"It is the unemotional, reserved, calm, detached warrior who wins, not the hothead seeking vengeance and not the ambitious seeker of fortune."
- Sun Tzu, "The Art of War"
Keith and I had a discussion related to emotions and investing on The Macro Show yesterday. I owned up to the fact that some of the biggest mistakes I've made are emotionally selling (aka puking) at the bottoms. That is why they call it capitulation, because investors capitulate, which creates opportunities for “unemotional warriors”.
Luckily, we can all improve on these emotion laden decisions. For me, having levels and rules born out of the Hedgeye Trade, Trend, Tail model that are related to positions is the key. Instead of selling because I feel sick to my stomach or my blood pressure is increasing, I've become better at selling (or buying) based on pre-set rules. In effect: having a plan when entering a position.
The flip side to capitulating at the bottom is chasing at the top. Many people call this “FOMO”, or the Fear of Missing Out. I certainly have experienced this emotion. You realize that you missed making an investment, watch it go up, realize others are making money, and then enter at the worst possible time.
Recent studies have shown that Bitcoin investors often rate high on the FOMO score. In fact, a recent article from Department of Psychiatry at Chung-Ang University in South Korea summarized the research as follows:
“Previous studies have shown that Bitcoin investors have significantly different characteristics compared to general investors, such as younger age (Bohr and Bashir, 2014), irrational optimism over easy wealth (Pezzani, 2018), higher risk propensity (Conlon and McGee, 2020), and the psychology of fear of missing out (FOMO) (Pichet, 2017).”
So, Bitcoin as an asset class may amplify many of these emotional shortcomings many of us feel as investors. That doesn’t mean that Bitcoin isn’t going to up from here, or isn’t going to go down from here, but may just mean that the asset remains more volatile for a longer period.
Back to the Global Macro Grind…
In our Daily Rise & Grind note (which is an intensive look at the last 24 hours of global economic data), we’ve been highlighting the confirmatory #Quad2 Global Data. Consider some of these recent data points:
- U.S. April CB Consumer Confidence Present Situations Index jumped to 139.9 from its prior reading of 110.1;
- U.K. April CBI Distributive Trades Survey (a survey of 150 retail companies) came in at +20 from its prior reading of -45;
- U.S. March Durable Goods printed at +25.0% Y/Y for March;
- Denmark March Retail Sales +24.2% Y/Y; and
- Japan March Retail sales +5.2% Y/Y versus prior month of -1.5%.
While those data points above may seem cherry picked, I could’ve picked data from literally any of the largest economies and they would tell a similar story of #Quad2 acceleration. (The exception to this is China, which we have in #Quad3 for Q2 and has been showing a rate of change slowdown in economic data.) This really shouldn’t be a major surprise as we know comps are extreme when compared to March, April, May and June 2020.
Easy comps, of course, are one thing, but economic improvement based on increased mobility and broader re-openings is quite another. The next phase of economic acceleration in the short term may well be predicated on vaccine roll-out and reduced spread of COVID-19.
On this last point, we can see this importance when looking at the U.K. compared to other major European countries. Yesterday the U.K. had 2,685 new COVID-19 cases, while France, a country with a similar population, had 30,317 new COVID-19 cases. While certainly there are other mitigating factors, a key difference is vaccinations. U.K. is at 70 vaccinations per 100 people and France is at 30 per 100 people.
That said, assuming the EU, and other lower vaccinated regions, catch up, it is likely we see a dramatic slowdown in COVID-19 spread. This is when we may get the “Roaring 20s” type re-opening, but, of course, this will likely be priced in advance. And the time to sell #Quad2 exposures will be when the re-opening euphoria hits its peak, just ahead of the rate of change slowdown in economic growth, and our market signals corroborate . . . but we aren’t there just yet.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.55-1.73% (bullish)
UST 2yr Yield 0.15-0.19% (bullish)
SPX 4126-4217 (bullish)
RUT 2 (bullish)
NASDAQ 13,741-14,208 (bullish)
Tech (XLK) 140.20-144.71 (bullish)
Energy (XLE) 46.66-50.18 (bullish)
Financials (XLF) 34.71-36.18 (bullish)
Utilities (XLU) 64.94-67.90 (neutral)
Shanghai Comp 3 (bearish)
Nikkei 288 (bullish)
DAX 15100-15494 (bullish)
VIX 15.56-19.06 (bearish)
USD 90.49-91.62 (bearish)
Oil (WTI) 60.98-64.28 (bullish)
Gold 1 (bearish)
Silver 25.07-26.60 (neutral)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
