“If you haven’t heard of FOMO, let me catch you up.”
- Patrick McGinnis
After the largest de-grossing and aggregate drawdown in the hedge fund industry in 5 years (since the 2016 drawdown), we just had the largest re-grossing (of gross and net long invested exposure), since… drumroll… the #Quad4 Crash of March 2020.
Selling low and chasing higher is more popular than selfies at this point. That’s what happens when you pile leverage upon leverage and crowd portfolios into similar names. Consensus wasn’t dog piled into Commodities or Curve Steepeners, don’t forget.
As the author of FOMO (he made it up at Harvard Business School in 2004), Patrick McGinnis, reminds us in Fear Of Missing Out, “despite its popularity and extreme hashtagability, it is not a laughing matter.”
Back to the Global Macro Grind…
Risk managing your money across the Full Investing Cycle is not funny. It’s a serious job that requires a serious amount of research. If that research #process doesn’t include Signals, Pods, and Quads, I think we have a serious competitive advantage over you.
By “you”, I don’t mean you. I mean them, as in our competition. We work alongside you.
Instead of chasing US Equity and Commodity markets at new all-time and Cycle Highs, what are we going to do today? We are going to sell-SOME. Yes #FadingFOMO fans. I am going all CAPS on SOME. We have plenty to feed the ducks with again this morning.
To review what gave us the opportunity to sell-SOME:
- Two Fridays ago, I wrote an Early Look titled “Sell Signals” (after I went net SHORT that Thursday)
- Last Friday, we re-grossed, going to big time gross and net LONG (again, as we do in #Quad2)
- This Friday (i.e. today), we’re not going net short – we’re selling-SOME
At the same time, I was covering-SOME of my SHORTS yesterday. Don’t forget that it’s been relatively easy for me to run without MAX net LONG exposure because my largest SHORTS have been:
- Long-term Treasuries (TLT and EDV)
- Gold (GLD) and Gold Miners (GDX)
- Utilities (XLU) and Staples (XLP)
Why won’t I got net SHORT like I did 2 Friday’s ago?
A) Consensus has to chase benchmark performance of > +3% YTD for SPY… and
B) There isn’t fundamental research reason to do so at this obvious stage of Global #Quad2
On the fundamental Pod and Quad Research, here’s this morning’s data-driven ROC (rate of change) update:
A) Durable Goods and US Capex Growth #accelerated to new Cycle Highs of +7.0% and +8.7% y/y, respectively
B) SP500 Earnings (283 companies have reported) #accelerated to a new Cycle High of +6.7% y/y (year-over-year)
But, but… they read this over there and watched that over here… Yes, let them have their fear-mongering-FOMO. Let them do what they do. They are our competition. They are the ducks.
The Cycle’s Signals, Pods (rates of change of revenues and earnings growth), and Quads are what we do, together. When they decide to sell to us at the low-end of the Risk Range, we buy. When they chase at the top-end of the ranges, we sell-SOME.
But why sell-SOME? Using SPY FOMO as an example:
A) The top-end of my Risk Range is now 3911 (i.e. the best price in the history of prices you can sell-SOME at)
B) Implied Volatility in SPY has crashed from a +109% freakout PREMIUM last week to +6% vs. 30-day realized today
Again, since I am very certain that they (our competition) don’t use our Signals (i.e. Risk Ranges within the context of Vol of Vol Signals in the options market), don’t worry about them and why they do what they do. Volatility’s Smile is ours.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.07-1.17% (bullish)
SPX 3 (bullish)
RUT 2091-2215 (bullish)
NASDAQ 13,214-13,917 (bullish)
Tech (XLK) 130.77-136.61 (bullish)
Energy (XLE) 38.69-43.57 (bullish)
Utilities (XLU) 61.45-64.20 (bearish)
Gold Miners (GDX) 33.39-35.46 (bearish)
Nikkei 271 (bullish)
DAX 130 (bullish)
VIX 17.20-27.97 (bearish)
USD 89.84-91.65 (bearish)
Oil (WTI) 52.01-57.22 (bullish)
Nat Gas 2.51-3.07 (bullish)
Gold 1 (bearish)
Copper 3.51-3.68 (bullish)
Silver 25.26-28.92 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
