“I do not seek power and do not run around.”
- Benoit Mandelbrot
I guess that’s why the father of Fractal Geometry and inspiration to my risk management process didn’t run The Fed. To get that unelected and unaccountable gig, you have to be “very strong” and “powerful” in your “guidance”, according to PE Powell yesterday.
Back to the Global Macro Grind…
I suppose it’s only fitting that, as Powell struggled to answer the only question he got about Asset Bubbles yesterday, that the SNOW ball bubble started crashing.
Crashing? Are you kidding me? This is The Cloud, bro!
Well, if you’re the poor Hoodie newb who bought Snowflake (SNOW) at the high of the day ($319/share and 100x revenues), you lost 20% of your money in less than 3 hours of owning the damn thing.
‘Oh, but KM, that’s only because there’s a lot of volatility.’
Yes! That’s 100% correct. While PE Powell Tools was bumbling through answering a question on why the average Joe needs “inflation” in his daily life, #NazVol started ripping, again.
What’s #NazVol? A: NASDAQ Volatility (VXN). And what did it do yesterday?
A) VXN ramped to closed at 35.48, confirming that it is …
B) Signaling a non-episodic cluster of volatility
As Mandelbrot taught me way back in my days in New Haven, CT:
A) Most moves in market prices are Brownian Motion (i.e. nothingness) …
B) Particular moves in the volatility of the price are signaling a Phase Transition
Standing on the shoulders of this giant, I went on to deliberately study this basic reality of markets. I’m still working at it with live ammo, but so far I can tell you this:
A) They are non-linear and
B) The Fed’s “tools” do not prevent clusters and breakouts of TRENDING Volatility
Now, Powell’s boy, Bernanke, will disagree with that. In 2006, the guy became one of the most revered central market planners in the establishment’s Ivory Tower history, when he came up with “The New Normal” idea for market volatility.
Allegedly, he found a way to bend and smooth both market volatility and economic gravity! #NiceCall bud.
Since 06’, we’ve seen the biggest clusters of TRENDING equity and commodity market volatility known to mankind. And the best part about it is that the Buy Side keeps adding more and more and moarrr leverage, betting that the Fed’s “tools” will get them paid.
Don’t tell “don’t fight the Fed” fans this, but here’s a little secret about this whole “liquidity” thing:
A) They don’t get moarrr of it, until the proverbial poop hits the equity market fan … and
B) Before they get moarrr of it, we smoke them, where it matters (in generating alpha)
So let’s say the probability continues to rise that we have another #Quad4 Deflation & Volatility event. In that scenario, what Powell Tools are left to get #NazVol to break-down through 31 again (like it did back in May)?
A: Buying Stahks!
As a reminder, there is no such thing as a Levered Long NASDAQ (TQQQ) Bull that survives buying what are not “dips” when #NazVol ramps from 30 to 35 … and then stays above 35, heading higher from there.
During the final capitulation of our #Quad4 in Q4 risk management call of 2018, #NazVol took a Christmas eve peak at 40, then Powell Tools came out faster than my uncle in his Santa Suit when I caught him doing shots in the bathroom in 1979.
But can PE Powell do that right before one of the most emotional elections of our generation? Can he really buy the NASDAQ, if its down 7-15% from here? Asking for some levered long Hoodie and Hedgie friends…
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.61-0.72% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,571-11,485 (bearish)
Tech (XLK) 109.01-118.80 (bearish)
REITS (XLRE) 35.34-37.47 (bullish)
Financials (XLF) 24.26-25.45 (bearish)
VIX 25.45-34.13 (bullish)
USD 92.50-93.81 (bearish)
EUR/USD 1.17-1.19 (bullish)
Oil (WTI) 35.28-40.40 (bearish)
Gold 1 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
