Ep. 115 - We Sold Some Stocks!
Summary
TLDRIn this Market Radar podcast, the hosts offer a sneak peek into their latest Quant deck report, analyzing market trends and discussing the NASDAQ's performance. They highlight Nvidia's impressive earnings and stock split, and touch upon PMI data's impact on market volatility. The conversation delves into the growth and inflation indicators, revealing a slight decline in growth strength while remaining positive. The team at Market Radar emphasizes their data-driven approach, adjusting their portfolio strategy based on model signals rather than emotions or market narratives. They also discuss sector performances, particularly utilities, in the context of potential Fed rate cuts and the current high-rate environment.
Takeaways
- 📈 The podcast discusses a sneak peek into the latest Quant deck report, indicating a shift in market conditions that could impact portfolios.
- 💾 Nvidia's earnings report and subsequent stock split caused significant market movement, highlighting the impact of mega-cap companies on market trends.
- 📊 PMI data release influenced bond yields and contributed to market volatility, showing the importance of economic indicators on investment decisions.
- 📉 Concerns about overall market earnings growth are emerging, suggesting that not all companies may sustain their rapid growth rates.
- 🎯 The NASDAQ experienced significant fluctuations, opening at a new all-time high but with mixed performance across different companies.
- 📊 Market Radar's Quant models are data-dependent, focusing on capturing market trends without bias or emotional decision-making.
- 💹 The market is currently in a bullish trend with a risk-on regime, suggesting that market outcomes should be higher over time unless there's a significant shift.
- 💸 The VIX environment has changed, with less fear and elevated volatility, indicating a potential shift in market dynamics.
- 📉 The Aries model within the RQF model has reduced equity exposure due to the second layer growth index nearing zero, signaling potential elevated volatility.
- 📊 The regime map indicates a positive state for both growth and inflation, suggesting a bullish environment for most assets, excluding bonds.
- 🏆 Market Radar emphasizes the importance of data-driven models over personal opinions or market narratives, focusing on actionable insights.
Q & A
What is the main focus of the Market Radar podcast episode discussed in the transcript?
-The main focus of the episode is to provide a sneak peek into the latest Quant deck report, discuss the current market situation, and explain the actions taken by the Market Radar team in response to the market trends and data.
What significant event involving Nvidia was mentioned in the podcast?
-Nvidia announced earnings and a stock split, which caused a significant price action, including a reversal that was initially triggered by the company's performance and announcements.
What economic data release was mentioned as affecting the market's movement?
-The PMI (Purchasing Managers' Index) data release was mentioned as having an impact on the market's movement, as it sent yields up and contributed to market volatility.
How did the speaker describe the NASDAQ's performance during the week of the podcast?
-The speaker described the NASDAQ's performance as having a lot of up and down action, with a particular focus on the day when Nvidia's earnings and stock split announcement caused significant price movement.
What is the significance of the VIX environment mentioned in the podcast?
-The VIX environment is significant as it indicates the market's expectation of volatility. The speaker mentioned that the VIX environment has changed and is not staying elevated, suggesting a reduction in fear and hedging activities compared to previous periods.
What action did the Market Radar team take regarding their QQQ position according to the transcript?
-The Market Radar team sold out of their QQQ position by 45%, raising 45% of NAV into cash, in response to the market conditions and their models' signals.
What does the speaker mean by 'price discovery territory' in the context of the NASDAQ reaching a new all-time high?
-The term 'price discovery territory' refers to a situation where the market is at uncharted levels, and there is no historical reference point for pricing assets. It suggests that the market is in a phase where it is determining new values for assets.
What is the role of the 'Aries model' within the RQF model as described in the podcast?
-The Aries model is a three times leveraged long bonds or long equity model within the RQF model. It decides whether to go long on bonds or equities, and if there is no position, it stays in cash. It also has a second layer growth index filter to manage risk when growth expectations are choppy.
What is the significance of the growth index and second layer growth index in the Aries model?
-The growth index and its second layer are significant as they help determine the model's position sizing. When the second layer growth index reaches zero, the model takes some risk off the table, either reducing long equity exposure if the index is positive or long bond exposure if it is negative.
What does the speaker suggest about the current state of inflation and growth in the market?
-The speaker suggests that while growth has been weakening and inflation remains strong, it does not necessarily indicate an imminent shift to a stagflationary environment. The key is to monitor what happens next, as the market could potentially shift towards expansion or experience inflation weakness.
