“His principles win out over his opposition’s lack of principles.”
-Robert Coram
Want principles and #process? The late US military strategist and former US Air Force fighter pilot (the best of his generation), John Boyd, had both. He didn’t care what the establishment thought about his thoughts either.
The aforementioned quote comes from an awesome biography that a client sent me: Boyd – The Fighter Pilot Who Changed The Art of War. Like all revolutionary #processes, Boyd’s will live longer than he did. His legacy is now influential across the military, business, sports, etc.
“Boyd saw himself as a man of principle battling superiors devoid of principle; the idealist fighting those of higher rank who have shirked their responsibilities; the man who puts it all on the line and, after receiving threat of dire consequences, prevails.” (pg 32)
Back to the Global Macro Grind…
I spent the last 2 days seeing some of our Institutional Research clients in New York City. While I sincerely enjoy writing to you at the top of the risk management morning (and that’s all part of the preparation #process)…
What I really love about this game is the game within The Game, debating clients on data, probabilities, and potential economic and market outcomes. There’s no better way to learn The Game than playing it at the highest level.
Generally speaking, our meetings with Institutional Investors fit into 1 of these 3 style buckets:
- New client prospects who are trying to learn about what we do
- Existing clients who like to listen to an update of current views
- Power-user clients who like to debate what’s embedded in our views
Power-user meetings are the best because the client usually has their own models that spit out different probabilities and ideas. Since those clients are 100% up to speed on where we stand prior to the meeting, what they’re really trying to do in the meeting is figure out where we’re going to either stand next, or stand down!
New client prospect meetings are fun too, mainly because its humbling to have other intelligent human beings open their mind to a process that you created. The sharpest minds ask the most questions and it’s actually answering new client questions that’s helped me refine how I teach the #process over the course of the last 11 years.
The thing about the last 11 years of building Hedgeye is that we really didn’t refine and commercialize our macro #process until the last 3-4 years. While I’ve always been beholden to The ROC (rate of change analysis), it took many years and revolutions to get how we present the #process to where it is today.
There will always be more work to be done. Evolving the process is constant. I love that part of The Game too.
What were some of the most important debates with clients and/or behavioral consensuses?
- EARNINGS – there’s a wide range of opinions on “what’s been priced in” vs. what companies have guided to
- QUAD 3 – most people get it (because the market does) and want to dig deeper into #Quad3 outcomes from here
- INFLATION – most clients are debating how inflation accelerates from here and the Fed stays dovish
- GDP – some think its “Goldilocks” as long as “we don’t have a recession” (we’re not calling for a recession)
- POLICY – consensus doesn’t believe rate cuts are probable within 3-6 months, but agree probability is rising
- CHINA – consensus is generally long a Chinese #acceleration in Q2 (we have China in #Quad2 for Q2 too)
- EUROPE – most who used to tell us we were wrong on #EuropeSlowing now agree that Europe slowed!
- OIL – consensus is nowhere near as bullish (in terms of positioning) as we are on Oil and Energy Stocks
- GOLD – consensus finally agrees with us on Long Gold and Long Treasuries
- US DOLLAR – tough one to call a consensus here, but I don’t have problems arguing Down Dollar from here
I’m generalizing here and meetings obviously go in many different directions, but there’s also a general career risk management tilt to the line of questioning I get. The “YTD” performance clock is ticking and it’s existential as always.
On the behavioral reality that has people seeing through the glass-half-full lens (if only because keeping up with a 2019 YTD benchmark ramp return means you have to find things to buy right now), I remind everyone of the following:
A) Making The Cycle #slowing call is what got the market to ramp off this part of the cycle’s DEC 2018 lows
B) The Cycle bounce-back on a Triple Dovish Fed and things not being as “bad” as the initial selloff was is NOT new
C) USA: Unless it’s different this time vs. May of 2001 and May of 2008, now is a great time to go all-in Quad 3
If the client didn’t risk manage markets through The Cycle peaks of 1 and 2007-2008, meetings are more of a teach-in/reminder on the rhythms and rhymes of markets as they priced in those cyclical Phase Transitions.
If the client is my age or older and successfully risk managed both of those cycle peaks AND they recently nailed the Quad 4 in Q4 cycle turn of 2018, those meetings are the easiest. Those clients have zero career risk management to deal with.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.40-2.55% (bearish)
UST 2yr Yield 2.22-2.39% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7 (bullish)
Utilities (XLU) 57.29-58.50 (bullish)
REITS (VNQ) 86.05-88.20 (bullish)
Energy (XLE) 65.83-68.36 (bullish)
Financials (XLF) 25.07-27.00 (bearish)
Shanghai Comp 3088-3300 (bullish)
Nikkei 213 (neutral)
DAX 113 (bullish)
VIX 12.50-16.24 (bearish)
USD 95.70-97.23 (neutral)
EUR/USD 1.11-1.13 (bearish)
USD/YEN 110.50-112.06 (neutral)
GBP/USD 1.30-1.32 (bullish)
Oil (WTI) 60.63-65.24 (bullish)
Nat Gas 2.61-2.82 (bearish)
Gold 1 (bullish)
Copper 2.88-2.96 (neutral)
FB 162-181 (bullish)
NFLX 350-372 (neutral)
TSLA 252-293 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
