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I’ll be the first to admit that talking about current economic conditions isn’t as entertaining as watching a guy push sound effect buttons while rattling off a bunch of stock tickers until he has you investing in every company in the Wilshire 5000. But if you can understand the impact that growth and inflation have on asset prices, then you can gain insights into risks and opportunities that other investors miss.

Since last week, it appears as though the world has started to drink my Kool Aid because all anyone can talk about is U.S. inflation. The problem is that they believe inflation is the key to forecasting the Fed’s next move.

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All We Need Is Just a Little Patience

Yes, I just started this week’s commentary with lyrics from Guns N’ Roses. Don’t count out a future Vague Destination entitled “Welcome to the Jungle.” Both titles are very appropriate springboards for a conversation about financial markets.

One of the overarching themes of my investment philosophy is patience. In the investing game, patience means acting only when opportunities present themselves, and not one moment earlier. Practicing patience, all by itself, can give you a huge edge over other investors because the hardest thing for most people to do is nothing. It’s incredibly difficult for investors to grasp the idea that making a decision to do nothing is just as proactive as making a decision to change something. But as you’ll see, doing nothing must become a regular part of your process if you want to be a successful investor.

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Somewhere Between Love and Hate

Author Shannon Alder wrote, “Somewhere between love and hate lies confusion, misunderstanding and desperate hope.” Last week, Mario Draghi spoke at the ECB forum in Sintra, Portugal, and the investor reaction to his comments made it clear that euro bulls are caught somewhere between love and hate.

These poor souls immediately piled into the long side of the trade at the fastest pace in five years, bidding the euro to a one-year high in the process. The bulls are desperately hopeful and confused, and have completely misunderstood Draghi and his intentions for ECB policy.

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The Cryptocurrency Rant

Most ranters want to blow off steam, but some people want to help others make wiser choices in the future — which brings me to my own rant.

I’ve seen enough cryptocurrency stories over the last few weeks to last me a lifetime, especially about Bitcoin. Bitcoin is not a store of value, and it’s not a reasonable investment candidate. You’ve been warned!

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You've Got One Job

Last week, I was behind a lady who approached a four-way stop sign as she was applying her morning makeup. Her car crept into the intersection until she actually stopped right in the middle of it. She had been completely oblivious while she put on her face. That is, until I gave her a polite “you’ve got one job to do, and that’s to drive” honk.

This incident reminded me of what happens when investors ignore the data and instead pay more attention to media narrative, friends at cocktail parties and nut jobs on TV with more sound effects than financial market acumen. This commentary, my friends, is your “you’ve got one job to do” honk.

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One More Night

I have a confession to make: I love reality TV, and the trashier the better. After a long day traversing the globe generating alpha, there’s nothing quite like kicking up your feet with a glass of Kentucky water and watching women fight over whose Birkin bag cost more. I was indulging in my guilty pleasure recently when I saw a commercial for an upcoming show called A Night with My Ex.

Seriously, can you think of anything worse than spending a night with your ex while the cameras roll and hundreds of thousands of viewers witness the whole thing? Those people are going to discover that it always turns out like the Maroon 5 song One More Night. They’ll wake up hating themselves.

I’m definitely recording that show, but luckily I don’t have to wait until July to get my fix. That’s because right now investors are making a Night with My Ex-type mistake in U.S. equities, and I’m bearing witness.

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The Key to Good Performance

Focus and concentration are the keys to accomplishing anything of significance and experiencing success in any area of life. Yet when it comes to investing, concentration seems to be a four-letter word.

Instead, diversification gets all the glory as the way to invest, and as the primary tool for sound risk management.

Like a game of telephone that started in the '70s, the definition of “diversification” has been somewhat butchered. “Diversification” has come to mean that the more investments you have in your portfolio, the better.

But is that really diversification?

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Three Pitchers of Beer and a Black Light

I turned on the TV the other night and was shocked to see college bowling being broadcast. When did colleges start forming bowling teams?! More shocking was when one of the commentators referred to the participants as "athletes."

My athletic career ended in high school, but I’m quite confident that nothing athletic occurs under black lights after three pitchers of beer. Well, at least not anything that can be shown on network television.

Saying people who bowl are athletes is like saying people who play paint ball are Navy Seals.

Just as that announcer got carried away, so too have investors who are piling into the long side of the euro because they believe the European Central Bank is ready to taper and begin shifting towards a more hawkish policy.

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Cause Célèbre

My old man grew up in a share cropping family in East Tennessee, and only finished the eighth grade before setting out on his lifelong entrepreneurial path. Despite less than modest beginnings, he had a vocabulary that would make the SAT designers blush, and he loved the phrase “cause célèbre.”

Last week, investors experienced a cause célèbre when reports came out of Washington accusing Trump of both asking former FBI director James Comey to squadoosh the investigation into Michael Flynn and sharing closely-held intelligence with Russia. In typical fashion, investors got distracted, lost focus on the forces that really impact asset prices, and did exactly the wrong thing at exactly the wrong time.

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Snap and Bend

Hi, my name is Landon, and I don’t understand the frenzy about the Snapchat app. Whew, that was tough for me to admit publicly. I hate to sound like the old curmudgeon who yells at kids to stay off his lawn, but I just don’t get it.