What is the speaker's view on the performance of the utilities sector being a deflationary signal?
-The speaker believes that the utilities sector's performance is not necessarily a deflationary signal. Instead, it is a reflection of the current environment where the Federal Reserve's policy rate is high, and there is potential for rate cuts, making utilities attractive due to their dividend yields.
How does the speaker describe the approach of Market Radar in terms of data dependency and risk management?
-The speaker describes Market Radar's approach as data-dependent, meaning they build and follow models that are unique and dynamic. They aim to manage risk by taking signals from the models without being influenced by emotions or biases, focusing on capturing returns and adjusting positions accordingly.
Outlines
📈 Market Trends and Nvidia's Impact
The podcast begins with a discussion on the NASDAQ's recent performance, highlighting the volatility and the significant price action, especially around Nvidia's earnings report and subsequent stock split announcement. The hosts mention the PMI data's influence on yield and express concerns about the market's earnings growth. They delve into Nvidia's growth rates, noting the company's impressive revenue growth but also the unlikelihood of sustaining such high rates. The conversation shifts to the broader market trends, emphasizing the bullish trend and the risks of market tops being overemphasized. They also discuss the market's reaction to new all-time highs and the change in the VIX environment, suggesting a reduced fear and a different market sentiment compared to previous periods.
📊 Analyzing Market Indicators and Volatility
The second paragraph focuses on the changes in market indicators and volatility, particularly the destruction of the linear pattern in front-month volatility. The hosts discuss the range-bound market from March to April and how the shakeout post-Israel conflict and FOMC meeting helped to even out the volatility curve. They examine the SVIX, showing how it has been making new highs, and connect this to the allocations in their portfolio. The conversation also touches on the system's analysis, presenting the seventh slide of their Quant deck, which shows the percent strength of inflation and growth. The hosts explain that while growth has been positive, it has been slightly declining, which is not necessarily bearish but indicates a potential shift in the market regime.
💹 Portfolio Adjustments and Model Explanation
In this segment, the hosts discuss their recent portfolio adjustments, specifically their decision to sell out of their QQQ position by 45%, moving the funds into cash. They clarify that this move was not based on emotions or all-time highs but was a strategic decision based on the Aries model within the rqf model. The Aries model, which is a three times leveraged long bonds or long equity model, had decided to size down due to a second layer growth index approaching zero, signaling potential elevated volatility. The hosts explain that this is a risk management strategy when using leverage and that it is not indicative of a bearish market but a precautionary measure.
📉 Market Regime Analysis and Future Predictions
The hosts analyze the current market regime, discussing the positive states of growth and inflation, and caution against interpreting this as stagflation without considering the degree to which the market is in such a state. They express their belief that the market could shift towards expansion and that there may be some upcoming inflation weakness. However, they emphasize that their models are data-dependent and that they do not let personal feelings or biases influence their decisions. They also reflect on past predictions and how their model's objectivity has led to better outcomes, rather than following the crowd or emotional decisions.
🏭 Sector Performance and Utility Outperformance
This paragraph delves into the performance of different sectors, particularly utilities, which have been outperforming recently. The hosts suggest that this could be due to the weakening growth and the Federal Reserve's tight policy. They discuss the potential for rate cuts and how this could impact utilities, which are seen as attractive for their dividends, especially if the risk-free rate offered by the Fed is lower. They also touch on the performance of energy stocks and how they are similarly affected by interest rates and dividend yields, suggesting that the current environment is favorable for both utilities and energy stocks.
📊 Market Trends and Risk Management
The hosts review the major trends in the market, noting that most sectors are bullish except for real estate, which is neutral, and bonds, VIX, and gold, which are bearish. They discuss the importance of not being overly bearish in such a market environment and highlight the unique approach of their system, which reduces cross-correlations and focuses on different data sets. They also talk about the system's ability to adapt to changing growth expectations and the importance of risk management, emphasizing that their goal is to capture as much of the market's movements as possible.
💼 Risk and Reward in Macro Trading
In the final paragraph, the hosts discuss the nature of risk and reward in macro trading, emphasizing that outsized returns require a certain level of volatility. They caution against comparing their model's performance to traditional investment funds and stress the importance of understanding the risks involved. They also address the audience directly, advising them to do their own research and understand what they are investing in, rather than blindly following advice. The hosts wrap up by inviting questions and providing contact information for further engagement.
Mindmap
Keywords
💡NASDAQ
💡Nvidia
💡PMI Data
💡Volatility
💡Risk-on Regime
💡Quant Deck
💡Growth Index
💡Inflation
💡Leverage
💡Utilities Sector
Highlights
Introduction of a sneak peek into the latest Quant deck report.
Discussion on being later in the investment cycle and its implications for portfolios.
Analysis of NASDAQ's performance and Nvidia's earnings impact on the market.
Explanation of PMI data's influence on market yields and investor sentiment.
Nvidia's growth rates and the implications for mega-cap companies.
Market's reaction to Nvidia's dividend hike and stock split announcement.
Market's bullish trend and the significance of new all-time highs.
VIX environment analysis and its impact on market volatility.
SVIX volatility trends and their effect on market behavior.
Quantitative analysis of inflation and growth strength in the market.
Shift in growth index and its potential impact on market trends.
Strategic reasons for raising cash in the RQF portfolio.
Explanation of the Aries model and its role in sizing down equity exposure.
Market radar's data dependency approach to model building and decision-making.
Utilities sector outperformance as a market indicator.
Fed policy implications on utilities and the potential for rate cuts.
Market's bullish sectors and the importance of trend analysis.
Risk management strategies and the importance of volatility in achieving outsized returns.
Closing remarks on the importance of following models and data over emotions.
Transcripts
[Music]
all right guys welcome back to another
Market radar podcast this week we're
going to do something a little bit
different and we're going to give you a
sneak peek into the latest Quant deck
report and explain what we're seeing
happening in our system under the
surface we normally don't do this but we
think that we're later in the cycle um
we're not
uh so much at the pivot Points that are
very material for your portfolio so we
think that we um bringing this up and
talking about it will be a good
discussion but let's just start off with
the NASDAQ right like what an
interesting week so far here man look at
this this is a lot of nothing action and
a lot of a lot of up and down especially
today well we had um Nvidia earnings and
they announced the split um that we just
completely
reversed what even caused that
reversal um I think that there was a I
mean I just look price action alone is
obviously the first Factor here but I
think uh there was some hotter than
expected data that sent yields up at
some point today uh it was the uh PMI
data that came out this morning and I
think just overall people are a little
concerned with um the rest of the
Market's earnings growth I mean Nvidia
is doing real well obviously uh but you
know you also have these comp issues
with Nvidia and I I it's this is not the
Market's not down because of Nvidia but
it's something to pay attention to right
so like if we take a look at Nvidia uh
nvidia's phenomenal day up 9% for me for
uh Mega cap this is phenomenal right um
this is kind of a a a rare event to see
a mega cap do this um and for like the
way this company Grows Right like their
growth rates if you if we take a look at
their revenues um what's going to happen
here at some point they're not going to
have this and we can just open up their
financials they're not going to have
this sort of like rapid Revenue growth
rate like where they're growing 100%
plus year a quarter over quarter on a
year quarter over quarter annualized on
an annual basis they're growing like
100% right they're not going to continue
this 100% year-over-year growth rate
it's going to Peak at some point and I
think like the fact that Nvidia put up
this quarter the way that they did
caught people by some by some caught
people by surprise on top of the fact
they announced a dividend hike in a
stock split I think all of that alone is
just juic the juice the price pretty
much to the best best they could and the
rest of the market um was up but nowhere
near on the open nowhere near as much as
Nvidia and kind of sold off the rest of
the day so I think that um the Market's
just in this range of price action right
now look we we opened up at a new
all-time high
so some people like to say um we are now
in price Discovery territory
yeah right no but you get my point like
some people like to say okay that's
that's something that is um markets
eventually top right a top has to be in
for a bare Market to start and I think
that claiming that and trying to make
that your base case at every point in
this environment is nonsense right I
think we got to just look at it like
this the market is in fact in a bullish
Trend we are in a risk on regime so the
risks or I should say the outcomes of
the of the market should be higher over
time unless something changes unless
something is broken or or dislocates
within the system or the trends and I
think just new alltime high today that's
bullish okay where we closed we didn't
close at the lows could we go to Mid
Vamp very possible could we go back down
to lower Vamp that's even possible I
think it's going to be kind of difficult
after we already had that little selloff
just a couple mons ago I would agree the
market had a breather and we don't have
that same pressure and especially when
you look at the vix we're definitely in
a different vix environment now it's not
staying elevated there isn't that fear
that we had back then before that drop
even happened there was just a fear that
everyone was just hedging up all the
time every little dip people were buying
Hedges we're not in that environment
