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“What you can do is call up your clients and tell them, ‘Hey, we’re going to lose money on our Tech and Energy holdings because we’re long-term, low-turnover investors.’”
-Hedgeye CEO Keith McCullough

Yesterday we held a conference call detailing the rising probability of the U.S. and global economies returning to #Quad4 this summer. That [obviously sarcastic] reply was in response to the following [anonymous] client question:

“If you’re a low-turnover, long-term investor, do you stay with core positions you’ve built up in energy and tech? How would you play this? Buy XLE and XLK puts against those longs?”

Obviously #Quad3 is not #Quad4 and 22-year-old Darius (245lbs and chiseled) ≠ 32-year-old Darius (275lbs and balding). As such, whenever we see material risk of a draw-down in any exposure that goes from a top long in the GIP Model Quadrant we’re currently in to a top short in the Quadrant our model anticipates next, we’re going to get loud about the need for investors to either book gains or take small losses before they turn into bigger ones.

Back to the Global Macro Grind

We understand that not every investor can trade their way in/out of core positions as deftly as Keith can in his p.a. But that doesn’t mean subscribers shouldn’t at least try to risk manage highly probable downside in “at risk #Quad3 exposures” – namely Tech, Energy, and [Organic] Growth – as much as humanly possible.

In honor of it being Memorial Day Weekend here in the States, please grant me the following [American] football analogy: imagine if the head coach of your favorite team was committed to running fullback dive in every third-and-long situation because he preferred a quote/unquote “smashmouth” style of play? As someone who knows a lot about football from both a playing and advanced analytics perspective, I can assure you your probability of victory will trend towards zero by halftime.

You might not convert too many third-and-longs, but you at least have to try to air it out if you want to be successful over the course of a football game, let alone a season.

The same holds true for portfolio management. You might not nail every v-bottom or market top perfectly, but you have to be willing to adjust your exposures if you want to be consistently successful over time. Over the short-to-intermediate-term time horizons that we focus the bolus of our calls on, Mr. Market doesn’t give a damn about your valuation opinions or investment mandate.

Along that same token, if you want to have a good 2019, you’d do well to proactively prepare for the following global #Quad4 risks this summer:

In the US:

In Europe:

In China/EM:

In short, investors should ignore these developing #Quad4 signals at their own risk. I’m no Canuck, but I believe the old hockey adage reads: “Skate to where the football is thrown, not where you’d like it to be.” There are hardly, if ever, any “perfect passes” in Macro Risk Management.

The team and I are proud to send a heartfelt “thank you” to the skies above for all those that fell defending the ideals of this great nation, both at home and abroad. Happy Memorial Day.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 2.28-2.44% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 57.61-60.20 (bullish)
Shanghai Comp 2 (bearish)
VIX 13.17-20.98 (bullish)
USD 96.85-98.26 (bullish)
Oil (WTI) 57.46-62.09 (bearish)
Gold 1 (bullish)

Keep your head on a swivel,

Darius Dale
Managing Director

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