Below is a brief excerpt transcribed from Thursday's edition of The Macro Show hosted by Hedgeye CEO Keith McCullough.
If you don’t know what factors are, you’re going to learn something here.
The market isn’t some unreformed broker talking about stocks, bro.
There's always a clown show somewhere (generally at CNBC), with a bunch of people that don’t have any idea about global macro market, never mind The Machine and what's driving it, which largely focuses on sector styles, asset allocations, and factor exposures.
That’s the modern day market. Learn about it. Teach yourself how it works. Front run it.
At the factor level, we’re not just thinking about stocks obviously. We are watching what interest rates are doing, what the currency market is doing, the commodity market, and the styles and factors that go on inside the market.
Look at what happened yesterday. Study the factor exposure report.
This is what I look at before got to bed at night as opposed to some political commentary on MSNBC.
Look at High Beta in the 1-Day column. The S&P 500 was down -4.9%, but High Beta stocks were down -7.1% crashing to -32.3% on a 1-month price momentum basis. That’s what The Machine really cares about, what’s happening on that 1-month window.
Moreover, Small Caps, which we’ve been short since September 27th of 2018, were down -7.3% on the day (i.e. the first column under "Market Cap Bottom 25%") when you look at quartiles of the S&P.
Do people at unreformed brokering shops even know what a quartile is? I think not.
A -30.8% decline is a crash within factors.
The Machine doesn’t care about your stock picks. It doesn’t care about your sector picks.
The Machine cares about factor exposures which are impacted by the two most important prevailing conditions for predicting market returns (the rate of change in GDP growth and headline Inflation).
Learn the process to stay prepared.
