridiron make decisions. The multi-factor, multi-duration process has never been so critical to understand and valuable to uphold.

It helps us fade consensus, cutting our way in and out of positions.

Our immediate-term Global Macro Risk Ranges (intermediate-term TREND views in brackets – you can get all 22 of these, including the 6 stocks, daily, in my Daily Trading Range + TREND signaling product) are now:

UST 10yr Yield 2.38-2.65% (bullish)

SPX 2 (bullish)
RUT 1 (bullish)

NASDAQ 5 (bullish)

XOP 35.03-37.03 (bearish)

RMZ 1105-1146 (bearish)

Nikkei 19045-19747 (bullish)

DAX 112 (bullish)

VIX 10.66-12.95 (bearish)
USD 99.10-101.75 (bullish)
EUR/USD 1.05-1.08 (bearish)
YEN 110.57-115.51 (bearish)
Oil (WTI) 47.26-49.61 (bearish)

Nat Gas 2.84-3.16 (bearish)

Gold 1189-1258 (bearish)
Copper 2.56-2.69 (bullish)

AAPL 138.06-142.21 (bullish)

AMZN 840-861 (bullish)

FB 138-141 (bullish)

GOOGL 846-876 (bullish)

BAC 22.76-25.40 (bullish)

TWX 96.02-99.11 (bullish)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer