“For every subtle and complicated question, there is a perfectly simple and straightforward answer, which is wrong.”
-H.L. Mencken
That’s the opening quote to chapter 2 of Debt, The First 5,000 Years, by David Graeber. It’s a must-read for those of you who want to know more and more about economic and market history. Never stop learning.
Answering every subtle and complicated question in Global Macro requires, at a bare minimum, historical context. If you don’t have the time-series of historical data as a known known, how on earth are going to know what you want to know?
The paradox of our profession is that everyone is school-smart but not everyone is street-smart. That fact puts a premium on factors like work ethic, mental flexibility, and risk management process. Every day I have to get better at all of those things.
Back to the Global Macro Grind…
After doing a day in NYC, we followed that up with a day of Institutional Investor meetings in Connecticut yesterday. Yep, every meeting was with hedge fund people. And yes, every meeting was thought provoking and filled with lively debate.
I grew up in this business as a “hedge fund guy” in CT. I’m not ashamed of that. I’m actually quite thankful for it. My first boss, Jon Dawson, didn’t have to give me a shot as young analyst. He didn’t have to teach me everything he did either.
Thankfully, almost 20 years later, I’m still learning. This may not surprise you, but I learn the most by reading and writing. Forcing myself to be transparent and accountable to you all every day was the best thing I ever did for my learning curve.
I also learn a ton by trying to answer your subtle and complicated questions…
Since I obviously don’t know all the answers, I spend most of my time working alongside my teammates to answer questions with time-series, back-tests, and all of the data that is embedded in both.
The best way to learn about what matters before the Street does is by having smart people ask the smartest questions.
On Trump and #TradeWar, every question we get isn’t new. The notion that every answer to global macroeconomic and market risk is #TradeWar isn’t smart either. It’s just plain dumb.
Not to be confused with hockey player dumb (as in me and my buddies after having a few beers), Wall Street dumb is simply being that guy or gal that the street smart people are making money off of.
While it wouldn’t be nice to reveal his name publicly, we had a guy at one hedge fund I worked at that was so street dumb that my boss kept him employed just to do the opposite of what he was thinking. He saw that much value in observing consensus.
Moving along… here are 5 of the many questions Darius and I were trying to answer in client meetings yesterday:
- Is 3M (MMM) crashing (-20.2% since JAN) because of the #TradeWar or The Cycle? (btw, look at what that stock has done since every Industrial CFO told everyone that everything is awesome at “conferences” in January)
- Do consensus Macro Tourists understand that the #1 reason for #ChinaSlowing are the base effects of their epic stimulus compares from 2016-2017? (see Chart of The Day – one of the most important time-series in macro)
- Is EM (Emerging Markets) an easier SELL call today than it was when we first started making the call at the peak of the “globally synchronized recovery” in JAN? (implied vol has dropped to +4% vs. 30-day realized on the EEM this am)
- Is the SP500 done making higher-all-time-highs now that the @Hedgeye Risk Range is implying a lower-high vs. the one made at 2914 in late AUG? (30-day implied vol premiums in both SPY and Tech (XLK) are back up to +33% and +80%, respectively this am, so maybe not just yet!)
- If the USA is about to enter Quad 4 in Q4 (like China, EM, and Europe already have), why isn’t the stinky stuff of 10yrs ago about to start hitting the fan across High Beta US Growth exposures? (that’s a doozy)
Of course the answer to that last question is one that many a super school smart PM has wanted to become famous on answering correctly since 2008.
Meanwhile the street smart investors have correctly waited and watched. In the USA only at this point of The Cycle, the rate of change data has supported doing so.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.83-2.99% (neutral)
SPX 2 (bullish)
NASDAQ 7 (bullish)
VIX 12.07-15.18 (bullish)
USD 94.33-95.72 (bullish)
EUR/USD 1.15-1.17 (bearish)
Oil (WTI) 66.81-71.06 (neutral)
Gold 1194-1215 (bearish)
Copper 2.56-2.72 (bearish)
Corn 3.51-3.67 (bearish)
AAPL 215.99-230.38 (bullish)
AMZN 1 (bullish)
FB 155-174 (bearish)
GOOGL 1144-1214 (bearish)
TSLA 260-305 (bearish)
Bitcoin 5 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
