“Boyd’s theory is not only elegant, but it is simple, beautiful, and revolutionary.”
-Robert Coram
What to do post Fed FOMO Day? Same thing, same #process.
I don’t deal in your emotional space. I try not to “feel” anything when it comes to markets. My teammates and I will try our best to measure and map all incoming economic and market data within our 4 Quadrant and risk management equations.
Personally, I am not elegant. I am a Mucker. The Quads, however, are simple to understand. “Elegance”, as Coram goes on to argue in Boyd, “is one of the most important attributes of an equation. The briefer and more simple an equation is, the more elegant it is.”
John Boyd’s simple equation (used by the Navy SEALS) = THRUST minus DRAG over WEIGHT, multiplied by VELOCITY, revolutionized US military combat.
“And it is so obvious. When people looked at it they had one of two reactions: they either slammed a hand on their forehead saying ‘why didn’t I think of that’ or said it must have been done before” (pg148). Like doing The Quads (daily) with a Quantitative Signaling #overlay, no one has published this #process daily before.
Back to the Global Macro Grind…
Since I’ve raised a lot of Cash (taking down my gross exposure to core Quad 4 Longs) it’s going to be a good day in the P.A. For people paid in US Dollars who have US bank accounts, today is going to be a great MAGA Coupon Day. It’s the day we get paid our interest on hard earned savings.
If you’re a Euro guy or gal getting paid in Euros with NEGATIVE interest rates at your flailing national bank, no soup for you.
You’re going to have to try to chase some European (or US) Equity chart that is still trying to prove it is not going to make another lower-high… or just stay long of European Sov Bonds and hope for further principle appreciation with the Swiss 10yr Yield down at -0.81%.
Back to the #StrongDollar thing post PE Powell being Not Dovish Enough:
- The US Dollar has its ONLY POSITIVE EXPECTED VALUE when the US economy is in Quad 4
- PE Powell’s ramblings about “mid-cycle adjustments” make ZERO PERCENT sense in Quad 4
- AFTER Powell sees the Quad 4 data, he’ll call it “Late Cycle”
And… drumroll… the 2 Federal Reserve Committee Voters who voted AGAINST 1 rate cut are going to be voting for multiple 50 basis point cuts if A) our Quad 4 nowcast (which is set to hit, right on the screws, between now and OCT) proves to be accurate and/or B) SPY drops 10%.
In the immediate-term, what does the common duration mismatch between the 4 Quadrant Nowcast and the Fed’s forecast do to macro markets, their Sector Styles, and Factor Exposures? It throws them for a volatility loop!
Yes, John Boyd fans, you may insert your OODA Loop learnings for this part of the risk management exercise. What is the OODA Loop? It’s how you deal with the volatility of volatility during critical short periods of time. It’s a short-term cycle solution:
A) OBSERVE
B) ORIENT
C) DECIDE
D) ACT
I don’t know about you, but that’s precisely what I’m going to do with my Cash starting this morning. I already observed what I thought I was going to see (Fed not Dovish Enough). Now I just need my @Hedgeye Risk Range quantitative signaling process to orient me to the low-end of my risk ranges…
Then I’ll make the Rules-Based Decisions that are embedded in my #process and act on them.
Using the simplest of examples, here’s the setup that links Not Dovish Enough to Rates, Bond Proxies, and Gold:
- UST 10yr Yield just bounced off the low-end of my 2.01-2.11% @Hedgeye Risk Range
- Utilities (XLU) are correcting from the top-end of their Risk Range
- Gold is correcting from the top-end of its Risk Range ($1443) towards the low-end ($1401)
Since the @Hedgeye Risk Range #process is both daily and dynamic, the top and bottom-ends of ranges change as the volatility of volatility does. So I’m not promising myself I’ll ACT and buy more Gold at $1401 (because the signal might say $1393 by today’s close)…
But I promise you I that I will not ACT on emotion and/or Macro Tourist thoughts. Being qualitative and acting on “feel” isn’t simple enough for me.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.01-2.11% (bearish)
UST 2yr Yield 1.78-1.91% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 8118-8330 (bullish)
Utilities (XLU) 58.98-60.59 (bullish)
REITS (VNQ) 87.02-89.50 (bullish)
Financials (XLF) 27.70-28.80 (neutral)
Shanghai Comp 2 (bearish)
Nikkei 218 (bearish)
DAX 12056-1394 (neutral)
VIX 11.93-16.83 (neutral)
USD 96.70-98.58 (bullish)
EUR/USD 1.10-1.12 (bearish)
Oil (WTI) 54.63-58.60 (bearish)
Nat Gas 2.08-2.30 (bearish)
Gold 1 (bullish)
Copper 2.63-2.73 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
