“Calculus has mathematized time.”
-Steven Strogatz
Indeed, it has. That’s a simple but particularly important math quote for those of you who find yourselves at what Strogatz calls The Crossroads between your bullishly espoused narrative and The ROC (rate of change).
“In the four centuries since calculus reached this crossroads, it has branched out from algebra and geometry to physics and astronomy, biology and medicine, engineering and technology, and every other field where all is in flux and change never stops…”
“No longer content in the static world of geometry, calculus becomes fascinated with dynamics. It asks: What are the rules of motion and change? What can we predict about the future with certainty?” -Infinite Powers, pg 123
Back to the Global Macro Grind…
My ROC math told me we’re at the crossroads for both my Long Gold (and Gold Miners) and Bitcoin positions, so I started selling them in September… and sold all of my remaining Bitcoin earlier this week.
Evidently, that drove some-buy-and-HODLers batty.
Why? Instead of asking themselves why, they went full-troll-mode on Twitter. And I liked it. It’s nothing personal against Gold or Bitcoin. They aren’t my children. I loved being long of both of them during Dollar Down #Quad3 Stagflation, however.
During a ROC rising of the probability of #Quad4 in Q4? Not so much.
Gold does fine (relatively speaking) to a lot of liquid asset allocations that get crushed in #Quad4. It simply goes higher, faster, when the Fed & Fiscal establishment are burning the US Dollar at the stake.
For those of you that recall the all-time highs for Gold that we were long of into 2011, this was the ROC Quad Count:
- Q1 of 2011 = #Quad3
- Q2 of 2011 = #Quad3
- Q2 of 2011 = #Quad3
In conjunction with those ROC economic realities (they aren’t opinions – they’re historical rate of change facts), The Bernank was devaluing the US Dollar to a 40 year low.
Down Dollar + #Quad3 = #LoveGold
Those same currency and Quad conditions perpetuated people chasing the Gold chart towards $2075/oz in AUG of 2020 when the US Dollar Index got smoked to local #Quad3 lows.
Then, in September, alongside the probability rising for #Quad4 in Q4:
A) USD started making a series of higher-lows and broke out to Bullish @Hedgeye TRADE … and
B) Gold started making a series of lower-highs and broke down to Bearish @Hedgeye TRADE
No, immediate-term TRADEs (3 weeks or less) aren’t always the beginning of new intermediate-term TRENDs (3 months or more), but they certainly can be IF the economy is about to undergo a Phase Transition from one Quad to another.
On Bitcoin, the combination of:
A) A bearish @Hedgeye TRADE breakdown (what was $10,797 TRADE support is now resistance) and
B) Rising probability of #Quad4 in Q4
Makes it an easy A/B Tested decision to sell some, then sell all. Other than Hedgeye Equity, my Real Estate, Wine, and Venture Capital investments, I am not a buy-and-HODLer. I am a Risk Manager of liquidity who avoids epic drawdowns.
Like Tech Stocks, the only Quad that has a high and rising probability of crashing #Bitcoin’s price = #Quad4.
If that empirical fact or my decision to de-gross and/or sell affects you emotionally, you should really consider why that’s happening to you. When I sell something for a big gain, the only feeling I have is that I am going to pay taxes.
Some people don’t like to pay taxes (I don’t either). Others don’t mind 15-30% drawdowns and crashes in the price of major Asset Allocations. The only drawdown I’ve had in my wine cellar is drinking my liquid assets.
If Gold and Bitcoin continue to correct in price (they’re already in motion on that since I made my sales), there are no rules in my Full Cycle Investing accounts that say I can’t buy them back.
But, as a matter of risk management #process, I won’t buy either back on some static “valuation” model. I’ll buy them when my dynamic rate-of-change model signals to do so in the right Quad.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.61-0.81% (bearish)
UST 2yr Yield 0.10-0.16% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,710-11,458 (bearish)
Utilities (XLU) 57.40-62.99 (bullish)
Financials (XLF) 22.99-25.12 (bearish)
VIX 26.02-30.35 (bullish)
USD 93.25-94.74 (neutral)
EUR/USD 1.16-1.18 (neutral)
Oil (WTI) 37.30-41.62 (bearish)
Gold 1 (bullish)
Silver 22.75-24.98 (bearish)
Bitcoin 10,309-10,921 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
