“Why is it so important to have a high-quality decision process?”
- Annie Duke
That’s Annie’s opening volley in her new #behavioral book How To Decide – Simple Tools For Making Better Decisions. Why does your daily decision making #process matter more than any other thing?
“Because there are only two things that determine how your life turns out: luck and the quality of your decisions. You have control over only one of those two things.”
When it comes to running OPM (other people’s money) or your own, can you improve the quality of your decisions? Of course you can. Anchor less on immediate-term outcomes and focus more on the repeatability of the #process.
Back to the Global Macro Grind…
Whether it’s Annie Duke’s prior book, Thinking In Bets, or Maria Konikova’s The Biggest Bluff, I’ve used these poker playing books to not only help you think about my decision making process, but to re-orient you to thinking in probabilities.
ROCs and Probs = Rates of Change & Probabilities. They change, daily, because the data does.
What’s the probability of a “massive Fed balance sheet devaluing the US Dollar” ending the world today? Close to zero (edge) on that. What’s the probability of Global #Quad2? High and rising.
Based on the most recently reported Global Economic and real-time market signaling data:
A) The modal outcome for India (INDA) being in #Quad2 in both Q1 and Q2 is close to 95%
B) The modal outcome for Russia (RSX) being in #Quad2 is around 95% as well
C) The modal outcome for hedgies who were short Gamestop (GME) losing it yesterday was 100%
Yep, that last one was fun. Pro tip: next time a short “thesis” is so easy a rookie journo at Barron’s can botch it (and it is signaling Bullish @Hedgeye TREND), buy it with both hands. The probability of being right is very much in your favor.
When you are thinking like Annie does (i.e. in bets) two of the most important things you need to decide on are:
A) TIMING
B) SIZING
Over the last 20 years the biggest struggle I’ve had running money is part B) of that decision-making tree. Therefore, my personal challenge is to be bigger in my investments when I get the timing right.
What’s your struggle?
A LOT of people struggle with timing. That’s why the buy-and-hold maxim that is as Old Wall as the caveman and his Moving Monkeys is a cornerstone of the Bitcoin Maxis. They don’t have a daily decision making process.
If they tell you they can’t time markets, believe them.
But what if you can? What if you built a Full Cycle Investing risk management process that helps you probability-weight what Asset Allocations, Sector Styles, and Factor Exposures you want to invest in during The Cycle’s time…
And use immediate-term timing tools like Risk Ranges, implied volatility moves, etc. to gross up/down your positions?
Newsflash: I do not care what people I compete with on the bid/ask think about my answer to those critical decision-making questions. All I care about is A) improving my process (to save/make money) and B) coaching people through it.
From a big Macro Asset Allocation perspective, let’s look at some real-time examples of how this works:
- Currencies – did you know the Bullish @Hedgeye TREND Cycle for the US Dollar was ending in Q2 of 2020?
- Gold (which is a currency) – did you know the Bullish @Hedgeye TREND Cycle peaked during Q3 of 2020?
- Treasuries (which drives Gold) – did you know the Bearish @Hedgeye TREND Cycle started in Q4 of 2020?
To be clear, if you are going to have ANY Asset Allocations to Currencies, Commodities, and Fixed Income, you absolutely have to have set of data-driven Cycle timing tools to get to the right answers to those questions.
Get the TRENDING Cycle direction of both the US Dollar and Interest Rates right, you’ll get most things in Macro right:
- US Dollar continues to signal a series of lower-lows for the Global #Quad2 part of The Cycle
- Gold is down another -0.8% this morning taking its Full Cycle Drawdown to -12.4% from Q3 of 2020
- UST 10-year yield is up another +3bps this morning to 1.11% and immediate-term upside to 1.23%
And Bitcoin, which I measure and map fractally, using a multi-duration and multi-factor model that includes the daily direction of both USD and Rates, just ramped +22% off the low-end of my Risk Range this week.
Again, do we care what non-subscribers think, tweet, or say about us and our process? Nope. We just do the process. In doing, we learn how to fail fast and evolve the process. And when the process wins, we strive to win big.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.99-1.23% (bullish)
SPX 3 (bullish)
RUT 2041-2172 (bullish)
NASDAQ 12,731-13,310 (bullish)
Tech (XLK) 126.74-131.81 (bullish)
Energy (XLE) 39.22-44.95 (bullish)
Financials (XLF) 29.27-32.25 (bullish)
Utilities (XLU) 60.60-63.18 (bearish)
Gold Miners (GDX) 34.41-38.14 (bearish)
Nikkei 27015-28774 (bullish)
VIX 20.21-27.02 (bearish)
USD 89.18-90.61 (bearish)
GBP/USD 1.350-1.371 (bullish)
CAD/USD 0.78-0.80 (bullish)
Oil (WTI) 48.66-54.59 (bullish)
Gold 1 (bearish)
Copper 3.51-3.73 (bullish)
Bitcoin 32,921-40,207 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
