“We want outcome quality to align with decision quality.”
- Annie Duke
After SPY, NASDAQ, and the Russell 2000 ramped to all-time closing highs, did you sell-SOME? Sometimes I have to go all CAPS on the SOME part, because I’ve realized that my risk management #process isn’t like everyone else’s. I need to coach it.
The aforementioned quote comes from Annie’s #behavioral book that I have been reviewing: How To Decide. As she reminds us, “experience is supposed to be our best teacher, but sometimes we draw a connection between outcome quality and decision quality that is too tight…”
“Doing so distorts our ability to use those experiences to figure out which decisions were good and which decisions were bad. Resulting makes our crystal ball cloudy.” (pg 7)
Back to the Global Macro Grind…
I don’t have a crystal ball, but I do have my Risk Ranges!
I’m not going to go off this morning on the narrative-driven-crystal-ball-storytelling process that some seem to have when they rattle off round number “price targets” for Bitcoin and/or whatever else they’re opining on.
Why? Because those are opinions. My re-scaled range (Mandelbrot) Risk Range #process isn’t opinion. It’s fractal math.
Why did I build that critical risk management tool to augment my decision making process?
A) To fade my qualitative thoughts, convictions, and “feelings” about my longs and shorts
B) To save and make more money by having the humility to do so
When I told The Maestro, Mike Saylor at MSTR, that I thought #Bitcoin could go towards $40,000 if his narrative was right, I didn’t randomly pull that number out of thin air or use some “valuation” model. I used my USD model and multi-factor math.
When he tweeted at me to “give up” on my Quads and models at around $40,500, I sold SOME #Bitcoin and his stock.
It wasn’t personal. Neither was buying some MSTR back on red yesterday and/or buying SOME #Bitcoin back when it sold off towards the low-end of my Risk Range last night. Whether buying CORN or coins, math drives my decision making process.
What drives yours? That’s a serious question I have been asking both myself and investors since starting Hedgeye in 2008. It’s not a new question. To me, it’s The Question.
When I wrote Diary of a Hedge Fund Manager back in 2010, trying to answer The Question was my point:
A) If you could look inside a world class hedge fund, what would you see?
B) Who are their people? What are their principles? And what is their #process?
Oh, I know that triggers some of my competitors. It should. My competition, btw, isn’t Old Wall. It’s hedge fund managers who also want to have the best people and process. It’s macro managers who want to have the best process calling The Cycle too.
In most cases, it’s become healthy “competition.” My analysts have healthy debates with theirs. From what I can tell, a growing number of the best Asset Managers in the world don’t “compete” with Hedgeye – they subscribe to and partner with Hedgeye.
Oh yes, there are some others – the angry ones. They really don’t like me or how #HedgeyeNation has recently scaled on Twitter (see GME for details). Some think I’m being adversarial and combative when facing those guys (yep, they are all guys)…
Yep, it’s a good thing were not on the ice where I have a stick and can drop my gloves. Haha
Back to yesterday…
Why did I finally sell a bunch of my longs and add the highest number of shorts that I’ve #timestamped in Real-Time Alerts so far in 2021? Here’s what I wrote in my Top 3 Things to our Institutional Subscribers this morning:
For a @Hedgeye TRADE, why did I go net SHORT in Real-Time Alerts yesterday? Almost everything was at the top-end of its Risk Range…
- USD (bearish #oversold) – as my RTA (Real-Time Alert) said, the particular immediate-term signal in USD is what made me move on everything else – it signaled its 1st higher-low of 2021 and that’s a short-term headwind for everything that’s inversely correlated to it – no, I’m not calling for #Quad4 – just for a textbook correction in Commodity & Equity beta
- OIL (bullish #overbought) – textbook correction from the top-end of its Risk Range (same for both Russian and US Energy Stocks) has WTI down -1.9% here this morning – Risk Range tightens up (that’s bullish for the intermediate-term #Quad2 TREND setup) but also signals a lower-high for WTI at $53.90 (that was bearish for the short-term)
- SPY (bullish #overbought) – correcting from the top-end of its Risk Range after an epic run to all-time closing highs – immediate-term downside in the Range of -2.5% which is quite typical for a #Quad2 bull market; where you should have bought SPY and Tech (XLK) Beta was on this day last week when Implied Vol Premiums ramped (now they’ve come in)
Short and to the point. In my own mind, given how aggressive and bullish I have been buying the damn dips since the November Global #Quad2 breakout, these were easy decisions to make.
Will the outcomes be “right”? I don’t know. I do know that fading myself at particular points in my Risk Ranges is critical.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.05-1.18% (bullish)
SPX 3 (bullish)
RUT 2081-2176 (bullish)
NASDAQ 12,901-13,560 (bullish)
Tech (XLK) 126.70-133.66 (bullish)
Energy (XLE) 40.53-45.01 (bullish)
Financials (XLF) 30.06-31.78 (bullish)
Utilities (XLU) 61.30-63.54 (bearish)
Gold Miners (GDX) 33.97-36.90 (bearish)
VIX 20.53-24.95 (bearish)
USD 89.49-90.80 (bearish)
USD/CHF 0.87-0.89 (bearish)
Oil (WTI) 51.28-53.90 (bullish)
Nat Gas 2.41-2.80 (bearish)
Gold 1 (bearish)
Copper 3.54-3.71 (bullish)
Bitcoin 29,514-41,506 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