anymore and is that something that could
actually breed a sell off though if
people aren't expecting another one well
100% eventually what's going to happen
is V volatility is going to become tooo
complacent right and then you're going
to have some sort of Vault Spike as we
always do people going get caught off
guard people oh my God the new bare
Market starting and unless the regime
changes you're not really going to get
that pivot you're going to get a dip
that gets bought up even if it's if it's
a vshape or slow or u-shape it's the
Dip's going to get bought up unless the
regime shifts right and until that
happens I think um dips are dips have
we've been very vocal about this dips
being viable um and I think you're 100%
right like the Vault structure has
changed too here you could see just the
basic destru linear destruction here on
front month volatility in the last like
month or right I want to say like 25
days has ever since the last of fromc
has been pretty apparent right and I
think that we kind of broke out of this
this garbage range going from March
through through the end of April after
that whole Israel conflict and and fomc
that we needed that pretty much scare
and and capitulation that we saw in the
in just indices right look look at the
NASDAQ that draw down we needed this to
shake out that b trade to S kind of even
out the curve and give you that normal
style of volatility um uh compression
back like if we take a look at svix like
you'll see right so from January um it
just actually played out exactly like we
were talking about during that whole
period where svix was uh chugging along
sideways like that we we were talking
about we need some sort of V blowout to
get us out of this and that's exactly
what happened and ever since that
happened sfix is able to make new highs
now and it's yeah it's been it's been
going up Super quickly and the members
have been long this those who are
following along with the rqf portfolio
this is one of the allocations in it um
so that's that position is catching up
now yeah I I 100% agree and like
honestly you could just see right like
it's just very visual when it comes to
short ball like this was range bound
chop chop chop and we were expecting
some sort of like ShakeOut basically a
shake out for the real breakout and so
far we had that I just I thought maybe
the ShakeOut could be a little worse
than it was it was actually quite
controlled compared to what we are used
to in short Vall and um it rolled back
up efficiently and pretty aggressively
once we took once we were able to really
secure above mid Vamp here end of April
uh shortall hasn't looked back so H
let's go let's go back to actually um
what I was speaking about earlier though
the the system right so I want to
explain what we're looking at here so
this is the seventh slide of our Quant
deck and this is what we produce on a
daily basis what it shows is the percent
strength of inflation and the percent
strength of growth now this is not the
same as saying um you know inflation has
a 70% chance of printing an X number and
growth has a 19% chance of printing a y
number or however you may see it right
like it's this is not 19% chance we're
going to print uh 3% real GDP this is
just the strength of growth overall and
we want the strength of growth to be
positive because if growth has positive
strength it's going to be generally good
for the markets and if inflation has
positive strength you end up in this
positive growth in inflation regime
known as inflation and that has that
historically is a very bullish Mar a
very bullish environment for almost all
assets outside of bonds and that's what
we've been seeing for months now pretty
much all year right I mean um there was
a good part of this year where we were
drifting up and down uh fighting between
expansion and inflation but it was it's
been risk on this whole year and we've
been either either fighting expansion
inflation or stronger inflationary
characteristics and weaker inflationary
characteristics but within the
inflationary regime now we're seeing
something so shift here where um growth
is gliding down slight a bit yeah we hit
a top in growth um you can see in that
chart on the left the growth index we
hit a top about a month and a half ago
yeah it's been grinding slower ever
since right and like you could see it
just here right like if we take a look
here
326 um we were sitting up here and you
know 75 and 75 right pretty much in that
on that uh Apex there and we've been
rolling down and I think that
this is not necessarily bearish A lot of
people are going to say like oh well
growth is falling that's not it doesn't
work like that growth kind of is growth
in our system remember this is not real
GDP growth this is not what we're
tracking here so our growth metric is
somewhat a little bit cyclical right so
it comes in these waves where where
it'll get a little weaker get a little
stronger with the high frequency data
that it's being fed it's not the same
it's not so uh point for point that you
see unlike maybe the uh Atlanta fed GDP
now tracker for example and
I want to also go back to the to the QQQ
because I want to make this clear I did
a uh podcast earlier this week with Mr
spreads and I think he's going to put
that up on X at some point later this
week or um this weekend long story short
is I did reveal some of this information
there so I only felt it was right that
we reveal some of this information to
the to our loyal listeners here that you
know take their time out of their week
take some time out of their week to um
give to us and and learn what we have to