It’s an app that lets you add cute animal features to photos of your face, and encourages you to send the kind of texts you don’t want anyone to see for longer than 10 seconds. What could possibly go wrong?!

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Drinking with Mr. Jones

Shorting financial instruments and company stocks is an invaluable tool which can be used both to dramatically improve the risk profile of a portfolio and as an integral way to generate alpha. That said, shorting financial markets isn’t for amateurs. Shorting the “volatility” asset class is as risky as having a glass of Kool Aid with Jim Jones.

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Changing Lanes

Despite the fact that we can’t pinpoint the exact destination of economies or financial markets, investors hunker down in the right lane anticipating a turn that may or may not ever come. In the process, they leave their portfolios at risk of underperformance and outright losses.

Right now, investors are stuck in gridlock in the right lane believing U.S. growth is slowing, when they should be cruising in the left lane investing in growth assets because U.S. growth is, in fact, accelerating.  

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More Is Not Always Better

The ETF (exchange-traded fund) industry has exploded since the very first one, the SPDR S&P 500 ETF Trust (SPY), began trading in January 1993.

The popularity of these vehicles has reached new heights recently because investors are fed up with the mediocre performance of active managers. In the last few years alone, investors have plowed almost $3T into passive funds while yanking over $1T from active ones.

Who can blame them?

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The Big Fundamental

When it comes to trading markets, it’s the Fundamental Gravity of a market that matters most. It’s not as much fun as perusing price charts, watching for abandoned baby candlestick patterns or those Fibonacci levels that the Illuminati love so much. And it’s certainly not as entertaining as watching gas bags talk about stocks while pushing buttons on a sound machine. Booyah!

But I can promise you this: nothing in this world, outside of central bank policy, has more impact on the direction of U.S. asset prices than the trajectory of growth and inflation in the U.S. economy. Nothing.

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The Great One

Wayne Gretzky famously said, “I skate to where the puck is going to be, not where it has been.” Successful investing requires this same mentality.

Right now, investors are making a common mistake by extrapolating the current state of affairs into the future. Specifically, they are overly focused on the fact that global inflation has been raging to the upside. I can’t say it more plainly: economies and markets don’t go straight up or straight down. Rather, they are cyclical.

Just because inflation has awakened from its post-Crisis slumber doesn’t mean it’s going to continue to accelerate month after month.

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It's All Relative

One of the aspects of trading a hedge fund that I enjoy most is the ability to express a trading perspective in unique ways, rather than simply getting long or short a particular market or financial instrument.

One technique I frequently utilize is a relative value trade. At its essence, a relative value trade allows me to trade one market long and another market short in order to capture the difference in relative returns of the two markets. The beauty of this type of trade is that in addition to only having to be correct about the relative returns of two markets rather than the absolute direction, it also allows me to dramatically reduce the risk profile of a stand-alone long or short position. This gives an additional margin of safety.

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Broke

No, this isn’t an ESPN 30 for 30 documentary on the sad state of NFL players’ bank accounts three years after their careers end. This is about how investors’ preoccupation with “repeal and replace” last week led to an unimpressive decline in the S&P 500 and a huge rally in Treasuries and gold.

The greatest trading opportunities come when the public’s perception of a market diverges from the most probable direction of that market. This axiom was on full display last week as gurus and media talking heads proclaimed a major “turning point” for markets.

It wasn’t a major turning point. But it was an opportunity to use investors’ fixation on the event du jour to position yourself in trades that will get you paid when the focus returns to what really matters: U.S. growth, yields and the greenback. When investors turn their attention away from “repeal and replace” and back to the Big 3, you want to be long U.S. equities and short gold and Treasuries.

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Five Simple Words

Last week all eyes were on the Fed’s rate hike decision, which was a foregone conclusion. But the real central banking action took place 4,000 miles away.

Before you fill my inbox with nasty grams, I’m not saying the Fed doesn’t matter. In fact, it’s the world’s most important central bank. But the most critical central banking development impacting markets last week was not the Fed’s rate hike. It was five words spoken by a guy you’ve never heard of, to a media outlet you’ve never heard of either.

These five words were so profound that they moved me. Specifically, after carrying a SHORT bias on the euro for 44 consecutive weeks, these five words moved me to the LONG side of the euro-bloc currency.

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Fear Mongering

Folks, I can’t state strongly enough that the world sits on the precipice of an economic collapse like we’ve never seen. The real question is, when this collapse of Biblical proportions will occur, will you have built an Ark for your investment portfolio in time?

The people responsible are the central bankers and global elites. They are more interested in keeping their Bentleys gassed and their pools heated than providing opportunities for prosperity to the rest of us.

These people have gotten away with being modern day versions of Frank and Jesse James for so long, it’s now our “normal” and we don’t even question it. The unfortunate fact is that for those of us not lucky enough to hobnob with central bankers and people of influence, it’s about to get a lot worse.

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Shiny Objects

It never ceases to amaze me how easy it is to distract investors with the latest narrative, like a three-year-old that has his attention diverted by every object that passes in front of his gaze.

Narratives this year have ranged from the “animal spirits” in markets, to markets being “offensively overvalued,” to how the historic low volatility is the harbinger of bad things to come. These topics are certainly the lifeblood of networks like CNBC, which are sitting at decade lows in viewership. But the truth is that while these themes may be fun to read about, they simply don’t move markets beyond a few days.

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