In a large deep pot, heat milk, water and salt until steaming, just before boil. Watch carefully so it doesn't boil over. Add macaroni, stir to prevent sticking to bottom.
Cook over medium- high bubbling for 12-15 minutes or until tender, stirring occasionally. Do not drain. Turn heat to low.
To the pot add butter, cream cheese, pepper, mustard, hot sauce (if using). Mix until fully combined and melted. Add shredded cheddar and monterey jack cheese, mix again until cheese has completely melted.
Remove from heat and serve immediately.