say and explore what we have to say with
the market so on
May on May 17th so last not this Friday
or when you guys might be listening to
this not today last Friday um we sold
out we we ra we sold out of our uh QQQ
position or our leverag QQQ position by
45% we raised 45% of nav into cash so we
still are leverage long the NASDAQ at
the moment we're still leverage we're
still long unleveraged Bitcoin and we're
still long short volatility so So
currently we have a 45% cash position in
the account but we're pretty much
allocated um accordingly throughout the
rest of the models and what we did was
we raised cash for one specific reason
it has nothing to do with all-time highs
it has nothing to do with feelings and
this is going to give you a kind of a
real-time understanding of how this
works so I'm going to scroll down to the
Aries system uh the Aries model within
the rqf model so how this works is like
this the rqf has Aries Astria and
Hercules Aries is our three times
leveraged n long bonds or long Equity
model so it's going either long one of
them it won't long both of them at the
same time and if there is no position it
will just stay in cash it was at 60% of
nav into three times leverage NASDAQ
going into the into last week it closed
last week with 15% at three times
leveraged equities so we ended up
trimming 45 to 46% of nav putting it the
simply put one of the models out of our
three models decided it was best to size
down into the into the end of last week
and we did so accordingly without
question now what caused the model to
size down a lot of people have been
wondering this and maybe if you don't
know what any of this is you're
wondering why is the model sizing down
if growth is strong well the the key at
Market radar is we build models that are
unique and dynamic and don't we do our
best to not cross
contaminate conditions across our models
to prevent a scenario where let's just
say one one condition is somewhat out of
balance it's not it's there's an
abnormality it doesn't screw up the rest
of the portfolio and one of those
conditions is within the Aries model
that
trades bonds or equities and Aries three
times so if you think of it Aries times
three Aries 3 times Leverage is what we
use in the rqf but Aries by itself is
just long t long QQQ long TLT Aries 3x
is tqqq and TMF for those that don't
know tqqq is the 3 times leveraged
NASDAQ ETF and TMF is a three times
leveraged TLT ETF but back to it so what
happened the second layer growth index
basically the we have the growth index
that we showed you guys just earlier
here up here it is excuse me right here
we have a subv or I should say a higher
frequency version of this which we call
the second layer that runs in the
background and what it does is when that
growth index gets down to zero what we
do is we immediately take some risk off
the table so if that if that growth
index is
basically at zero on in positive
territory then we're going to take some
and we're long the NASDAQ we're going to
take some long Equity exposure off and
if that is in negative territory and it
climbs up to zero meaning we have
negative growth expectations negative
growth strength and it comes up to zero
we are going to take some Bond exposure
off the table so it's a very simple
filter otherwise we are 100% long um or
not long at all so there's only three
option the reason we added this second
layer growth index is because when
you're trading with three times leverage
you're going to have volatility Andre uh
you really need to be careful when
you're using leverage you can't like
obviously when when things are going
well it feels great but you don't want
to be three times leveraged when the
NASDAQ drops 10% that's not a fun time
correct and that the the
environment when're the second layer
growth index being at 0% doesn't mean
the NASDAQ is going to sell off
necessarily but there just is a higher
chance that there could possibly be
elevated volatility and so that's what
the system has been picking up with
growth starting to decline here still
being elevated so that's why we still
stay allocated in tqqq but just not a
full size because there is that
possibility of elevated volatility
coming up here correct and that's
something that we um we manage on a on a
Model by model basis right so that
second layer growth index is something
that is purely for the leverage portion
of rqf the other models do not have that
filter so I want to bring this back up
to where we were uh just a few minutes
ago in the regime map you could see here
growth has has been weakening somewhat
still positive X still positively or
still in a positive state of of growth
strength and inflation is in a positive
State as well so now some people might
be saying oh my God
stagflation right they're looking at
this saying up this is stagflation
growth is fading inflation is strong
again do not extrapolate the narratives
in the media for what our models might
say if we are to say in stagflation the
the the degree of where we are in
stagflation is very material do are we
sitting on the Zero line are
we floating
down deeper than that or are we you know
really in the bottom corner so I think
that the key here is going to be what
happens next we could very well just
turn right up and and glide higher and
just stay in this inflationary or even
shift over to expansion I do think that
there's there's some builtup inflation
weakness that is that I mean I built I
built these models so I kind of have
understanding of what is going to be in
what the model is looking at and where
