Editor's Note: Below is a transcribed excerpt from Hedgeye CEO Keith McCullough's recent interview on Macro Voices hosted by hedge fund manager Erik Townsend.
In the excerpt below, Keith describes why the Tech rally is not over and why we're bearish on Energy stocks. Click here for a very special deal we offered to all listeners. To listen to the entire conversation, click the podcast player below or visit the Macro Voices website.
Erik: Let's come back to your reflation rolling over theme, the slide deck that you sent us, we've got several slides on that, our registered users can find the download link in the research roundup email. If you're not registered yet we told you earlier in the program how to get the slide deck.
Walk us through this, what you see in the reflection trick as well, I find particularly interesting is most of the people now that are all telling the same story because it's popular about the reflation trade rolling over, they're also turning into big equity bears and you've got the reflation trade rolling over theme but you're actually equity bullish.
So, how does this all tie together?
Keith: Well I think if you just separate this down to two columns and you have your longs and your shorts, I mean if you want to be short reflation, the other side of that ledger is being long what we call real growth.
So, real growth accelerates, I'm pretty sure that most people that do macro should understand this, if they don't, it's a very simple calculus. When inflation slows at the rate of change basis the deflator (i.e. how you calculate GDP) falls. So, the deflator falls and real GDP rises. It's not that complicated.
I do agree that a lot of people have been bearish on the stock market for the last three, four, five, six, seven months and they just kind of wander out there like a macro tourists to the next thing that is bearish. Now there's always going to be something that's bearish, my goal is to find it.
But it doesn't always have to be where you're hoping it is. Most people start with, “Wow, that market is expensive it must be a short.” In macro clearly cheap gets cheaper and expensive gets more expensive so I want to be uniquely long expensive because I think real growth expectations are rising, so tech and consumer discretionary are our two favorite sectors.
In the market, our least favorite sector currently is Energy so we're on the right side of the barbell. If Energy looks cheap, great, I think it's going to get cheaper especially levered, cheap companies with bad balance sheets. Because again we're bearish on oil prices, we’re bearish on commodity prices. We're bearish on anything that is reflation.
I think that's the most basic way to summarize it. I think that if you go beyond just the U.S. centric view and the commodity inflation bubble brought to us by Ben Bernanke, I'm not bullish on China, I'm not bullish European growth, I’m not bullish on a lot of things. You don't have to be either bullish or bearish on everything. I think that there are certain websites that you could read to get that view but that's more of an advertising model than it is an accuracy one.
