Dear Hedgeye Nation,
We just hosted nine of the sharpest investing minds on HedgeyeTV for a 3-day bonanza of world-class interviews. During our semiannual Hedgeye Investing Summit, Hedgeye CEO Keith McCullough was joined by Michael Green, Portfolio Manager & Chief Strategist at Simplify Asset Management.
Below is a brief excerpt and transcript from the interview. You can access the entire hour-long interview, as well as the 8 other financial market webcasts, by registering here.
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“The path forward is very uncertain. If I look at how I’m thinking the world looks, I would suggest that it looks an awful lot like the 4th quarter of 2018,” Green emphasizes.
“We’ve seen similar time periods in 2010 coming off the 2009 recovery where there was a pause in the market. It feels very much to me like we’re in that sort of situation . . You’re looking at a lot less certainty around the idea that this is going to recovery sharply.”
McCullough: Let's start with that. The world that we're in is increasingly volatile on a lot of different fronts.
What do you think about what's going on?
Green: Well, I mean, this is what we were talking about before. You said embrace the uncertainty. Part of what I'm struggling with right now is that the path forward is very uncertain.
So if I look at kind of how I'm thinking the world looks, I would suggest it looks an awful lot like the Q4 of 2018. You've had a recovery in demand for commodities. You've seen the the structure of the world effectively that, in 2015-2016, was all about a dramatic slowdown in the Chinese economy, which of course hits the demand for things like oil, copper, etc. that began to recover.
You began to see the limits pushed up against. And if you had actually looked at the price of natural gas and oil in Q4 of 2018, or the level of interest rates, they were all indicating that things were quote, unquote "getting much better." And then the bottom kind of fell out.
Right, for a variety of reasons. We've seen similar time periods in 2010 coming off of the 2009 recovery, where there was a pause in the market.
It feels very much to me like we're in that sort of situation. And I think anyone who expresses certainty around what's transpiring when we have the dynamics in play in China, where growth is very clearly slowed both on a cyclical and structural basis.
In the United States, you're beginning to see evidence. If you look at homebuilding stocks, they are very clearly rolling over in a way that is very similar to what transpired in Q4 2018. Transportation stocks have been weak now for give or take five months.
You know, you're looking at a lot less certainty around the idea that this is going to recover sharply. And so, you know, do we get a cold winter? Entirely plausible. Right. Certainly forecasts for an El Nino would suggest that in Europe and the United States, there's going to be excess demand.
On the other side of it, you know, you and I've been doing this long enough and people always say this and they always kind of are unwilling to to accept it.
But the cure for high prices is high prices instead of, you know, the stimulus now coming through and showing dramatic increases in purchasing power for households.
We've actually seen declines in purchasing power for households not in the United States. Go to the emerging markets. It looks terrible. I mean, I would direct people I've been focusing my own internal team to start to think about emerging market effects.