“What is true of the world independent of your perspective?”
- Annie Duke
If you’ve raised and/or are raising kids, you get this (and should apply the life-lesson to your portfolios too!). Teenagers, in particular, have a way of believing that their “view” of the world is right. But, eventually, it’s their parents view that will become their reality.
Your opinions and positions are what Annie Duke calls your Inside Views. Newsflash: they aren’t always “right.” The Outside View is what someone else, their #process, and/or the market thinks.
“Your intuition serves at the pleasure of the inside view. Your gut does too. Intuition and gut are infected by what you want to be true. The outside view is the antidote for that infection.” -How To Decide (pg 128)
Back to the Global Macro Grind…
Is your firm or portfolio’s Inside View that you should be long “high quality” (good balance sheets) “compounders” that have relatively LOW BETAs and LOW SHORT INTERESTs?
Well, the Outside View (as in that of the market or, as we call it, The Machine) says that if you’re long those Factor Exposures alongside mathematically defined Momentum, you’re wrong, for now…
The “for now” part of that statement is an important one. Why? Because it can and will change. When it changes is a particularly important risk management question to answer though. I let the market answer it for me, daily.
Remember, in my fractally oriented #process, it’s not the “average” or “valuation” of things that matters – it’s particular things.
That’s right, you don’t have to accept it as the written rule of your investing gods, but you should absolutely consider my Signaling #Process because A) it’s an Outside View and B) it’s more accurate than many consensus “narrative” based views.
Why did I signal SELL on some things in Real-Time Alerts yesterday:
A) Because I could – I went to 21 LONGS and 1 SHORT on Friday’s #oversold lows!
B) Because Momentum, as a Factor Exposure, signaled its 1st big lower-high in my Risk Range
C) Because the downside in Bearish @Hedgeye TRENDs like TSLA, AAPL, and AMZN were signaling lower-lows
I know, some of those sales triggered some of our subscribers, mainly because some of those stocks went down after I signaled SELL. Sorry about that, but that triggering has mostly to do with specific names on the Inside View of their portfolios.
What did a SELL (some) signal on something we like fundamentally like Blade (EXPC) have to do with “fundamentals”? A: Nothing.
Unless you consider both The Math & The Machine fundamental, that is! No matter how much we, as a firm, like the “long-term” Blade story, that doesn’t mean the immediate to intermediate-term will cease to exist!
Not unlike Tesla (TSLA), Blade is a High Growth/Momentum name that our friend Cathie Wood owns in her ARK Innovation ETF (ARKK). The difference between Blade and TSLA and ROKU is significant, however. Here are her Top 4 portfolio weights:
- TSLA = 10%
- ROKU = 7%
- TDOC = 5%
- SQ = 5%
And no, there was no whining on my Twitter stream (or from the management team) when I signaled SELL (some) on Andrew Freedman’s ROKU long idea (on green) in Real-Time Alerts last week!
Why? ROKU isn’t a new idea for either Cathie or Hedgeye. On a relative basis, Blade is (and yes, we went long it before she did).
Back to The Machine’s view of the Momentum Factor Exposure, it’s actually quite typical that something “breaks” on the particular duration that The Machine cares most about on both the UP and DOWN sides of price = 1-month price momentum.
Eventually, every major drawdown (Gold’s is currently -18% from its #Quad3 Cycle Peak) in one’s net wealth starts with a 1-month breakdown in the @Hedgeye TRADE Signal (why else do you think I define that duration as “3 weeks or less”?)…
So I’ve forced myself to respect that Outside View of the market above and beyond my “fundamental research view.”
Consider the alternative to owning pure, unadulterated “secular” and “pure high quality growth” in a Globally Diversified #Quad2 portfolio where you’re also “Underweight” or Short Long-term Treasuries (TLT), Utilities (XLU)… and did I say Gold?
- Long Commodities (CRB Index, Oil, Copper, etc.) and their related Equities (FCX, OXY, FANG, etc.)
- Long HIGH BETA (SPHB) vs. Short Momentum (MTUM)
- Long Asian Equity markets like India (INDA)
India (INDA) was up another +2.2% overnight taking its 1-month price momentum to +3.5%. It did not care that SPY’s LARGE CAP Factor Exposure (see Chart of The Day) was down -0.6% yesterday or that LOW BETA is down -2.0% in the last month.
Yes, this and every Early Look is meant to trigger and test your belief-system. What you want to be true isn’t always true. The market doesn’t lie to itself like some pension fund saying “the market has it wrong on inflation”… people do.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.27-1.55% (bullish)
SPX 3 (bullish)
RUT 2179-2297 (bullish)
NASDAQ 12,906-14,015 (bullish)
Energy (XLE) 45.42-51.43 (bullish)
Financials (XLF) 31.85-33.97 (bullish)
Utilities (XLU) 57.76-60.38 (bearish)
Gold Miners (GDX) 30.46-33.77 (bearish)
Nikkei 282 (bullish)
DAX 138 (bullish)
VIX 19.08-29.01 (bearish)
USD 89.65-91.13 (bearish)
Oil (WTI) 58.62-64.13 (bullish)
Gold 1 (bearish)
Copper 4.04-4.39 (bullish)
AAPL 117-130 (bearish)
AMZN 3001-3199 (bearish)
TSLA 632-766 (bearish)
Bitcoin 46,195-54,587 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
