“If there is one simple trick that will make better eating easy, it is fixing the neuro-regulation of appetite.”
-Robb Wolfe
You’ll be shocked to hear that I’m into a book about eating that focusses on a multi-factor #process of healthy living instead of a fad or one-factor diet. The book is called Wired To Eat by Robb Wolf.
“The challenge is that our food , sleep, activity, gut microbiome, stress levels, and emotional connection to food all affect the neuro-regulation of appetite in potentially unfavorable ways.” (pg 22)
Sound familiar? Obviously yes if you work in this profession. We’re on the road seeing Institutional Investors in Texas this week. We had a big steak dinner in Houston last night and I can assure you there’s no simple trick to reducing that calorie intake!
Back to the Global Macro Grind…
Like calories which, according to Wolf “count, but not all foods produce the same hormonal and metabolic effects”, what @Hedgeye “Quad” an economy is in and/or phase transitioning into can be measured and mapped in rate of change tems.
As we outline on slide 6 of our current Macro Themes deck, this measuring and mapping macro trick is best done by “Sequencing Time Series, Not CNBC Headlines.” Don’t allow your stress levels and/or emotional connections to politics get in the way of that.
This is, of course, a dynamic process whereby the data can and will surprise you to both the upside and the downside. But, since it’s Bayesian, it allows you the mental flexibility to be dispassionate about the data and apolitical all at the same time.
So… that’s why we’ve been meeting with so many “new” prospective Institutional Investor clients this year…
Not surprisingly, serious people in this profession are looking to evolve their investment and risk management #process, with new tools and technologies that they never had access to before.
Yes, getting big things right like China, Europe, and EM #Slowing has helped move us along but we’re sincerely humbled by CIO’s, PM’s, etc. having such an open-mind to learning how we do macro vs. what they’re used to seeing from establishment econs.
Our job is to help you simplify the complex. There’s a lot of work and computing capacity that goes into trivializing the world’s economies into a 4 Quadrant “map”, if you will. But once you have that macro map, there are some really simple macro tricks:
- Don’t be long duration (long-term bonds) in Quad 2
- Don’t be long “risk” in Quad 4
Since the USA has been in Quad 2 for 8 of the last 9 quarters (USA was in Quad 1 in Q217), that’s why the long-end of the Treasury curve has gone from its all-time low in 2016 to something just north of 3%.
The upside down of that A/B macro trick is:
- In Quad 2 don’t be short Momentum, High Beta, and Growth
- In Quad 4 don’t forget to short Momentum, High Beta, and Growth
I know. I know. It’s so hard to wait and watch on epic US Growth exposures like FAANG, Biotech, Consumer Discretionary. But don’t be mad about it bro. Use the map.
I also know that the hardest economic and portfolio outcome for you to believe right now is that the USA is going to be in Quad 4 in Q4. But that’s cool with us. As Darius Dale said in to me walking down the street in Dallas, Texas yesterday,
“People won’t believe that quadrant until it hits them in the P and L.” #Truth
In sharp contrast to the Macro Tourist consensus opinion of a “globally synchronized recovery” at the start of 2018, the economic truth is that the following countries moved into Quad 4 in Q1 of 2018:
- Brazil
- Germany
- Indonesia
- Italy
- Mexico
- South Africa
- Spain
- Turkey
- United Kingdom
That’s just looking at the Top 20 countries of the world by GDP. So that means that 45% of the world’s Top 20 were contributing to A) a non-globally-synchronized recovery (we called it #GlobalDivergences) and B) some nasty equity market underperformance.
Some other Quad 4 risk management tricks to be fundamentally aware of:
- China entered Quad 4 in Q2 of 2018
- Canada, France, Japan, and the USA are about to enter Quad 4 in Q4 of 2018
Is that why 3 of the 5 FAAANG components (FB, GOOGL, and NFLX) of broken bad to Bearish @Hedgeye TREND? Is that why our friend Elon @Tesla is starting to struggle with stress levels and an emotional connection to Hedgeye research?
All I know is that if, God forbid, our map for Q4 is as right as it has been for the last few years, we’re going to have to start watching what we buy, sell, eat, smoke, and drink as the world enters a globally synchronized slow-down.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.87-3.07% (neutral)
SPX 2 (bullish)
NASDAQ 7 (bullish)
VIX 11.60-15.30 (bullish)
USD 94.15-95.64 (bullish)
EUR/USD 1.15-1.17 (bearish)
Copper 2.59-2.74 (bearish)
AAPL 215.22-227.40 (bullish)
AMZN 1 (bullish)
FB 157-167 (bearish)
GOOGL 1149-1199 (bearish)
NFLX 333-377 (bearish)
TSLA 260-301 (bearish)
Bitcoin 6106-6625 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
