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“The team with the fewest crutches will win.”
-Ken Dryden 

Belichick, Saban – how about Bowman? If I’m going to give print space to some of the greatest football coaches in US history, I’ve got to give some Hedgeye Knucks to one of the greatest hockey coaches of all-time, Scotty Bowman!

Bowman holds the NHL record for wins (1,244 in the regular season + 223 in the playoffs) and has his name on 14 Stanley Cups (ranking 2nd to Jean Beliveau’s 17). If he was a Wall Street coach, you’d say the man’s teams generated some serious and consistent alpha!

How’d he do it? According to his Hall of Fame goalie (Dryden), “he knew each of us too well. He left us no place to hide. He knew each of us came with a stable of excuses, ‘crutches’, he called them” (The Game, pg 49). Those who use those the least win more.

Got Crutches? - kendryden 

Back to the Global Macro Grind…

I’ve recently re-engaged in my old job of player-coach, building and running a premium Institutional Research product called Hedgeye’s Top 10 Ideas. They can be longs. They can be shorts. The goal is the same in every product/service we create: to help you generate alpha.

If generating alpha was easy, everyone would be generating it. “Active” wouldn’t be losing so much share to “passive.” And there would certainly be a lot less whining out there in this profession. Everyone is happier when they are winning.

Will our Macro Themes and Top 10 Ideas help you generate alpha this year? We get an update on that answer each and every market day. There is a score. We all know it well. There is no place to hide.

While those are intermediate-term products, another product I’ve built and evolved to help you generate shorter-term alpha is called Real-Time Alerts. They are short-term macro market signals expressed in the form of either stocks or macro ETFs.

Fortunately, I came into yesterday’s down US stock market open with 0 LONGS and 4 SHORTS. Since it was literally the only DOWN day of 2018, I covered 2 SHORTS for gains and added 2 LONGS. I did all of that on red.

Buy on red. Sell on green. I must be a bloody genius.

Obviously not. But, instead of chasing moving monkey charts (buying high, selling lower, etc.) and the latest Macro Tourism click-bait, my immediate-term risk management #process is designed to be buying the damn dips (red) and selling the rips (green).

My most consistent mistake is buying or selling too early.

Since I accept that I will be making many mistakes, I’m still trying to learn how to mitigate mistakes by cutting losers sooner and riding winners longer. As a younger analyst, my biggest crutch was booking gains in winners too early on “valuation.”

Now that I’m almost 20 years into trading both the long and dark side of markets, I’m plenty aware of all the mistakes you can make. I know every excuse an analyst can try to make to his or her PM. And, every day, I try to coach my analysts to be better than I ever was.

#Process In Motion: what did I cover on the short side yesterday?

  1. Domino’s Pizza (DPZ) on a -4% drop
  2. HanesBrands (HBI) on a -2% drop

I didn’t “cover” those shorts because my analysts told me to. I did it because my quantitative signaling #process suggested I do. After I “covered” the shorts, I went into our 11AM Research Team meeting and my analysts reiterated their Bearish @Hedgeye TREND views.

*Email if you want to see a compendium of Howard Penney and Brian McGough’s work on those names.

Especially on the short side in a raging bull market, you have to be better than bad at market timing. “You can’t time markets” is simply an excuse that people who aren’t good at it make. God Bless them and their whining. We need them on the other side of the trade.

On the long side, yesterday I added:

  1. Teledoc (TDOC) on a -5% drop
  2. Municipal Bonds (MUB) on a -0.25% drop

Oh, I know. Buying Munis (MUB) is juicy, isn’t it? For my own money it actually is. While I am not allowed to (my own rules, intact since founding Hedgeye) buy or sell stocks that we have in-house views on, I am allowed to make macro asset allocation decisions in my p.a.

P.A. stands for personal account. That’s where I make all of these wild and crazy decisions to buy and sell bonds and/or their ETF representatives. And I use the force (the @Hedgeye Risk Range #process) to time those too.

Fortuitously, thanks to the growth and inflation (GIP Model) research #process, I came into 2018 under-weight (in my 401k that is called completely out of) Long-term Treasuries (TLT) and long High Yield (JNK) .

Using both the risk ranges of bond yields and of the underlying bond ETFs themselves as my guide:

  1. Last week I signaled #overbought in High Yield (JNK)
  2. This week I signaled #oversold in Munis (MUB)

So I sold some High Yield higher and bought back some exposure to Munis lower and the #process worked. No, it doesn’t work all of the time. But when it works, I know why it works. I know why when it doesn’t work too – I don’t make excuses.

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

UST 10yr Yield 2.44-2.57% (bullish)
SPX 2 (bullish)
NASDAQ 7065-7249 (bullish)
Biotech (IBB) 107-112 (bullish)
Nikkei 230 (bullish)
VIX 8.65-10.94 (bearish)
USD 91.30-92.75 (bearish)
EUR/USD 1.18-1.21 (bullish)
Oil (WTI) 59.63-63.95 (bullish)
Gold 1 (bullish) 

Best of luck out there today,

Keith R. McCullough
Chief Executive Officer

Got Crutches? - 01.11.18 EL Chart