“Go to a blackjack table. Keep a tally. Start with zero.”
-Nassim Taleb
I figured that if you’re one of the people running other people’s money (and/or your own) and you’re rolling the bones on this Trump/Xi meeting on Friday, I should get you some serious advice from a successful gambler.
In the aforementioned quote, Taleb is summarizing one of the simplest strategies of one of the most successful people to beat both dealers and markets – A Man For All Markets, Edward Thorp.
“Add one for some strong cards, minus ones for weak ones, and nothing for others... bet larger when the number is high, smaller when it is low…” (pg xiii).
Back to the Global Macro Grind…
If you didn’t know that I’m big on #process, now you know. While I’m constantly asking myself how we can evolve and improve our process, the one thing I’ll never change is the bean counting part. I’ve been writing down market numbers for 20 years now.
I started writing down numbers as an intern at a trading firm in the summer of 1998. By 1999 I was a newbie analyst with no net worth and a notebook. Now I’m worth more than zero, and my notebooks are worth a lot more than that.
What do I write down?
A) Market prices
B) Their respective @Hedgeye Risk Ranges within my @Hedgeye TREND signals
C) Their correlations to other market prices, style, and factor exposures
D) TRENDs and Themes that are making money
E) TRENDs and Themes that are losing money
Everything I write down is now highly augmented by my teammates, my measuring and mapping tools, and our team’s machines. It wasn’t always that way. That’s the evolution part. The deliberate study part will never change.
What do you or other people I compete with do?
A) I generally don’t know
B) I care to know if you’ve proven to have a repeatable process that beats markets
C) If you do things better than I do, I have no problem incorporating those best practices
What I don’t do?
A) Get market “advice” or “calls” from unaccountable pundits on TV
B) Chase markets from manic media headline to headline
C) Whine and complain that the market has it wrong (implying I’m right)
God willing, if I wake up with two feet on the floor every morning, I have a new opportunity to write something new down every day. Every data point is as new as every market signal. Every day I have an opportunity to improve my positioning.
Let’s do some repeatable process with a buy/sell question:
Do I buy either the Chinese Stock market or NASDAQ ahead of the Trump/Xi meeting? What’s in my notebook?
- Shanghai Composite was up for the 1st day in the last 4 overnight but remains Bearish @Hedgeye TREND
- NASDAQ was flat yesterday after drawing-down another -4.3% last week and remains Bearish @Hedgeye TREND
- Shanghai Composite closed at 2601 (down -26.9% since JAN) with an immediate-term @Hedgeye Risk Range of 2
- NASDAQ closed at 7082 (down -12.7% since AUG) with an immediate-term @Hedgeye Risk Range of 6
- China remains in Quad 4 (since JAN) where selling all bounces at the top-end of the range continues to make money
- USA remains in Quad 4 (since OCT ) where selling all bounces at the top-end of the range continues to make money
Then I bring in the big macro fundamental analysis and ask the following questions:
A) Are the base effects for the US and Chinese economies steepening or easing in Q4 and then in Q1?
B) Is the most recent series of economic data points accelerating or decelerating into those base effects?
Then I write to you about what all of this is going to lead me to do (and, if its compliant, I’ll execute some of the same positions across my personal accounts).
RULES: Add to long positions confirmed by both research process and market signals. Add to short positions confirmed by both research process and market signals. And do nothing for others.
Bet larger when at the low-end of the risk range with longs. Bet larger when at the top-end of the risk range with shorts. And, if I get to be the dealer, hope for ignorant Macro Tourists (playing with other people’s $) to come to the blackjack table doubling down on 6s.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 3.01-3.13% (bearish)
SPX 2 (bearish)
NASDAQ 6 (bearish)
Shanghai Comp 2 (bearish)
VIX 17.38-23.89 (bullish)
USD 96.01-97.66 (bullish)
Oil (WTI) 49.27-55.28 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
