“It was ridiculous ‘cause they’re just not gonna be able to hit a big leaguer with 5 pitches.”
- Kyle Boddy
“Feeling” like markets are “crazy” right now? With panic rate cuts and “Biden surges”, crazy is as crazy does. It’s best you check your visceral reactions at the door each morning and focus on a data-driven and rules-based process.
In case you haven’t read The MVP Machine (How Baseball’s New Nonconformists Are Using Data To Build Better Players) yet, you could probably use a Kyle Boddy as your portfolio & risk management coach.
From Parma, Ohio, Boddy isn’t Old Wall Baseball. He’s a 37 year old pitching trainer who used data (sabermetrics) while working with data-junkie MLB pitcher Trevor Bauer.
But, to be clear. Just because you have “data” and are willing to be coached doesn’t mean you’re going to be good at this. Generating alpha, across cycles, is a lot harder than that.
In Bauer’s case “while the camera helped create a shortcut to skill acquisition, there was no substitute for deliberate practice. There’s no official record of Bauer’s winter workload but he thinks he threw more pitches than any other pitcher in professional baseball.” (pg 116)
Back to the Global Macro Grind…
You can do whatever you want to do at the top of every risk management morning. When that alarm goes off at 430AM EST, I know precisely what I’m going to do. I’m going to measure and map all of global macro markets, deliberately.
Does that make me some kind of a bloody genius? Obviously, if you saw my SAT score, I’m not. But I will outwork you.
As I’ve learned as a retired player who coaches the most “elite” hockey players in the states of CT and NY, outworking the competition means absolutely nothing unless you are working smarter.
You can get up at 3:30AM every morning and gas a few hours reading Zero Edge or mainstream media. That won’t work. What also doesn’t work is reading about “averages” like:
A) The percentage of times that this happened, that happened … or
B) A simple Moving Monkey average of a market price … or
C) The Dow Bro Industrial average, in points!
My advice: stop wasting your time reading about what markets just did and start bean-counting what markets are doing. Measure and map markets on a multi-duration basis through the lens of not the average price but the:
A) Volatility of the price … and the
B) ROC (rate of change) of the volume of that price
Price/Volume/Volatility = TRADES, TRENDs, and TAILs. That’s really it.
If Trevor Bauer is painstakingly analyzing the zoomed-in positioning of each finger on every ball he throws, 500x in a row, then doing it all over again… that’s what I’m doing every night after I get futures & options data, and every morning when I get more real-time market data.
Imagine we just looked at the “average” speed of all those pitches, instead of each particular pitch…
Then we wouldn’t understand either the secret to the Global Macro universe (calculus) or how to use the principles of fractal math to triangulate probabilities, would we?
“So”… why did I cover my shorts after Tuesday’s selloff then short HIGH BETA Tech “stocks” (like Semis, SMH) into yesterday’s market close? That’s easy. My vol of vol signal gave me a particular signal:
A) On March 2nd implied volatility on SPY ramped to a +65% PREMIUM vs. what had been realized in the last 30 days
B) Only 2 days later, implied volatility on SPY got smashed to a -19% DISCOUNT vs. 30-day realized … and
C) Despite the CNBC “Biden Surge” in “stocks”, front-month VIX didn’t close below 31
It closed at 31.99. And, by my #process, that’s a particular pitch that I know most money managers can’t hit. Oil bulls and whoever is, god forbid, still long Energy Stocks (XLE) can’t hit an Oil Vol slider of 51 either.
So, instead of telling me about “Hedge Funds Buying The Dip” (Bloomberg article), tell me about long only and hedge fund managers who can hit 5 different kinds of pitches in 3-5 completely different market days.
Under these economic #Quad4 and market vol conditions (1-day bounces in SPY of > 4%), you’ll have to show me the track records of those who risk managed through 2001-2002 and 2007-2008, successfully, to do that.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.91-1.22% (bearish)
UST 2yr Yield 0.54-0.99% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Utilities (XLU) 61.70-71.87 (bullish)
Tech (XLK) 85.01-95.51 (bearish)
Shanghai Comp 2 (neutral)
Nikkei 207 (bearish)
DAX 119 (bearish)
VIX 23.05-45.11 (bullish)
USD 96.60-99.90(bullish)
Oil (WTI) 43.06-49.44 (bearish)
Gold 1 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
