“Tests consist of a series of runs.”
- Anders Ericsson
How’d your portfolio and/or p.a. do in the last few days? Running money in bear markets isn’t easy. Neither is driving a cab in London. The aforementioned quote comes from an excellent chapter titled Harnessing Adaptability in a great book I’ve been studying called Peak.
“The area within 6 miles of Charing Cross contains approximately 25,000 streets. But a prospective cabbie must be familiar with more than just streets and buildings. Any landmark is fair game…”
“To master the Knowledge, prospective cabbies – who are known as Knowledge Boys & Girls – spend years driving from place to place in London, making notes of what is where and how to get from here to there” (pg 29). Measure, map, and deliberately study, eh.
Back to the Global Macro Grind…
Be honest with yourself and/or the people you work for. Are you like the London Cabbies or are you like the London tourists? There’s nothing wrong with Macro Tourism. It’s a tremendous and huge advertising and marketing business that you want to be front-running.
Did you really need Powell or Druckenmiller to tell you what to do with stahks yesterday? Are they going to get you to drive the right portfolio route, covering shorts, and buying more of what you sold higher this morning?
Pre cabbies in London, there were horses and buggy whips. Pre the internet/cloud on Wall Street, there were big names making “calls” on stahks and markets. You don’t want to be relying on Old Wall “calls”, do you? You want to have your own decision making #process.
Before you go there, I’m not disrespecting Druckenmiller.
I have as much respect for that man of macro markets as any that are still on the right side of the grass. What I really want is for you to build is trust and respect for yourself. Peak performers save and make money while everyone else is losing theirs, don’t forget.
Now that I’m done channeling my inner Tony Robbins, let’s get on with our day risk managing these bull and bear markets:
A) 3 Big Bull Markets = Treasuries, US Dollars, and Gold
B) 3 Big Bear Markets = Commodities, Junk Bonds, and Global Equities
Since I know some people are quite sensitive to me calling the US Equity Market a “bear market”, I’ll be politically correct calling the Global Equity Market a proper bear market (which includes plenty of major US Indices and Sectors):
A) Most Asian and Emerging Market Equity markets have been in bear markets for over 2 years now
B) Europe’s latest bear market has France and Germany down -30% and -25%, since February of 2020 alone
C) USA’s bear markets in Small Caps, Financials, Industrials, etc. continues to rage on
I don’t want to get into the Russell 2000 (lots of stahks!) being down again yesterday, taking its bear market to -29.1% from its Full Investing Cycle peak. I don’t really want to remind tourists that they need to be up +41% (from here) to get back to that break-even…
I just want to have my coffee this morning and drive the bloody cab.
Bull markets don’t have chronic volatility. Yes, like traffic in London, they have episodic and non-TRENDING spikes in volatility. There was a “cluster”, as Mandelbrot would have called it, of non-trending vol in both Gold and Treasuries, for example, in March.
As you can see in the Chart of The Day, US Equity Volatility initially spiked in the year 2000, then came in (sucking the perma bulls in, big time, in March-May of 2000), the ramped back up and remain elevated well into 2002 when the bear market ended.
Almost anyone can run money on the long side of Equities, in any country, when the equivalent of the VIX is trending and trading in the range of 8-16. That would be the equivalent of driving a car in London without anyone to pickup/dropoff and/or having any risk to manage.
Not everyone runs money well in a developing or ongoing bear market (VIX 20-80 range).
With the vol of vol (volatility of volatility) approaching the top-end of my @Hedgeye Risk Ranges in both European and US Equity markets this morning, I’ll be covering and buying. The shorting and selling was to be done on both Friday and on Monday morning.
London cabbies with The Knowledge aren’t phased by either Uber Tourists or going both ways in bear market traffic either.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.59-0.74% (bearish)
UST 2yr Yield 0.12-0.21% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 8 (bullish)
Healthcare (XLV) 97.00-101.19 (bullish)
Tech (XLK) 87.97-96.30 (bullish)
Consumer Staples (XLP) 56.05-58.35 (bearish)
Financials (XLF) 20.31-22.50 (bearish)
Industrials (XLI) 58.72-63.60 (bearish)
Shanghai Comp 2 (bearish)
Nikkei 195 (bearish)
DAX 100 (bearish)
VIX 26.68-40.24 (bullish)
USD 99.06-100.87 (bullish)
EUR/USD 1.07-1.09 (bearish)
USD/YEN 105.83-107.69 (bearish)
GBP/USD 1.22-1.25 (bearish)
USD/CHF 0.96-0.98 (neutral)
Oil (WTI) 18.66-29.41 (bearish)
Nat Gas 1.60-1.90 (bearish)
Gold 1 (bullish)
Copper 2.30-2.40 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
