“People will take more risks to avoid a loss than to realize a gain.”
-Chris Voss
Re-read that quote for me and think about it again. Did it intuitively make sense to you when you read it the first time? Whether it did or didn’t, as Voss reminds us in his hostage negotiation book, Never Split The Difference, it’s human behavior.
When you have a disciplined and rules-based Full Cycle Investing #process, “splitting the difference is wearing one black and one brown shoe, so don’t compromise…” hedging or “meeting halfway” often leads to bad outcomes. (pg 139)
What I’ve realized over the years is that it’s my job to coach and push you to the edge of the #process so that both you and I can win big when we win. At the highest level of any profession, it’s the hardest thing to do, consistently, over time.
Back to the Global Macro Grind…
Selling either US or Global Equity exposures on Monday’s lows (or Wednesday’s in the case of US Tech, XLK) was a big risk many people were willing to take, given that we’re in Global #Quad2.
Whether you won big this week or not, that last part of the sentence is what should have re-centered you on why Global Macro Markets (fully loaded with Oil and Rates Up vs Gold Down) just did what they did.
That’s part of my job too. To “bend my counterpart’s reality by anchoring his or her starting point.” -Chris Voss
That’s right. Our starting point coming into the new year was:
A) The Cycle and
B) The decisions to be made on the edges of Risk Ranges, given The Cycle
Our starting point was not:
A) Georgia and/or
B) Storming The Capitol
Like most things that Macro Tourists have visceral, emotional, and/or political reactions to, all the Georgia and Donald “risks” did was give you an opportunity to buy into their fear and realize large, short-term, gains.
Sounds pretty simple because, in hindsight, explaining what happens in markets usually is.
Both the Signal and the Quad provide you a Full Investing Cycle path that most people haven’t the faintest idea exists. They are seemingly very sure, however, about how they “feel” about what they “see” in the mainstream media, every day.
Re-read that for me one more time too. Why is it that way?
Why are humans more “sure” about what they see and “feel” than the data that The Machine is registering (fully loaded with people selling, hedging, etc.) in real-time with no feelings whatsoever?
Did the “news” people even see that the ISM Services number #accelerated to 57.2 yesterday (DEC number) vs. 55.9 in NOV (and Wall Street expecting 54.6)? The Bond Market did. High Yield OAS Spread dropped to a new Cycle Low of +350 over.
There’s really nothing else to say other than:
A) US Equity Markets (SPY, NASDAQ, Russell) closed at all-time highs
B) Asian Equity Markets ripped overnight (KOSPI +4%!), closing at new Cycle Highs
C) Both Oil (+42% since NOV) and Rates (UST 10yr Yield = 1.08%) are at Cycle Highs
D) Gold is down another -1.1% here and in the midst of a -10% Full Cycle Drawdown (since AUG)
E) Bitcoin is ramping to higher #Quad2 highs, hourly, at this point, $41,102 last
Oh great, the Old Wall Journal is now saying it’s because it’s “the everything rally.” Meanwhile the New York Times is still whining about the “valuations” … and the consensus net SHORT SPY position (futures & options contracts) just blew up.
But to me, it’s just Global #Quad2. Stay with that. Don’t wear a #Quad3 shoe and a #Quad2 shoe either. They don’t match.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.97-1.10% (bullish)
SPX 3 (bullish)
RUT 2045-2130 (bullish)
NASDAQ 12,748-13,155 (bullish)
Tech (XLK) 126.71-131.96 (bullish)
Energy (XLE) 37.72-41.98 (bullish)
Financials (XLF) 28.85-31.20 (bullish)
Utilities (XLU) 60.26-62.86 (bearish)
Gold Miners (GDX) 34.42-39.19 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 261 (bullish)
DAX 139 (bullish)
VIX 19.91-26.99 (bearish)
USD 89.21-90.39 (bearish)
Oil (WTI) 47.39-51.34 (bullish)
Gold 1 (bearish)
Copper 3.55-3.71 (bullish)
AAPL 126-138 (bullish)
Bitcoin 28,459-41,109 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
