“If you’re running a business anywhere, people who do really well are the people who have mental toughness.”
- Robert Kraft
Mentally, can you handle bear market squeezes? I can. I’ll never forget the +23% squeeze back in 2008. That was year 1 of Hedgeye.
I couldn’t have built this place on my own. I was reading Ricci’s Early Look yesterday and was not only impressed with how far he’s come, as both an analyst and a person on our team, but how he recalled so many of the times I’ve been squeezed since starting this business in 2008.
When it came to building both his brand and business, “Kraft’s underlying philosophy rested on the notion that winning over a sustained period of time requires the co-existence of superior athletes and a superior coach. One is not more important than the other.” -The Dynasty, pg 22
Back to the Global Macro Grind…
Not ironically, the aforementioned quote by Jeff Benedict came from a chapter he titled “The Long Game.” Oh yes, I’ll get into the Short Game momentarily, but being a Full Cycle Investor in both your business and in markets requires more than a 50-day #MovingMonkey.
We’re only 7 months into this bear market in US Equities and only 3-4 months into this bear market in Commodities. ALL bear markets are different because they are born out of different bubbles. If you’re thinking “it’s like 1982” this morning, #drink.
That’s the latest from Telecom Tom. Now do what Tom Lee was saying back in JAN and #drink again. It’s a summer Friday.
For those of you who don’t want to get hooked with the latest Perma BS clickbait, you’ll recall that the 1980s bull market was born out of the most protracted bear market that anyone old enough to have risk managed it has ever seen.
The 1980s bull market was born out of a Long 1970s Stagflation & Profit Recession that saw SPY crash to 7x earnings.
Now, you get to buy SPY at 21x what’s a probable SP500 NEGATIVE year-over-year earnings run rate from the one that literally just started here in Q2 of 2022. What a deal. If you start making investment decisions with “valuation” (and not The Quads), that is.
On second thought (because it only should have taken you 3 seconds to think about why it’s not 1982), maybe Telco T is right. In 2032 we could have the mother of all bull markets born out of this one going to 7-12x what ends up being the trough in SPX Earnings!
You also have another one of the many month-end markups to deal with today. Those happen a LOT in bear markets. But, just to prep you for WHEN I go back to my MAX net SHORT of -25% next week in my Long/Short Book (remember I covered a bunch on Wednesday)…
Here’s a Q222 Earnings Season Update:
- 264 of the SP500’s companies have reported an aggregate year-over-year Earnings DECLINE of -2%
- Financials have led losers (so far) with a -26% year-over-year DECLINE
- Beloved Tech just went to NEGATIVE year-over-year Earnings for the 1st time in many analysts career at -3%
- Widely Owned Consumer Discretionary Earnings just collapsed to -17% year-over-year
- Utilities (XLU), which is my #1 US Equity Sector Long during a recession, has +7% year-over-year EPS growth
Do you know how long it is going to take for what everyone still owns to:
A) Stop seeing a ROC (rate of change) deceleration of year-over-year REVENUE and EPS GROWTH?
B) Start seeing any POSITIVE level of absolute CASH FLOW or EPS (for the companies that have none)?
C) Stop seeing Thunder Bay Bears poop in the woods?
Notwithstanding the obvious problems here with governments, asset management firms, and their “economists” and analysts having ZERO track record and/or credibility in either calling for #Quad4 Recessions or modeling them accurately, I’m not the first guy to remind you of that.
Remember my boy, Hazlitt from Economics In One Lesson?
“Today is already the tomorrow which the bad economist yesterday urged us to ignore.”
That is easily one of the most important quotes to pin beside these narratives that are invading both your precious life and cycle time each and every market morning. And you know who reminded me of it last night? An even more junior analyst (rookie from Texas) than Ricci!
That’s right. The People aren’t as gullible or conflicted as the Old Wall, its Perma Bull cartoon characters, and its media.
Just to close out on that thought. Think about this very obvious example (and partly why Consumer Discretionary Earnings just entered what should be a LONG profit recession) of Amazon.com:
A) It lost > 90% of its equity value in the GROWTH bear market of 1 (and still became Bubble Cap AMZN by 2021)
B) It originally guided Q3 of 2022 profits (EBIT) to $8B and is now guiding that to $3.5B (which is DOWN -27% year-over-year)
And that’s with a VERY optimistic REV GROWTH RATE in the HIGH TEENS!
Again, I’m not telling you how to build your business. I’m just reminding you about what it’s taken for me to build mine when accurately calling for crashes and bear markets. It takes mental toughness and a damn good team.
I sincerely hope you and/or your team are proactively prepared for Part II of this bear as the Profit Recession accelerates in the 2H of 2022.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 2.92-3.20% (neutral)
UST 10yr Yield 2.70-3.08% (bearish)
UST 2yr Yield 2.88-3.31% (bullish)
High Yield (HYG) 74.09-78.30 (bearish)
SPX 3 (bearish)
NASDAQ 11,103-12,311 (bearish)
RUT 1 (bearish)
Tech (XLK) 130-144 (bearish)
Utilities (XLU) 69.40-73.49 (bullish) `
Shanghai Comp 3 (bearish)
Nikkei 26,801-28,320 (bullish)
DAX 12,790-13,451 (bearish)
VIX 21.83-27.33 (bullish)
USD 105.90-108.21 (bullish)
Oil (WTI) 93.22-101.34 (bearish)
Nat Gas 7.05-9.11 (bullish)
Gold 1 (bullish)
Copper 3.21-3.53 (bearish)
Bitcoin 20,004-24,434 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
