The record of Keith McCullough is intact.

The maverick founder and CEO of Hedgeye Risk Management has not failed to anticipate a bear market crash since 2008.

That prescience over the years has probably saved him and his subscribers and large institutional clients untold billions of dollars.

The crash of 2008 was the year after McCullough was fired as a hedge fund manager by Carlyle Group for being “too bearish.”

He, of course, turned out to be correct about what we now call the Great Financial Crisis.

McCullough, who hails from Thunder Bay, Ontario, founded Hedgeye in 2008 with a goal of bringing hedge fund-quality research to the masses through transparency, accountability, and trust.

Since then, he’s been refining his data-driven process to the point that he’s been right in calling every bear market – commonly accepted as a major stock index dropping 20 per cent or more from its recent peak.

And, as McCullough likes to remind people, all of his opinions are on the record and time stamped, unlike many mainstream financial media pundits who, he says, rarely own up to their erroneous forecasts.

McCullough sniffed out the U.S. Federal Reserve’s mistake in 2018 of tightening monetary policy into an economic slowdown.

That led to a dramatic downturn in stock prices late that year, and the Fed had to acquiesce to the market and pivot to an easing policy.

Then, in the early days of the pandemic in January of 2020, McCullough helped people avoid losses on the long side and profit on the downside from what turned out to be the fastest-ever and steepest-ever drop in the S&P 500.

As for this recent stock market crash, McCullough started warning his subscribers as early as September of last year that the easy money-driven gains for the “everything rally” could soon reverse.

Does that mean he’s a permabear and missed the extraordinary run-up in most asset classes from the pandemic bottom?


McCullough likes to say that, in market terms, he goes both ways.

Heck, he owned some cryptocurrencies such as Ether until the fall of 2021 before his signal told him to step aside.

Leading up to the recent crash, McCullough and his subscribers who follow his process actually profited handsomely by reaching the summit of the stock market cycle.

The view was “beautiful”, McCullough said.

His mountain analogy was inspired by No Shortcuts to the Top, by famed extreme mountaineer Ed Viesturs.

It’s one of the many books about behavioural psychology, math, and history – the “Celtic Trinity” of the Hedgeye process –  that McCullough regularly refers to on Hedgeye’s live, weekday Macro Show.

But by early November of 2021, his proprietary, fractal math-based, algorithmic signals and quads started indicating it was time to descend the mountain and position for the coming storm. 

In fact, in order to protect and preserve his capital and those of his subscribers and institutional clients, some of whom manage trillions of dollars in assets, McCullough said it was mandatory.

About those signals and quads.

(For a full explanation, check out this new 90-minute Hedgeye University course.)

Essentially, McCullough, and his team of 40-plus analysts, continually measure and map reams of macro and micro economic and financial market data from 50 countries to determine the direction of growth, inflation and government policy (GIP), and which of four quads a given economy is in.

Quad 4, which the U.S. and much of the world now resides, means the rates of change of economic growth and inflation are decelerating.

That’s bad if you’re mostly long the market.

“That’s when the s*** hits the fan”, McCullough said.

That’s also when the U.S. dollar, gold, and various types of bonds can protect your wealth.

Although, while many commodities such as industrial metals are dis-inflating, energy and food inflation are still lingering at relatively high levels.

Hedgeye was very early in seeing inflation start to percolate back in June of 2020, well before it became the front-burner story it is today. 

Meanwhile, the U.S. Federal Reserve, after continually misreading burgeoning higher prices as ‘transitory”, is now hell-bent to get inflation under control by aggressively hiking interest rates.

Bond yields have been reflecting that by rising and bond prices have been falling, so bonds as defensive assets are not working just yet in Quad 4.

The Fed’s belated actions epitomize the misguided monetary policy tightening into a slowdown scenario McCullough has been warning about for months.

Stock and bond market investors don’t like what Fed Governor Jay Powell and his crew are doing and the proof is in the worst start to a year for the S&P 500 since 1932.

And, the worst start to a year for bonds since the 1840s, according to some measures.

By following the Hedgeye process, including the daily, proprietary Risk Range Signals, owning U.S. dollars and gold, and executing on some timely and disciplined shorting of various indices, single stocks and ETFs, you’ve got the gist of McCullough’s formula for protecting capital and profiting in the current environment.

It’s a “better way”, McCullough said.

Better than being what he calls a “macro tourist” bouncing from headline to headline and following the advice of mainstream financial media personalities such as “Chromedome” Jim Cramer” of CNBC, as McCullough calls him, whom he regularly rails against.

Cramer was eviscerated by former Daily Show host Jon Stewart in an interview in March of 2009 for continually misleading investors with poor advice.

Thirteen years later, not much has changed as Cramer pronounced on March 25 this year that the bear market was over.

Uh, a quick check of the numbers shows the Nasdaq Composite, for example, plunged another 25 per cent after that.

McCullough also criticizes other “Old Wall” Street types such as Thomas Lee of Fundstrat, whose market calls were accurate while stocks were going up but have been woefully wrong while he remained bullish on the way down.

These kind of people lead investors astray and “have no process”, according to McCullough.

What’s next?

At the moment, McCullough’s data is telling him the probabilities are that the U.S. remains in Quad 4 – growth and inflation decelerating – until at least the end of the year.

And when will Quad 4 end?

McCullough will know by doing what he always does.

Dispassionately watch the data and wait until his signal tells him it’s over.


Related stories:

“Playing the Game out Loud”: One-on-One with Hedgeye Founder Keith McCullough

Market Meltdown: We Warned You. (Brief video clips starting last January of McCullough explaining why he was front-running a Quad 4 market crash)

Hedgeye’s Summer Reading List

Disclosure: Mark Bunting is a Hedgeye Risk Management subscriber