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Editor's Note: Hosted by Hedgeye CEO Keith McCullough weekday mornings at 9:00am ET, The Macro Show is the only live pre-market show packed with data-driven macro analysis and devoid of narratives. It offers smart investors actionable ideas to execute upon to protect and grow their portfolio. Enjoy this complimentary edition below. |
Are you bearish enough?
All investors should be asking themselves this simple question right now. The U.S. economy is headed into the throat of a massive slowdown (i.e. #Quad4 in Hedgeye-speak) and corporate America is just beginning to show signs of cracking.
"We're at the cycle low for earnings growth and it’s going to go lower," says Hedgeye CEO Keith McCullough in the complimentary edition of "The Macro Show" below. "So earnings are going to go from -3% to -5% to -10%... The earnings recession is going to be nasty."
The bad news has begun for large cap Tech. Facebook (META), Google (GOOGL), Microsoft (MSFT) all plummeted this week on earnings slowdowns. We think this is just the tip of the iceberg for U.S. listed companies. "This is way worse than the Great Financial Crisis and it’s rivalling the Dot Bomb blowup," McCullough says of earnings in the Communications sector.
Below is today's entire complimentary edition of The Macro Show. Also below we've transcribed key excerpts to keep you ahead of the next big market move. (CLICK HERE to get access to the Macro Show every day.)
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CEO Keith McCullough: I’ve heard this like eight to ten times from institutional clients this week, “Keith, you’ve got to admit that earnings have been better than expected.”
I have two answers to that question.
- “No, I don’t” and
- “Look at the numbers”
This is the cycle low for earnings growth and it’s going to go lower.
This is the first Quad 4 in Q3 and Q4 is going to be way worse. So it’s going to go from -3% to -5% to -10%. Communications earnings are already down -24% year-over-year.
McCullough: What does that mean? Look at the Chart of the Day. It’s way worse than the Great Financial Crisis and it’s rivalling the Dot Bomb blowup.
Director of Research Daryl Jones: By the way, this is before they’ve reported top line erosion.
McCullough: Yes, we’re just starting to see that. That’s why Meta (META) was a better short within 5 minutes of reporting than it was before, because they’re just starting to talk about that. Our analyst, Andrew Freedman, has absolutely nailed this.
That’s how a stock goes from -5% to -20% because you don’t know where the numbers are going.
People say to me Jonesy, “Where are the imbalances? It’s not like the other crises and the other crashes that my boss and I didn’t call.”
Where are the imbalances? Are you serious? Let’s just use Zuckerberg’s age and experience. He has none. He has not seen a cycle. He is going to spend close to $100 billion in operating expenses into a #Quad4 tornado. And he has no idea what that looks at.
Losing $500 billion in market cap, I’d say that’s an imbalance. It was certainly bigger than the tulip imbalance and the Dot Bomb imbalance. You tell me what stock has lost $500 billion in market cap and that’s before what’s going to happen today.
So don’t give me this bullshit that earnings are better than expected. They just got a lot worse in places where investors have a lot of exposure: Google (GOOGL), Facebook (META), Microsoft (MSFT).
What if Amazon (AMZN) and Apple (AAPL) report similar numbers to the other large cap tech names tonight? What if they don’t? Well, they’ll just have to report reality later.
Do you know why? We’ve only entered the first of four #Quad4s. The earnings recession is going to be nasty.
And then I hear, “Everybody is bearish.” Well, they’re not positioned bearish. They’re positioned bullish. Look at the implied volatility discounts where you see -7%, -8%, -12%. There’s a lot of complacency out there in positioning. Tesla (TSLA) has an implied volatility discount of -10%. That stock could get cut in half from here.
Why could Tesla not be a $350 billion company? Would that be expensive? Yes. Elon is bubble boy. The DOJ is investigating him. People say that’s "priced in." Give me a break. Wake up.
“Oh, but the futures aren’t down yet.”
Are you kidding me? If you think there’s signal in the fact that futures are doing the opposite of what’s happening in currencies and rates, you’re right. It’s a signal that you need to change.
