“Intellectual growth should commence at birth and cease only at death.”
-Albert Einstein
Growth is the lifeblood of any company or economy. With economic growth, good things happen. Conversely, when growth slows, or decelerates, bad things are revealed pretty quickly.
At Hedgeye, we’ve been fortunate, thanks to many of you, to have a numbers of years in a row of accelerating growth. The benefit of this is that we’ve been able to reinvest in our team and products to improve the subscriber experience.
Our newest addition to the team is David Salem. He is a long team industry veteran who spent the majority of his career as President and Chief Investment Officer at The Investment Fund for Foundations. He is developing a product for us called, Capital Allocation. The intention of this product is to provide a hands on approach to longer term capital allocation. In effect, think of him as your outsourced Chief Investment Officer.
No surprise, the other area of growth you can likely see from us this year is on our research team. The upheaval that you are seeing in global banks is unlocking a lot of great research talent. You should expect us to likely add a few new key members in 2023 to help you unlock more growth in the alpha of your portfolios.
When thinking about growth personally, one of the most important things to try to incorporate into your personal and professional lives is a growth mindset. There are a lot of great books and studies on this concept, but for those of you are new to the concept it is defined as:
“ . . . a belief that construes intelligence as malleable and improvable.”
According to a paper published in 2018 entitled, “The Neuroscience of Growth Mindset and Intrinsic Motivation”:
“Empirical studies have revealed that growth mindset has positive effects on student motivation and academic performance. Recent research has also shown that mindset is related to student outcomes and behaviors including academic achievement, engagement, and willingness to attempt new challenges.”
In effect, adopting a growth mindset in academics can lead to better outcomes. Undoubtedly, the same concept can likely be used for us as investors. If you think you can grow and improve as an investor, and work at it, you will likely see better performance over time.
Back to the Global Macro Grind...
Unfortunately, this morning we aren’t seeing a lot of growth oriented data points from Europe. Specifically, consider these data points that were released earlier today:
- Norway Retail Sales slowed to +0.2% Y/Y;
- Sweden Retail Sales slowed to -9.4% Y/Y;
- Denmark Retail Sales slowed to -0.3% Y/Y;
- Germany Consumer Confidence remained mired deeply in negative territory at -29.5; and
- France Consumer Confidence slowed to 81.
Now yes, some recent data from Europe has been bouncing a bit from the bottom. But those are literally all of the key data points from across the continent today. It doesn’t exactly get us excited to get long of European equity risk. But, then again, it is #Quad4 in Europe, so why would we anyways.
To put this bouncing off the bottom in European economic data in context, we’ve included as the chart of the day German Consumer Confidence. As you can see, the data has bounced off the bottom, but to my point above it remains mired at a level that is unprecedent historically in terms of its negative reading. It is going to be difficult to generate much economic growth in Germany, or Europe broadly, with consumer confidence this negative.
Today at 11am ET we will be doing our Q2 Themes Presentation. We have put together more than a hundred slides with rich context and analysis, so hopefully you will be able to join us. Please contact for more details on the call and to learn about getting access.
Interestingly, for this call, there won’t be a lot of growth in our three key themes. Not to ruin the punch line, but they are:
- #Quad4 Profit Recession Reiterated
- #Quad4 Credit Event Reiterated
- Long Gold Reiterated
Yes, that is a lot of reiterateds . . . but it is important to drive the point home that things, as of yet, haven’t change based on our models and signals. While the chorus of people begging for a pivot from the Fed has certainly grown, the reality of #Quad4 (slowing growth and inflation) remains the same.
As stock market operators, your biggest risk is likely in the first theme related to a profit recession. There are a number of components to this which will drive lower than expected profits for corporate American, which include lost pricing power, tighter credit conditions, contracting liquidity, and negative real income.
As growth slows, earnings will inevitably slow. As it relates to expectations of earnings, they remain elevated. Consider the simple data point that SP500 consensus earnings estimates are still expecting +16% growth in Q2 2023. Many prognosticators are going to have to alter their mindset if they think that number is going to be correct!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.56-3.80% (bearish)
UST 10yr Yield 3.31-3.63% (bearish)
UST 2yr Yield 3.68-4.32% (neutral)
High Yield (HYG) 72.65-74.19 (bearish)
SPX 3 (bearish)
NASDAQ 11,433-11,922 (bearish)
RUT 1 (bearish)
Tech (XLK) 137-146 (bearish)
Gold Miners (GDX) 28.85-32.77 (bullish)
VIX 19.09-25.91 (bullish)
USD 102.01-104.20 (bullish)
Oil (WTI) 65.66-74.27 (bearish)
Oil (Brent) 71.61-79.15 (bearish)
Nat Gas 1.98-2.50 (bearish)
Gold 1 (bullish)
Copper 3.79-4.19 (neutral)
Silver 21.54-23.95 (bullish)
Keep your head up and stick on the ice,
Daryl G. Jones