the model is looking towards and I have
this idea that or I have this
understanding that there could be some
inflation weakness coming up but we
don't run the models at Market radar
it's what the mod we do what the models
say um I just have a feeling like we
could be shifting more towards expansion
but um those are just feelings and those
don't really matter as much as the real
data being printed so that's what we
focus on right I mean I remember at the
start of the year we thought the bond
trade was going to be the most likely
occurrence but we didn't run the model
and uh a lot of the members also were
anticipating the bond Trade A lot of
people were anticipating the bond trade
just all over Wall Street and that's why
everyone got caught so far off guard
when equities started just rallying and
making new highs and people were just in
disbelief the system never fell for that
the system told us okay it's time to
Long equities so we just listened to the
system even though we thought Bonds were
going to be the trade we don't listen to
our emotions because this system is way
smarter than we are right well the way
it works is like this the idea is that
we wanted to the objective with Market
radar has always been data dependency
right so we want to build something and
we want people to look at something what
you guys do with this is up to you but
we want you to come to something knowing
that there isn't someone looking at this
and giving you a biased opinion this is
not a research report that's written
with bias meaning I think even though in
has been moderating right I feel that
inflation is going to materially re
accelerate right that is not that
there's a lot of research reports like
that that do exist in this current
environment where people are expecting
you know a second wave a massive second
wave and I we never have done that we
never will do stuff like that because it
doesn't really do anyone any good
because it's not actionable and if it is
actionable and you're taking action on
stuff like that you're likely trapping
yourself in pretty poor position so
um po positions not a not a position
like like poor Equity positions right or
or asset allocations so I I think that
taking that step back and looking at the
at a in in a datab base View and a more
of a holistic approach where it's like
okay I need to understand the direction
of what's going on and then kind of
position around it um has yielded great
results for us and I think that is a key
that defines what we do and and makes us
stand out in the in this environment
where everyone's looking to have an
opinion and be right I'd rather be wrong
but catch the pivot and catch the pivot
right than be wrong and indefinitely
right like i' I'd rather admit that I'm
wrong now to catch a pivot and be right
than sit there and just worrying about
admitting that I'm wrong because that
image doesn't mean anything it matter we
we do this we play this game to make
money we don't play this game for our
egos a lot of people do but we
personally aren't here for E for an ego
contest we're here to make money so if
we do what we have to do we execute what
we have to do we have to execute and we
just roll forward with the waves and we
try and ride as many of them as possible
so I want to leave the the um this
section of the podcast I want to go into
um a question here uh little side side
question so um you can see the best
sectors on the left bottom left there
utilities has been a massive
outperformer lately and that's typically
a deflationary play you utilities do
well during deflation during risky times
money gets allocated towards utilities
correct what do you see with that being
an outperformer right now what is that
telling you well I think that number one
um look the systems obviously been
falling right for the last month and a
half in terms of growth right so like to
see this catch a bid in the last month
and a half it makes sense right like the
growth's weakening um utilities are
outperforming by by a fat margin uh the
other thing is is I think we're in an
environment where like look the fed's
really really tight in terms of policy
and we could debate that we that's a
fruitless debate though right they have
oh is the Fed really restrictive is it
too lose too tight the fed's a five and
a quarter right now right so the fed's
up there in terms of policy rate
compared to what we've seen in the last
couple of decades now the FED is at five
and a quarter and there the option here
is there's going to be a rate cut or
there's going to be rate a rate cutting
cycle at some point right um and that's
why utilities are moving because we're
pricing in rate Cuts then we're pricing
out rate cuts and the the Market's
looking for OB the utility markets are
looking for rate Cuts because what ends
up happening the reason why these
utilities get bid in a rate cutting
environment is the utilities are seen
are are pretty much only attractive for
their dividends right you buy utility
for that dividend growth you don't buy
utility for you're not buying the
utility company for the same reason
you're buying AMD or Nvidia or any of
these other Tech names right because
you're looking for that stability those
pay payments and whatnot and those
payments the your yields on utilities
are going to be correlated to what the
you can get a risk-free rate of or of
return on at at the FED right so if the
fed's going to drop that rate below
especially below the rate of utilities
or what utilities are yielding then
money is going to flow from there or
portion of it is going to flow there
into utilities because it's it's more
