“The second thing that distinguishes this particular playing style is the concept of no limit.”
- Maria Konnikova
Konnikova wasn’t talking about no limit Hoodie orders to buy Facebook into the bell after a +8% intraday move. No, no, no. No one who is chasing month-end perf or has no idea what they are doing would do that with a pair of pocket Aces, or would they?
In what I’m realizing is a great coaching book (i.e. how to time/size your portfolio bets), The Biggest Bluff, she’s talking about the particular style of poker that lets you go all-in: No Limit Texas Hold’em.
From a US stock market bubble perspective, everyone’s already seen the flop. And, post this 3-day ramp in FB and GOOGL, there are 2 Kings showing there now too. Does everyone at the table have a full house pending in SEP? That would be freaking awesome!
Back to the Global Macro Grind…
Fact of the matter is that by the time we see the “turn” (4th card) and the river card in SEP, both the RNC and month-end markup pumps will be over and it will be time to play the next hand.
Is it possible that you, and 50-75M Hoodies, are all holding 4-of-a-kind (that beats a Full House)? Nope. But after seeing 4 straight all-time closing highs for both the SP500 and NASDAQ, everyone might think they have a Straight or Royal Flush too!
*Reminder: both of those flushes beat your pocket pair of Aces, Full House, and 4-of-a-kind – and you don’t get more Aces on a “stock split”
Since I’m definitely not going to rid some Old Wall dude from his Aristotelian “Valuation” (Earth) is the center of the universe dogma this morning, I may as well keep trying to coach you through the behavioral side of this game with a practical game you understand.
I rant plenty about market practitioners (do what data and markets are doing) vs. macro theorists/tourists (what markets should do) and Konnikova rang the Pavlovian bell in my thick skull with this reasoning from one of one of the great polymaths:
“When I read Von Neumann’s rationale for choosing poker above all else to explore the most important strategic decisions in the world – he was advising the US Military, after all – something clicked. Poker wasn’t theoretical, like the research I’d done. Poker was practical.” (pg 22)
As a practical matter, I’m not theorizing that everyone thinks they have 4-of-a-kind or a potential Full House. These market moves already happened:
A) 4 straight all-time high days for QQQ and SPY
B) Top 5 SP500 Stocks are up +55% YTD
C) SP500 Equal Weight Return (of all the stahks!) is down -4%
And a special thank you to one of my card counting quantamental Institutional Hedge Fund clients for reminding me about the Crowding Factor Risk embedded in one of the greatest hands expected by the greatest number of people at the table in US history!
That’s right, never in the history of forever, has there been such a tremendous pot. So best of luck to you all on that SEP river card.
In other news, there are a bunch of other table games going on in other Countries, Asset Classes, etc. where people like me aren’t shamed for whispering the concept of being “Bearish on Growth” but Long Tech & Treasuries & Commodities, at the same time.
I don’t get it. I have better hair than the cigs, chartreuse, and spooz guy. Why can’t I be as popular with ye Olde Wall? Ha
Here are the Top 3 Things I sent to our premium subscribers in the Institutional Investing community at 6AM EDT (believe it or not, some of them pay me because they sort of like me – I know, that sounds weird):
Post 4 straight all-time closing highs for QQQ + SPY, PE Powell’s US Dollar Devaluation speech is up next…
- 10yr (long bonds) – I don’t know how many more buying opportunities we’re going to get but at 0.71% this week we got another one (10yr drops to -0.67% this AM with downside to all-time lows); bought Utilities (XLU) on that rates opportunity yest and shorted more Financials (like my C short in the PA – awful stock since June 8)
- VIX (interesting) – 4 all-time SPY highs with 3 straight says of the vol of vol signaling higher-lows – if it didn’t matter, I wouldn’t write it down. AAPL’s Volatility > 40 for 3 straight days too – betting this matters post the month-end and RNC markups where the Top 5 SPX Stocks are +55% YTD vs. SPX Equal Weight return down -4% #crowding
- AG (long) – seriously, who is long Agriculture? Asking for some non-Macro-Tourist friends who got aggressively short Burning Bucks in June and went big (as in Long) Commodities as an Asset Class. Wheat inflating another +0.9% this morning after Corn, which was one of the few major Commodity holdouts, signaled Bullish @Hedgeye TREND last week
If you’re playing multiple hands at multiple tables (because you, unlike the Hoodies do multi-factor, multi-duration Macro, across asset classes), here’s what a Long/Short Royal Macro Hedge Fund Flush looks like right now:
ACE – Short US Dollars, Long Commodities
KING – Short US Bank Stocks, Long Gold and Gold Miners
QUEEN – Short Small Cap (Russell), Long Large Cap US Tech + Chinese Internet + Selective EM
JACK – Short Spain’s IBEX, Long Finland’s (or Norway’s) Stock Market
TEN – Short Old Wall Macro, Long Inflation Expectations via TIP and IVOL
That hand sure beats the “pocket rockets” held by the “Investment Committee” @CNBC.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.54-0.72% (bearish)
SPX 3 (bullish)
RUT 1 (bearish)
NASDAQ 10,995-11,743 (bullish)
Tech (XLK) 113.40-122.45 (bullish)
Financials (XLF) 24.05-25.36 (bearish)
Shanghai Comp 3 (bullish)
VIX 21.23-27.65 (bearish)
USD 92.27-93.86 (bearish)
Oil (WTI) 41.88-43.82 (bullish)
Nat Gas 2.23-2.70 (bullish)
Gold 1 (bullish)
Silver 25.46-28.39 (bullish)
Copper 2.82-3.06 (bullish)
MSFT 210-223 (bullish)
AAPL 447-518 (bullish)
AMZN 3 (bullish)
FB 272-310 (bullish)
GOOGL 1 (bullish)
Best of luck out there today too,
KM
Keith R. McCullough
Chief Executive Officer
