Losing vs. Failing

“The greatest glory in living lies not in never failing, but in rising every time we fall.”

-Oliver Goldsmith

That quote is the opening volley in a book that I just cracked open titled Win At Losing, by Sam Weinman. One of his main points is that losing is a fact of life whereas failing to learn from losses will probably make for more consistent losers.

If we can take a loss and learn from it, that’s a big win.

I was coaching two of my kids up in my homeland (Toronto) this weekend. When you’re playing against some of the best kids in the world, you’re probably going to have some losses. But failing to learn from those losses is not what we chose to do.

Back to the Global Macro Grind…

One sure fire way to have a lot of losses in 2017 has been shorting Tech stocks on “valuation.” While the SP500 finally corrected from its all-time closing high of 2399 earlier in the week, the S&P Tech ETF, closed at another all-time high on Friday.

Here’s how the winners and losers looked in US Equities from a week-over-week perspective:

1. Tech (XLK) +1.1% to +14.9% YTD
2. Nasdaq +0.3% to +13.7% YTD
3. SP500 -0.3% to +6.8% YTD
4. Energy (XLE) +0.7% to -10.1% YTD
5. Basic Materials (XLB) -1.6%  to +5.9% YTD

Another way to slice and dice winners and losers is from a US Equity Style Factor standpoint:

1. Top 25% EPS Growth was up +0.1% last week to +7.0% YTD (+11.7% in the last 6 months)
2. Bottom 25% EPS Growth was down -1.5% last week to +1.8% YTD (+3.9% in the last 6 months)

*Mean performance of Top Quartile vs. Bottom Quartile, SP500 Companies

So, if you’ve learned not to short on “valuation” when real growth is accelerating, you’re winning right now.

Another asset allocation that has been winning in 2017 is long European Equities. Last week’s performance was softer there than being long something USA, USA #Quad1! (current Hedgeye Macro Theme) though:

1. EuroStoxx600 was +0.3% to +9.5% YTD
2. France (CAC40) corrected -0.5% to +11.2% YTD
3. Spain (IBEX) was -2.1% to +16.5% YTD

So, from here, what would you rather be long – French Stocks or US Tech?

To each their own. With the cover of Barron’s saying “BUY EUROPE” in all caps, that is what it is after the move. I’d rather short the Eurozone’s currency right now. It’s officially the most consensus net LONG position in all of macro!

That’s right. After the news (Macron’s win), here’s how non-commercial CFTC futures & options positioning looks in FX:

1. EURO = +32k net longer last week registering a 1-year z-score of +2.4x!
2. USD = -4k less longer (net) last week registering a meh 1-year score of +0.1x
3. GBP = +35k net longer last week registering a bullish 1-year z-score of +1.1x

For those of you who are new to learning about our rate-of-change process, we measure and map the rates of change in all big macro net long and short positions relative to themselves using z-scores, across durations.

When something is scoring a plus or minus +/- 2.0x on a 1-year z-score AFTER the price has ripped or collapsed, it’s usually a good time to start doing the opposite.

Getting long British Pounds at $1.21 when they had a -2.0x net short position was a great example of the crowd dog-piling onto a move right before it went the other way.

And that’s really another thing about winning and losing. Momentum swings really matter inasmuch as capitulation (on the downside) and euphoria (on the upside) does.

That’s true in markets, sports, and life in general.

Our immediate-term Global Macro Risk Ranges (intermediate-term TREND views in brackets) are now:

UST 10yr Yield 2.27-2.45% (bullish)

SPX 2 (bullish)

NASDAQ 6060-6142 (bullish)

VIX 9.66-10.99 (bearish)
USD 98.25-100.05 (bullish)
EUR/USD 1.07-1.10 (bearish)

GBP/USD 1.28-1.30 (bullish)
Oil (WTI) 45.09-49.95 (bearish)

Gold 1 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer