“Our strategic directives were dynamism, initiative, mobility, and rapidity of decision making in the face of new situations.”
- General Vo Nguyen
I had a ton of positive feedback on yesterday’s Early Look note. While I haven’t ‘replied to all’ on those yet, I just wanted to say thank you. It’s been a grind since the all-time SPY high in FEB and it’s great to know our Full Investing Cycle work is appreciated.
Back to the Global Macro Grind...
The aforementioned quote comes from an army General who isn’t readily mentioned by many but, amongst military historians, is often considered one of the best strategists of the 20th century. Vietnam gave the USA all it could handle for a reason.
Chet Richards uses Vo Nguyen as an example of a strategist who used something similar to the Mad Major’s (John Boyd) OODA Loop successfully. Boyd himself learned a lot from both the Vietnamese and the German Blitzkrieg.
Are you open to learning other people’s processes? Is your process dynamic and mobile? On the Observe & Orient parts of OODA, here are some basic definitions in Certain To Win:
- They must OBSERVE the environment, which includes themselves, their opponent, the physical, mental, and moral situation, and potential allies and opponents
- They must ORIENT themselves to decide what it all means. Boyd calls orientation a “many-sided, implicit cross-referencing” process involving multiple factors
Sound familiar? Depending on how closely you follow my decision making process, it certainly should! That’s what I immediately loved about the OODA Loop framework – it wasn’t the same as mine, but it helped me make mine better.
As Richards goes on to explain, “OBSERVE means much more than see. ABSORB might be more descriptive if it did not have a passive undertone – ‘go out and get all the information you can by whatever means possible’ is even closer.” (pg 62)
I quite literally look at every macro market move, globally, at the top of every risk management morning. That’s humanly impossible for you to do on your own. I have a large team of analysts and many machines helping me do that.
And, in summary, here are the Top 3 Things (Institutional Research product that goes out at 6AM) I see this morning:
- VIX – front-month corrected to yet another higher-low of 32.22 within its Bullish @Hedgeye TREND yesterday and now has a Risk Range = 30.07-38.43; they marked SPY up into the close on decelerating volume with Total US Equity Volume -10% vs. 1-month avg
- OIL – WTI up another +1.3% this morning continues to shape up on the long side right on time with our #InflationAccelerating call – the broader CRB Commodities Index is signaling Bullish @Hedgeye TREND alongside Russian Stocks (RSX) vs. Short USD
- HIGH YIELD OAS Spread – widened out to +605bps over Treasuries (no, they weren’t able to mark that down into yesterday’s close!) as the US Bankruptcy Cycle #accelerates into what will be the worst Earnings Season of the modern era – I’m still Long Investment Grade (LQD) vs. Short Junk (JNK), straight up
Now those may or may not be the most actionable things I see, but they are the things that stand out in a daily log (notebook) relative to both themselves and the big macro picture as a whole.
There are also 3 Big Macro Topics that standout in this morning’s real-time news-flow:
- Earnings Slowing – Nike (NKE) doesn’t report on a calendar year but gave us a preview for Q2 EPS Season (not good!)
- Bankruptcies Accelerating (I hope you weren’t long Chucky Cheese)
- Buybacks Collapsing (see new Fed Rules on our Big Bank Shorts for details)
Do you remember our Cycle Risk callout for Buybacks to slow in 2020? We made that risk management call in Q4 of 2019 (pre-virus, when SPX EPS slowed to -1.1% y/y). It’s a Cycle Topic we quantify in slides 86-88 in our latest Q3 Macro Themes deck:
- During Pump’s Tax Reform, Buybacks were THE tailwind to SPX Earnings growth while Revenues were slowing
- Despite the epic surge in Debt Issuance in 2020, guess what hasn’t surged? A: Buybacks
- What would a repeal of Tax Reform mean under Biden? See today’s Chart of The Day (slide 88)
That last point isn’t a political opinion, it’s a risk management point. Even if you don’t “believe in the polls”, the rate of change of the polls just moved, fast, here in June. Is your process going to dynamically or dogmatically re-orient for that?
There’s so much to having a repeatable decision making process that actually makes money. While I definitely didn’t think this is where I’d be in life, it’s become my life’s work. Thanking you again for learning and evolving alongside me.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.64-0.75% (bearish)
UST 2yr Yield 0.15-0.20% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Tech (XLK) 98.96-105.19 (bullish)
REITS (XLRE) 33.55-36.60 (bullish)
Financials (XLF) 22.30-24.50 (bearish)
VIX 30.07-38.43 (bullish)
USD 96.26-97.82 (bearish)
Oil (WTI) 36.08-41.36 (neutral)
Gold 1 (bullish)
Copper 2.56-2.70 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