attractive yield especially if the FED
drops rate significantly then even on a
risk risk adjusted basis the yield
attractive so even more money gets gets
push there right so I think that even
though we're in an environment where um
like you said look utilities are are
more of a safety demand they catch a
safety bid they're not really like a
growth bid but I think that when you're
facing a situation where like the FED
could cut rates with the market at
all-time highs and without us being in
an actual recession it's like a win-win
situation where like look we spent the
last two years or most most of the last
two years because it's kind of broken
off the last year right but the most of
the last two years in a positive stock
Bond correlation to the downside because
the FED hiked so aggressively but what
happens if you have a situation where
the FED can reduce rates materially
without a recession I'm not saying that
they're going to but if they do if they
happen to do so right you're going to
again get a positive stock
correlation stock stock Bond correlation
to the upside now so everything gets
kind of that bid utilities bonds and
equities right so I think that to some
degree there's an there's a stat a state
of people or state of capital that looks
at utilities is almost like a risk-free
trade here right because look if you get
a recession rates are coming down right
so it's going to boost the demand for
for utilities or their
attractiveness if you don't get a
recession and the FED Cuts interest
rates marginally it's still good for
utilities right the only situation is
where the FED has to hike aggressively
and obviously the Market's not even
considering that right now and it's just
doesn't make sense for the FED to do
that right now so I think that like
utilities are in that win-win situation
where real estate has it's a little bit
different right you're talking about
it's just a different ball game debt
loads and whatnot are not the same right
um You have this situation where
commercial real estates obviously under
different pre performing vastly
different compared to like a utility
company and we can we don't even need to
go into like the balance sheet
breakdowns and the leverage ratio
between the two the two um the sectors
you could just look at it based on how
the comp how the sector have been
performing right like overall the basket
companies the reason utilities are
getting demand is again they're the more
robust um s they're the the the more
robust sector in this higher uh than
normal rate environment especially in a
scenario where the FED can cut rates
either with or without a recession so I
don't think this should scare you is
what I mean to say right looking at
utilities as the top performance not
really a sign that the Market's looking
for deflation coming up soon it's more
of just the environment we're in is just
it's it's kind of a win-win situation
for utilities whether or not we do get
deflation or whether or not we just get
rate Cuts but somehow are able to just
get that soft Landing scenario of course
like I'll tell you this much if the
market was really getting amped up on
deflation the third best performing
sector would not be
energy right like this this would not be
up here so that's already one warning
sign of look and again energy is also a
very heavy um sector eliminated with
interest rates right with uh with
dividend yields right um
so I think that because it's a very
utilities and energy are very dividend
focused again in a situation where like
you get softer softer growth maybe
softer inflation softer labor market
right or maybe somewhat High to Sticky
inflation softer growth um software
labor market so on and so forth and they
can bring rates down you again just
increase the attractiveness of the
dividend yields on the energy stocks and
therefore again even though you don't
have a real recession you kind of make
the divid you kind of make energy more
um lucrative and I think all in all this
is not I like if we take a look at the
major Trends right on this report this
is not bearish literally every sector
but real estate is bullish and real
estate is neutral so that it's very hard
to be bearish
bonds are bearish vix is bearish gold is
bullish come literally everything here
about real estate is everything that
needs to be bullish in a in a real bull
market is bullish here outside of real
estate and I think that we'll start to
see stuff here change even before may
maybe the system picks it up first right
because the system and the trends aren't
really correlated at all so the trends
can flip without the system flipping the
system can flip without the trends
flipping uh and that's what makes our
our whole approach very unique right we
don't we don't we try and reduce the
crosscorrelations of things vastly so
we're not just looking at different
versions of the same data so like if the
system starts to weaken a bit I would
assume we would start to see some
breakdowns in some in some Trends maybe
like Industrials right growth growth
stuff Industrials
um uh discretionarily
but it's not nowhere it's not anywhere
near where we have to start getting
super scared and the model is just
saying look there's a situation where
maybe Q The Q's can dip maybe maybe they
go down to lower Vamp or maybe they just
go down to Mid Vamp or maybe they don't
go down at all the system is trained to
remove risk when the growth expectations
get somewhat choppy like they are right
now they're not they're not negative but
look they're not as high as they once
were and if that's the case we take some
