“Exercise decision hygiene to stem the infection of beliefs.”
- Annie Duke
Are you constantly being infected by Old Wall Media’s talking points? We have a vaccination date for you. On April 7th, I’ll be having a Real Conversation @HedgeyeTV with Annie Duke on how to fade yourself and your (sometimes) bias beliefs.
“Beliefs are contagious. Informing somebody of your belief before they give their feedback significantly increases the likelihood that they will express the same belief back to you.”
So… as Annie goes on to suggest in How To Decide, “keep your opinions to yourself when you elicit feedback.” (pg 241)
Back to the Global Macro Grind…
Institutional Client Question: “Keith, what do you think about Growth vs. Value here?”
A: “I’m long both”
Client: “But when you think about what’s happening with rates here, does it change your tilt on growth stocks?”
A: Nope.
Client: “Really, why?”
A: Because that doesn’t back-test as a concern across cycles and my Signal isn’t concerned.
If I’ve had that conversation 100x this month, it “feels” like I’m low-balling … because the narrative on “Rates Rising being bad for growth stocks” is as common on my contra-stream (Twitter feed I built) as the sun rising in the East.
First, on the back-test, see the years 1995, 1999, 2009, 2013, and 2018 for details. Second, on why I’ve been long both (when The Signal supports it), the answer since November has been #Quad2.
What is #Quad2? A: When both GROWTH and INFLATION are #accelerating, at the same time. Therefore, I am going to be long GROWTH and INFLATION (value), when my Vol of Vol Signal says to be long those exposures.
Obviously that doesn’t mean to be long both at any time and volatility of the price…
And it certainly doesn’t mean to just be long Tech (XLK) all of the time despite everything I have written so far this morning. Tech is basically 2 stocks (AAPL and MSFT) and AAPL continues to signal Bearish @Hedgeye TREND daily in my process.
Being long Small Cap Growth, for example, was awesome from NOV-FEB, and recently corrected…
But it’s Full Investing Cycle Return (i.e. 3 months or more, not some 50-day Moving Monkey chart) has been epic inasmuch as being long either SALES or EARNINGS GROWTH has been (up +33.8% and +40.8%, respectively, in the last 6 months).
In a word, the context of what I just wrote is what most people miss: The Cycle.
If you’re neither Macro nor Cycle Aware, how on earth would you not be constantly infected by the non-back-tested-pablum people are qualitatively spewing on CNBC?
If you are Macro Aware, you’re not, as Annie Duke would say, “resulting”, or being “infected by group settings” that are circular in both dialogue and head-nodding.
Back to The Game and why we’re going to be buying more GROWTH and INFLATION at the low-end of our Risk Ranges in Q2:
A) Because, for now, The Volatility Signals support doing so… and
B) The back-tests do
If A) changes, I will change (i.e. either ignore the historical backtest and/or assume that the market is signaling a Phase Transition out of #Quad2 into #Quad4 where I will SHORT BOTH GROWTH and VALUE).
Don’t worry, I’m not going to go ALL CAPS on you anymore.
Instead of focusing on the why, focus on the when. When #NazVol (NASDAQ Volatility) broke out earlier this year, I got out of Tech (XLK) and shorted APPL.
Who or what gets you out? The Signal on that had ZERO to do with The Quads or The Pods.
I didn’t get a “call” on it from Mike at Morgan Stanley either. I simply had the humility to change my mind as the Vol of Vol Signal was changing. And what’s most interesting right now, as we head into the peak of #Quad2 in Q2 is… wait on it…
My #NazVol Signal is breaking down and signaling lower-highs and lower-lows. That’s bullish for QQQ. And I’ll be buying “Value” (Energy, Financials, Industrials) at the low-end of my Risk Ranges again too.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.60-1.79% (bullish)
SPX 3 (bullish)
RUT 2113-2327 (bullish)
NASDAQ 12,853-13,395 (bullish)
Tech (XLK) 128.07-134.00 (bullish)
Energy (XLE) 47.42-52.33 (bullish)
Financials (XLF) 33.33-35.05 (bullish)
Shanghai Comp 3 (bearish)
DAX 140 (bullish)
VIX 18.05-22.28 (bearish)
USD 91.39-93.43 (bearish)
Oil (WTI) 57.61-65.01 (bullish)
Gold 1 (bearish)
Copper 3.97-4.19 (bullish)
Silver 23.78-25.81 (bearish)
AAPL 118-124 (bearish)
Bitcoin 52,746-61,570 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
