“No matter what your chosen profession, be prepared for opportunity and be willing to take it.”
-Nick Saban
With a come from behind overtime win of 26-23 over Georgia, the Alabama Crimson Tide won their 5th NCAA Championship under Coach Nick Saban last night. If there ever was any doubt, that’s gone. Alabama’s football team is a modern day dynasty.
Imagine TIDE traded on the NYSE? Surely they’d be “overvalued”… unless you were long of them! That’s the thing about being long the ultimate success. There is a massive momentum premium associated with that. Only people betting against it lose, big.
Maybe that’s why Saban finally broke down (a little bit) emotionally last night: “It’s not just about winning a championship. I know that’s what you all write and talk about and all that. But there’s more to it than that.” Indeed there is, Coach Saban. Well said and well done.
Back to the Global Macro Grind…
Not everyone has, but for those of you who have ever been part of winning a championship, you know exactly what Saban meant by that. Especially at the highest level of your profession, winning championships has a lot to do with words like focus, process, and team.
We want to help you and/or your clients have championship seasons.
An alternative to not winning is whining about the reasons why other people and/or their teams are doing so. Again, if you’ve been there and crushed it before, there’s no whining in alpha generation.
If you are long of reflation and/or growth, your 2018 season is off to a great start. On the heels of another trifecta of all-time-closing highs for the Nasdaq (7157), SP500 (2747), and Russell 2000 (1561) yesterday, Energy (reflation) and Tech (growth) stocks led the way:
- Oil & Gas ETF (XOP) = +4.3% YTD
- Tech (XLK) = +4.1% YTD
Alongside Basic Materials (XLB) +4.0% and Consumer Discretionary (XLY) +3.3% YTD, respectively, these 4 US Sector Styles are generating alpha as they are beating the overall market’s (SP500) return of +2.8% YTD.
Especially if you had a championship season in 2017, I’m thinking that being up +4-6% in the first 2 weeks of 2018 might seem like a little too much too fast. But don’t forget returns don’t “seem” or “feel” like anything to Mr. Market. They are the score of The Game.
Being long “slow growth” US Equity Sector Styles like:
A) Utilities (XLU) down -1.7% YTD and/or
B) Consumer Staples (XLP) only +0.3% YTD
They are what they’ve been since both US Growth and Reflation Ramped in SEP 2017 = reflation and growth sensitive mistakes.
Ever make mistakes in this business? If no, you must be a few weeks on the job and long a lot of NFLX (+10.7% YTD) and FB (+6.7% YTD)! For those of you like me who will continue to make plenty of mistakes, here’s some great advice from Nick Saban:
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“If you know you will not be perfect, then those mistakes can roll off your shoulders as you move on to the next play. But if perfection is your ideal, those mistakes will cripple you with frustration. So be realistic, understand that you and others will make mistakes, and use those mistakes as building blocks for the future.” |
Putting that prose into market action, here are some things that come to mind:
- You’re not perfect, so don’t expect your macro positioning to be
- Play the game that is in front of you, not the one you were positioned for
- Don’t anchor your time and energy on mistakes – get rid of losers, ride winners
And, of course, learn from your mistakes. Making the same mistakes, over and over again, is what losers do.
Another way to think about winners and losers is how macro market positioning tends to chase price AFTER it moves. One way we focus on not being consensus is to measure and map consensus positioning via futures and options contracts.
As you can see in today’s Chart of the Day, looking at CFTC Net Futures & Options positioning, some of the most bearish consensus bets coming into 2018 have been:
- Japanese Stocks (Nikkei)
- Aussie Dollar
- Nasdaq
- Natural Gas
- 5yr Treasuries
Meanwhile, some of the most bullish consensus bets have been:
- Copper
- Crude Oil
- Heating Oil
- Ruble
- Euro
Just like a play or a formation in football, there isn’t “just one thing” about net positioning that solves for all of your pending top-down mistakes or successes. These are good, data-driven, focus points that create situational awareness.
It’s one thing to say that the ultimate success comes when preparation meets opportunity. Ultimately, though, it’s what your process prepares you for that determines success or failure. Put simply, it’s not what everyone else is looking at - it’s what your process sees.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.40-2.52% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7020-7196 (bullish)
Biotech (IBB) 106-111 (bullish)
XOP 36.36-39.38 (bullish)
Nikkei 23126-23965 (bullish)
VIX 8.73--10.44 (bearish)
EUR/USD 1.18-1.21 (bullish)
Oil (WTI) 59.03-62.61 (bullish)
Copper 3.18-3.33 (bullish)
AMZN 1178-1251 (bullish)
FB 180-191 (bullish)
NFLX 198-218 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