risk off the table if we to buy in
higher because growth rebounds and we
just there was a system mishap which the
system isn't Flawless there is no system
that is that's perfectly fine we don't
care doesn't matter where we buy or
where we sell we we don't really care
like oh did we buy time the top did we
time the bottom irrelevant what matters
to us is this we are trying to take as
much or capture as much of this of these
stats as possible this is the systems
performance going back to
2016 um or I should say rqf right the
the Quant fund model that runs all three
strategies simultaneously together in
one portfolio these returns are what
we're trying to
capture and to do that we have to
execute as the signals come we cannot
sit here and capitulate and say you know
what um stocks are down too much I want
to get out no that's not how it works if
that if you're in a position where uh
the last draw down which I think was
what what was it 15 16% on rqf yeah yeah
it wasn't too bad no it was like 16% now
people like oh my God 16% you've been
following um if if you think 16% draw
down in your account is horrible you've
been macro pilled we can debate that all
we want and now your age matters and
this isn't financial advice either right
but your age does make a difference if
you're 75 16% draw on is not ideal but
the problem most of you guys are going
to run into in this macros space again
please do your own research on this
understand what you're doing don't just
blindly follow anything these are
hypothetical models we follow them with
real money in the um in the Discord chat
WE Post daily screenshot of a real
trading account that executes live and
we post monthly Recaps on our X page of
the performance each month based on the
real-time positions that we execute in
that account but that doesn't mean you
should be following it step for step
long story short if people in the space
are going to experience something that
they are going to go to people they're
going to come into the space maybe they
want to grow money aggressively right
and they're going to come across people
that are institutional service providers
meaning they're selling research reports
for institutions you cannot approach an
institution a real institution not a
hedge fund like some money manager and
tell them you have a model that has um
an average draw down of 9% when the
spy's average draw down is 4% he's going
to tell you that's garbage right he's
not going to even look at the returns
he's going to tell you that's garbage
because at the end of the day they have
they're the ones that are advising and
have to take telephone calls or whatever
client conferences when the Market's
down and their clients emotions are in
shambles they don't want to deal with
the volatility what ends what ends up
happening in this macros space is you
have these veteran people that have run
through the mill they they have all this
experience in in low variance or call it
Vol volatility controlled portfolios
maybe 60 40 but then split out um that
60 isn't just aggressive equities it's
it's like it's split nine ways Seven
Ways to Sunday right whatever whatever
it is and they have this this super low
ker model but has a super low draw down
and I'm not talking about really low but
maybe 7% Ker right yeah but it's like
what's the goal here the goal here is to
make money and if you want to have a 40%
ker you're gonna have to take some risk
that's that's just the way it goes
correct and I think people in the people
in the industry what they do is they
they are they're trained in a way that
when they resell their products out to
retail on on Twitter maybe they they are
so used to this investment um investment
fund or investment advisory approach
where in reality our goal is look if we
can make if if this is the ker 46% a
year even if this Ker's cut in half 25%
a year and this is the draw down metri
and these are the draw down metrics this
is fine I'm I'm okay with this I you
need volatility to generate if there
there is not it's it's ma it's nearly
impossible to generate
outsized Equity substantial outsized
Equity returns without inducing
substantial volatility in the process on
unless you're making markets that's a
different story but we're not market
makers and most likely anybody listening
to this podcast is not a market maker so
that's our approach to this
look size
accordingly take the risks that you're
willing to handle adjust accordingly
manage your own risks for us 9% average
draw down 16% draw Downs is
nothing on on $10 million it's $1.6
million at 16% right sounds like like a
lot because it's big numbers right but
to over time to
generate 4.6 million a year or $4.6
million that year and risking 1.6
million makes a lot more sense than just
risking 1.6 million to maybe make 1
million right so that's the key here you
want without the kager and without the
outsize performance these draw Downs
become dangerous like if your if your
ker is like 9% and you have a 9% average
draw down that's least
we look to we accept these returns or
this risk because the returns have been
excessive and we we will continue to
accept accept this volatility if the
returns continue to prove to be
excessive if that changes obviously the
landscape changes and that's where I
think we can wrap this podcast up this
weekend uh this week excuse me if you
guys have any questions feel free to
reach out to us on X at the market radar
or go to our website at market-
radar.com
thank you so much and we'll see you guys
next week
[Music]
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