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Dear Hedgeye Nation,

Volatile financial markets can make mincemeat of even the sharpest investors.

Game on.

Our modern Macro risk management process is designed to get ahead of bullish and bearish breakouts across asset classes.

Hedgeye CEO Keith McCullough hosted a masterclass on our Macro risk management process today.

This conversation is clearly striking a cord with Hedgeye Nation…

  • “Thank you for today, your desire to help your subscribers is unmatchable.”
  • “Damn awesome presentation.  Thanks!”
  • “In an absolutely insane political and economic world, I’m grateful for you and your team. Thank you to everyone @Hedgeye”

We highly suggest you check out this conversation.

Below we’ve transcribed for you the entire Q&A section with Keith taking questions from our live viewers. There are lots of great insights, like this one…

“There’s a great quote that I used today from Jesse Livermore who’s one of the greatest traders ever. He says, ‘I didn’t ask the tape why when I was 14 and I don’t ask it today at 40 years old.’ He traded the market that he was in. Stop asking yourself why. Don’t start with ‘This should happen because.’ That’s a very dangerous thing.”

Do yourself a favor… Click below to listen to this entire 52-minute free investing discussion.

*  *  *  *

Daryl Jones: We have a bunch of great questions. We’ll start with the top one.

“Do you think safety assets have changed? I’d classify the Dollar as a safe haven assets. How about Treasurys, the Swiss Franc and the Japanese Yen?”

So I guess the question is about these assets that are considered safe havens but, maybe, we’re in a new reality where you shouldn’t be so sure they’re safe anymore.

Keith McCullough: The only time you’re safe in the U.S. Dollar is in Quad 4 (an environment of U.S. growth and inflation slowing). We had this when the U.S. economy peaked in Q3 of 2018. What happened was Wall Street was talking about the “Globally synchronized recovery.”

Then the dollar started to strengthen as the global economy and the U.S. economy started to slow at the same time at the end of 2018. That’s what creates ‘safe haven’ status for the dollar is that you bloody well can’t buy anything else but U.S. Dollars, Treasurys and Japanese Yen.

Safe haven currencies and these theme-based models don’t work. Every since day I battle test financial markets against my Trade-Trend-Tail model which is based on an asset’s price, volume and volatility. What am I going to do with the idea of a “Safe haven asset?” Maybe 20 years ago when I didn’t know anything, or 15 years ago when I was forced by my boss to listen to sell side strategists. But today, I just go check the market on that across Trade-Trend-Tail and Price-Volume-Volatility.

That’s the way that I think about it. A lot of people do Macro in themes. They’re much smarter than I am. They think about how the world could, should or would be and they position themselves for that.

I’ve tried that. I’m not good at that. Some people are good at that and they become famous for making two or three great calls. They become a Gold Bug or a Bitcoin HODLer. We’re not trying to be theme based Macro Tourists. What we’re trying to do is use the data to tell us where to go then tell you a story about it in reverse.

For a long time, the Old Wall told you, ‘You need me, the guy with the big suspenders, to do this because I can do it cheaper and better because I have a sell side strategist at Merrill Lynch who’s going to help me.’ There were tons of trading commissions associated with that.

Now you can execute our strategy with the 174 ETFs that are in our model. All of these ETFs charge me zero commissions. I could change the size of my positions 1,000 times per day if I wanted to.

That’s a differentiating, competitive advantage for your asset allocation. It should help you sleep better at night. So, if I say Quad 4 is coming and that’s the death knell for U.S. equities. Why would you buy and HODL?

This whole HODL thing is rejuvenating for me. It’s just a bad broker’s pitch of buy and hold. They say, “It’s a different thing. It’s a different asset.” There’s always time to risk manage your assets.

Let’s say you had a position in Utilities last week and you sold some before the decline as volatility was rising. Why would you do that? Because volatility is in the wrong regime. Above 30 on the VIX is really not an investable market. And then when volatility was busting above 35 and toward 40. I sold Utilities down on that move. That’s what I did.

I encourage you to get comfortable with yourself. You can do this. That’s what we do at Hedgeye. I tell you what I’m doing. You make decisions based on what I’m doing.

Determine what it is you want to buy and sell if you want to trade around your positions. If you don’t, for God’s sake, don’t buy and HODL anything. I’m bullish on Gold but at some point the market conditions will change and I’ll short it. I’m sure the Gold Bugs are mad at me too. Eventually I’ll piss everyone off because they’re marketing something.

Jones: There are some questions on Value stocks. What is the best Quad to buy Value stocks?

McCullough: Quad 1. Conditionally when you go from Quad 4 to Quad 1 that’s far and away the best. This may be why Value finally caught a bid recently because we had a week of Quad 4.

When you go from Quad 4 to Quad 1 that’s the only time Value outperforms growth. The two best places to be when you go from Quad 4 to Quad 1 would be in an Emerging Market or Value stocks.

That’s the thing 129 months of U.S. economic expansion with no recession and Growth just beat the living daylights out of Value stocks because you weren’t coming out of a recession.

Generally, the Quad 4 to Quad 1 transition is coming out of a recession and into a recovery. That’s when Value works.

ICYMI: McCullough on “How To Build A Modern Day Macro Portfolio”  - quads1