“The game’s gotten harder… the next generation is here, and they’re really good.”
- Adam Jones
For those of you who don’t know who Adam Jones is, he’s a 5-time Major League Baseball All-Star and 4-time Gold Glove winner, who is now playing for the Orix Buffaloes in the Japanese pro baseball league.
Jones made the aforementioned statement (highlighted in The MVP Machine, pg 317) a few years ago. He was 32 years old at the time and at the end of his career with the Baltimore Orioles.
As all of you who have been running other people’s money (or your own) for the last 10-30 years knows, Jonesy’s quote is a timeless one. It could very well have been said by any successful pro in our business who has evolved in order to stay in The Game.
Back to the Global Macro Grind…
Despite the Re-opening of Risk (see yesterday’s Early Look) in both markets and economies, unemployment continues to sky-rocket to levels never imagined by people running real-life P&Ls.
Ye Olde Wall and its conflict of interest media can dream up “V’s” all they want. While it looks like a lot of fun, what’s not fun is losing your seat and joining the ROC (rate of change) #acceleration in that jobless claims line.
More on that economic reality when US Jobless Claims are released tomorrow. No worries, if you’re still long a legit bull market that isn’t struggling to find a new narrative (US Treasuries), the bond market is already front-running that.
Adam Jones hit 282 home runs in Major League Baseball. Are you Long of the Long Bond?
A) UST 10yr Yield is down (again) to 0.59% this morning and …
B) Signaling big-league lower-highs (in yield terms) with..
C) The top-end of my Risk Range at 0.68%
Other than Deep #Quad4 Deflation, what is this signal (amidst the growing Fed FOMO) telling us?
A) If you haven’t been long the Long Bond since Q4 of 2018, the best “entry” price is going to be 0.68% on 10s…
B) Treasury Bond Market Volatility (the MOVE index) has collapsed to 58 this morning, and nothing…
C) Perpetuates a longer-term bull market in anything more than FALLING volatility within the right REGIME of volatility
Despite the uniquely 2019-2020 American pastime of chasing short-term US Equity Futures FOMO yesterday, both the TLT and EDV (Extended Duration Treasury ETF) were up over +1% on the day vs. the beloved SPY which turn-tailed (again) and lost -0.5%.
Since the SP500 is cap weighted, what drove that yesterday were big Sector Style declines in Mo:
A) Healthcare (XLV) which was -2.0% on the day
B) Communications (XLC) which were -1.8% on the day
C) Tech (XLK) which was -1.3% on the day
That ABC = Mo (Momentum), as a Factor Exposure. Meanwhile “Value” continued with its Counter @Hedgeye TREND bounce (led by the Financials and Energy Stocks, which are clearly defined as value, because they’ve been the worst places to be in 2020).
Now, since this generation of investors gets what happens when The Machine flips from long to short a Sector Style or Factor Exposure, everyone gets how quickly or “crazy” this can get in a very short window of time.
That’s why:
A) Selling-some at the top-end of the @Hedgeye Risk Range and …
B) Buying/Covering at the low-end of the @Hedgeye Risk Range is …
C) Such a critical component of my risk management #process
The alternative to executing, deliberately and consistently, at the top and bottom ends of my Risk Ranges is called chasing. And, to be clear, chasing The Mo in the FOMO, really works in raging bull markets. In crashing and developing bears, not so much…
Where Fading The FOMO doesn’t work is when:
A) It’s not a Counter @Hedgeye TREND move … because
B) It’s actually the beginning of a Phase Transition into a new Bullish @Hedgeye TREND
C) Those happen when the market is front-running a Phase Transition into a new economic Quad
If and when the US economy accelerates out of its current Deep #Quad4 and into Quad 1 or 2, I won’t be shorting the Russell (IWM) and Bank Stocks (KRE) like I have been for the last 3 days. I’ll be buying them.
Especially if it’s Quad 2 the market is front-running, I’ll be shorting The Long Bond too.
That’s right, you know I like to go both ways. Switch hitting and having the ability to throw 4-6 pitches, deliberately, are critical differentiators in Major League Baseball today inasmuch as investing across a Full Investing Cycle of The Quads and signals are.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.55-0.68% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Consumer Staples (XLP) 57.35-60.70 (bullish)
Healthcare (XLV) 95.09-102.19 (bullish)
Tech (XLK) 84.56-90.75 (neutral)
Financials (XLF) 20.24-23.19 (bearish)
VIX 31.02-47.53 (bullish)
USD 99.05-100.91 (bullish)
Oil (WTI) 7.24-17.31 (bearish)
Gold 1685--1769 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
