Air-To-Mud Macro

“Nellis was Valhalla-in-the-desert.”
-Robert Coram 

Nellis is a major US Air Force base in Southern Nevada. “By 1954, Nellis was the busiest Air Force base in the world. The nearby town of Las Vegas had begun the decade with a population of about 25,000.” 

As Robert Coram goes on to explain (in one of the best #process/strategy books I’ve read in a while that has nothing to do with markets) in Boyd – The Fighter Pilot Who Changed The Art of War: 

“In 1954, the Air Force was 7 years old, and like most seven-year-olds, it was rambunctious, determined to be heard, and always demanding new toys” (pg 58). We’re 11 years old @Hedgeye and we love new macro toys too!

Back to the Global Macro Grind… 

I love learning from military history/strategy books. It’s one of the professional fields where #process is constantly being evaluated. Performance matters. So does failing fast and learning from mistakes. 

During the 1950s, “fighter pilots spent most of their time training for the air-to-ground (pilots called it “air-to-mud”) mission. Over and over they practiced…” (pg 59) 

This is not dissimilar with where my analysts spend most of their time. Hedgeye Jedis Dale & Drake are constantly feeding me top-down data points that either support or refute our current Global Macro positioning. 

I’m spending most of my time trying to knock out targets with buy/sell signals on the ground. Timing matters too. 

At our most basic level of daily responsibilities, here’s how my two most senior analysts and I work together: 

1. DD: Darius Dale manages all of our GIP (Growth, Inflation, Policy) Models, Back-testing, etc.
2. CD: Christian Drake manages all of high frequency US Economic & Market Data
3. KM: I manage our TRADE/TREND/TAIL models and rant about what DD ad CD remind me 

Here’s that #process in motion this morning: 

1. DD sends KM note saying CHINA’s PMI print for APR #slowed to 50.1 after #accelerating to 50.5 in MAR
2. KM says, oh that’s why Chinese Stocks (Shanghai Comp) dropping -6% in the 6 days prior to the release
3. CD says cool, I don’t do China, but here’s the latest now-cast for Q1 Earnings Season: 

A) 245 of the SP500’s companies have reported Aggregate y/y EPS growth of +1.92%
B) That 1.92% growth rate is “better than expected” but still #slowing big time from the +24.5% #PeakCycle ROC
C) 50 of 67 Financials have reported Aggregate y/y EPS growth of +1.77% 

Then KM says (talking to myself every day from 4-7AM, not a great social life): 

1. Ok, makes as much sense as everything does looking in my rear-view mirror
2. It’s month-end markup time (end of April) and SPY just tagged back to back all-time closing highs
3. Earnings have been better than expected, so far (but toughest comps are Q2 and Q3, not Q1)
4. China’s weaker than expected data point probably got priced in (short-term)
5. Mnuchin or Kudlow will probably give the market what they want to hear out of Beijing today anyway
6. SPY and NASDAQ quant signals remain Bullish @Hedgeye TREND… onto the next… 

This Air-To-Mucker (or mud) macro loop runs over and over… and over again. I try my best to hit the right buttons, sending you the right signals (and/or using the right Early Look words) at the right time. When I make mistakes, I learn faster. 

I get that everyone isn’t “as short-term” in their signaling #process… and I’m totally cool with that. I was trained at a very young age to trade with live ammo like a fighter pilot. And I don’t apologize for that either. 

While I don’t recommend slower-moving asset allocators (think Bomber vs. Fighter Pilots) issue Real-Time Alerts 500 feet off the ground, daily. I do recommend anyone looking to time/size their top positions consider my process for that too. 

The Top 3 immediate-term TRADE signals of the last 3 days of trading (in Global Macro) were: 

1. SELL US Dollar Index on it’s immediate-term TRADE #overbought signal on Thursday
2. BUY Oil and Energy Stocks on their respective immediate-term TRADE #oversold signals (yesterday)
3. SHORT Financials (XLF) on their immediate-term TRADE #overbought signal (yesterday) 

Again, I don’t expect everyone to be willing to be transparent and accountable to every macro market decision they make every day. But that is what I expect of myself and my teammates. 

As always, thanks for having an interest in what we’re seeing and doing over here at Hedgeye and why. The most important thing you can ask yourself about any buy/sell decision making #process is why. 

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

UST 2yr Yield 2.25-2.43% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7 (bullish)
Energy (XLE) 65.74-68.98 (bullish)
Financials (XLF) 26.91-27.93 (bearish)
Shanghai Comp 3030-3195 (bullish)
VIX 11.80-15.22 (bearish)
USD 96.30-98.25 (bullish)
Oil (WTI) 62.45-66.76 (bullish)
GOOGL 1174-1299 (bullish) 

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer