“Energy Maneuverability (EM) is a mathematical technique for telling under what conditions one fighter will be able to turn tighter or accelerate faster than another.”
- John Boyd
Did you see VIX 35 coming yesterday? How about VIX 42 on June 11th? Why is it that so many Proctology Macro stars “called the bottom” in March/April, but completely missed calling a big-time Bear Market Lower-High on June 8th?
So many risk management questions but so little time to react AFTER risk happens, eh? John Boyd made the aforementioned EM #process that of the US Air Force. Since, winning is all American Fighter pilots did in critical moments of decision making.
“Boyd decided that the F-86 won because it could generate something he called ‘asymmetric fast transients’ – a transient is a shift from one state to another” (Certain To Win, pg 60). I call these @Hedgeye TREND Phase Transitions.
Back to the Global Macro Grind…
If I’ve said this 1,000 times, I’ll say it again this morning – the singularity of my risk management #process was built on the shoulders of revolutionary and non-linear mathematical giants: Einstein, Mandelbrot, Boyd, etc.
Especially at certain volatility pivot points in Cycle Time, my process will absolutely hose Old Wall Technical Moving Monkeys.
“Boyd inferred that if you can do things before the other side reacts, you can greatly enhance your chances of winning, and it doesn’t make much difference how big or how strong the other guy is.” -Chet Richards, ‘Sting Like A Bee’
As my good friend and former Goldman trading alum, Buddy Carter, likes to say “you do not want to be the uninformed volume that’s executing on the edges” of my Risk Ranges.
Essentially that’s it. I don’t care if I’m “fighting the Fed” or front-running it. I’m going to execute on my process.
And, that process led to me say (and write) in that moment of absolutely uninformed volume (June 8th) of US Equity Chart Chasing that the “probability just went straight up that the US stock market crashes, for the 2nd time, in 2020.”
I get it. Some people need to believe that “no one could have seen March 2020 coming.”
But did all of these no-ones not see June’s Reopening of Risk coming? That was obviously the title of an Early Look when it mattered too. And I hope you don’t mind some of the reminders this morning. Transparency & Accountability matters.
The Crash “call” is yesterday’s news already, btw:
A) The Russell 2000 (IWM) just tanked -10% since June 8th, taking its Full Cycle Investing Crash to -20.2%
B) The Financials (XLF) got smoked for a -14.1% drawdown since June 8th taking its Crash to -26.2% since FEB
That’s what happens in OODA Loops of real-time market combat when Russell’s Volatility (RVX) remains Bullish @Hedgeye TREND (bearish for the Russell) and ramps from 35 to 45. VIX (SPX Volatility) went from 24 to 42 in the same Cycle Time.
As those of you who have been subscribing to me since I made the 2008 Crash “call”, I rarely make “calls” – I’m usually just telling you what I’m observing, orienting, deciding, and acting on (OODA).
Ok, nice call (I can hear some people who really love me saying ‘you suck’ right about now), but now what?
Well, now, I’m actually most concerned about what I BOUGHT on red yesterday. As anyone who has studied the returns of both Long Only and Levered Long Hedge Fund managers knows, when the VIX #accelerates through > 31 they lose a lot of money.
Therefore, by definition, my buying a core #Quad3 Long exposure on red yesterday (REITS via XLRE) is riskier than buying that exposure if the VIX was < @Hedgeye TREND support of 26.13.
So, maybe I’ll just rent the damn thing, for like a half-day of trading… you know, a PPT centrally-planned FOMO Futures bid post another US Jobs Depression report this morning… or I can wait a few days for a nice Old Wall month and quarter-end markup?
Yes, I may be a small player. But I see you.
No matter how “big” and powerful The Fed and Treasury are, I am not scared of you. I actually love you. Because, without you, Hedgeye Nation neither wins when you lose big, or exists. We get stronger by the day.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.64-0.75% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Tech (XLK) 98.40-105.40 (bullish)
REITS (XLRE) 33.55-36.57 (bullish)
Financials (XLF) 22.36-24.53 (bearish)
VIX 30.08-40.46 (bullish)
USD 96.17-97.90 (bearish)
Gold 1 (bullish)
Copper 2.55-2.68 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
