“The problem? Simple isn’t always better.”
- Annie Duke
Are you looking for simple answers for why things are? What is resulting? In Annie’s latest #behavioral book, How To Decide, she defines Resulting as a “mental shortcut in which we use the quality of an outcome to figure out the quality of a decision.”
Think about that for more than a few seconds. Challenge yourself. How often do you emotionally anchor on immediate-term outcomes instead of taking a deep breath and reviewing your decision making #process?
That’s why psychologists call this Outcome Bias. We all do it. We’re human. It’s ok. It’s not ok to ignore it though. As a learning organization, Hedgeye wants to push you to keep learning about yourself and your biases.
Back to the Global Macro Grind…
People on Wall Street have plenty of biases. The most obvious ones coincide with their compensation incentives. While everyone knows that, it’s not always easy to maintain it as a given in YOUR decision making process.
Since people have compensation biases, so do their investing narratives.
One big Old Wall Media narrative is the “growth vs. value rotation.” That’s a result of people seeing some “value stocks” ramping after spending miserable Cycle Time in Quads 3 & 4. It’s resulting from some recent FANG underperformance too.
However, that’s NOT what is currently driving our Full Investing Cycle #process. The Rates Rotation is far more important to get right during Global #Quad2. During a #Quad2 Rates Rotation, you can be long of both Growth AND Value!
What’s been classic Deep Cycle Value for us on the long side since June?
A) Commodities Stocks
B) China and Emerging Market Stocks
What’s been Rate Sensitive Value for us on the long side since November in US Equity Sector Style terms?
A) Long Energy (XLE) and MLPs (AMLP)
B) Long Financials (XLF) and Industrials (XLI)
On the other side of those longs we have “expensive” Deflation & Duration Shorts:
- REITS (XLRE) down -0.7% yesterday
- Utilities (XLU) down -0.4% yesterday
- Consumer Staples down -0.4% yesterday
Is anchoring on what they did yesterday resulting? No. If I wasn’t considering the abysmal absolute and relative returns of those Sector Styles since #Quad2 started in November, I would be.
On the “Growth” side of things, there’s obviously the mega cap GROWTH Factor Exposure that consensus crowded into alongside Gold, Treasuries, etc. at the peak of USA’s #Quad3 in Q3 of 2020…
Then there’s ORGANIC GROWTH wherever you could have found it since early November:
- SMALL CAP Cyclical Growth (IWM)
- Cannabis Growth (MSOS)
- SPACs, ESG, Bitcoins, etc.
There isn’t yet a narrative on the Old Wall that were in a Small Cap “bubble”, but you’ll definitely read about SPAC bubbles. I infrequently read headlines about Pot Stock bubbles, but I won’t be surprised to see those headlines eventually.
When you read a Zero Edge article about bubbles or Biden, does it trigger you?
That’s resulting too, don’t forget. Reading something that has nothing to do with either the Signal or the Quad might make you “feel” like a more informed citizen… but it’s not going to make you a more Macro and market aware Full Cycle Investor.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.02-1.20% (bullish)
SPX 3 (bullish)
RUT 2061-2174 (bullish)
NASDAQ 12,802-13,332 (bullish)
Tech (XLK) 126.46-131.58 (bullish)
Energy (XLE) 40.25-45.13 (bullish)
Financials (XLF) 29.92-32.02 (bullish)
Utilities (XLU) 60.94-63.31 (bearish)
VIX 20.17-25.47 (bearish)
USD 89.27-90.90 (bearish)
Oil (WTI) 50.22-54.45 (bullish)
Gold 1 (bearish)
Copper 3.56-3.72 (bullish)
Bitcoin 33,498-40,947 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
