“When I make things simple, I am able to make friends and influence people.”
- Ken Allen
While I’m definitely not like the “Singing CEO” from DHL (Ken Allen) trying to make friends with my Asset Allocations, I influence more people when I make things simple and just take a position like “Short the US Dollar here” or “Buy China on dips.”
In the introduction to an excellent “management book” that Allen titled Radical Simplicity, he reminds us why “simplicity is a forgotten discipline”, that there’s nothing “common about common sense”, and that executing on the “basics isn’t basic.”
“Simplicity is a word that articulates many of my favorite things: the idea of something being from humble beginnings (The Signal & The Quads), free of ostentation (No #OldWall), uncomplicated (data-driven), understandable (math), actionable (long or short) and having one main cause (preserve capital and then compound it).” Well done, Ken. You inspired me.
Back to the Global Macro Grind…
‘Hey man, so what markets, sectors, and stocks do I buy if Biden wins?... what if Trump wins?... what if Biden wins, but the Senate is red? What if it’s not clear who wins?’…
A: Short the US Dollar and Buy US #InflationAccelerating
That’s right. When you have a non-linear and dynamic risk management #process like mine, the answers to the aforementioned political questions matter a LOT less to me than the asymmetry of the market setup.
Newsflash: markets don’t care about your political feelings and/or opinions on their outcomes. Markets care about The Setup.
Don’t confuse what I’m trying to simplify as the setup for something silly like a 50-day Moving Monkey or some other non-volatility-adjusted view of a stock that doesn’t consider major interconnected market risk factors like currency correlations.
Bottom Line: both The Signal (Dollar Down) and The Quads (#Quad3 in Q4 and #Quad2 in 1H of 2021) say stay long inflation.
That, of course, is just the US Setup. If you have a Go-Anywhere Full Investing Cycle #process, you can take the Down Dollar view (that both Biden or Trump would perpetuate through money printing and bailout checks) to plenty non-TINA Asset Allocations:
A) Commodities
B) China
C) Emerging Markets
Since China is both in #Quad1, economically, and it is the heaviest weight in the Emerging Markets (MSCI) Index it’s a simple position to understand. Unlike the US and European Equities that got pounded last week, Chinese Stocks only corrected -1.6%.
In Shanghai, the A-Shares were up +1.4% overnight, recouping most of last week’s correction … and beating the beloved SPY, which was +1.2% yesterday on a decelerating volume bounce to lower-highs. I was long Utilities (XLU) +2.2% on the day instead.
#Decelerating Volume into the political event? Yep. I didn’t tell volume or cross-asset-class volatility to do what it did yesterday. It had nothing to do with my political opinion of Pump either. It did what it did – and it’s all part of The Setup:
A) Total US Equity Market Volume #decelerated -14% vs. it’s 1-month average yesterday
B) Front-month US Equity Volatility (VIX) only “corrected” to 37.13… and
C) #NazVol (NASDAQ Volatility) was pinned in the low-40s as Tech sold off intraday
It’s a good thing no one is long Mega Cap Bubbles ahead of this election. It’s all supposed to be awesome for everyone, no? C’mon. Let’s not hope for our positions to work – let’s work with the positions that are working.
If there’s one major mistake most people running OPM (other people’s money) or their own money make it’s that they SELL winners too early and always AVERAGE into losers. Simplistically speaking, doing that over time makes you a loser.
Winners ride their winners and cut their losses before they become bigger ones. That wasn’t happening in Mr. Softie (MSFT) yesterday. There was a massive buyer of Call Spreads, the whole way down, intraday.
What happens if Mega Cap Bubbles (including AMZN, which broke @Hedgeye TREND Signal support yesterday), just keep going down as the US Dollar does? That could easily happen. Why? Because it is already happening.
Whether it does or doesn’t won’t affect my wealth, personally. Selfishly, what I care about is my Simple Election Setup. If my process is wrong and the US Dollar goes up (from here) being long anything with beta probably won’t work anyway.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.74-0.90% (bearish)
SPX 3 (bearish)
Tech (XLK) 108.47-116.50 (bearish)
Utilities (XLU) 62.02-65.66 (bullish)
Financials (XLF) 23.20-25.50 (bearish)
Shanghai Comp 3 (bullish)
VIX 30.61-42.85 (bullish)
USD 92.18-94.24 (bearish)
Oil (WTI) 34.98-39.46 (bearish)
Nat Gas 2.90-3.46 (bullish)
Gold 1 (bullish)
Silver 22.98-25.49 (bullish)
Copper 3.01-3.20 (bullish)
MSFT 197-210 (bearish)
AMZN 2 (bearish)
Bitcoin 12,641-13,899 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
