“There’s a gap between the practitioners and the rest of the business world.”
-Andrew Chen
I thought that was a good quote from a #behavioral book I’m studying called The Cold Start Problem. A former boss of mine sent it to me. I’ve already sent it to some of my teammates at Hedgeye.
Chen is a Partner at Andreessen Horowitz. Prior to that he led Uber’s Rider Growth product teams. Analytically, he has a different perspective than mine. That said, he has both a framework and process to analyze network effects that I find interesting.
He said it wasn’t always that way: “I found my own understanding of the dynamics of networks to be unforgivably shallow for something so core to the technology industry.” Think about that. And think about how many “growth” investors are still unaware.
Back to the Global Macro Grind…
Hedgeye has a growing network of power-users who are helping us exponentially grow not only our #HedgeyeNation community but what we call being Macro Aware.
I don’t call it the “exponential age” or some bs like that because I heard about “Metcalfe’s Law” (Andrew Chen himself mocks people who still believe in Metcalfe’s Law btw). I just call it what it is: A community of people disrupting and evolving an industry.
After spending 3 days with some of you at our 2nd annual #HedgeyeLIVE Power-User Conference, I realized that’s what it was. A bunch of invested power-users of the #process. I think their time, passion, and commitment to developing the process is going to make it better than it’s ever been, at a faster rate of development than it’s ever had.
So that’s what I think about that. Now let’s talk about what Chen should start thinking about, Shorting Growth Squeezes:
A) This remains Phase III of The Bear Market
B) Phase III is when they try to bounce some of the former bubble stocks and many of them fail at lower-highs
C) The Growth Stories that survive and thrive probably won’t be the ones firing people and cutting capex
‘But, but… we beat the quarter through cost cutting… and we’re not going to zero yet.’
“Great quarter, guys.” Now let me have some of the Hedgeye Analysts grill you about what’s going to happen next:
A) What do you think your revenues look like with US GDP < 1%?
B) What do you think your cost structure looks like in the following #Quad4 economic outcomes?
C) How much of your own stock do you think you’ll sell on the next bear market pop?
For me, this isn’t just about the “Cold Start Problem” I face building my business every day. I haven’t had to fire people or cut costs. That means that both my teammates and #HedgeyeNation are coming after those that are, at a faster relative pace!
It’s about shorting the Macro Unaware who A) don’t understand their growth WAS a function of The Mother of All Bubbles in both money printing and fiscal handouts and B) the epic pull-forward in commensurate consumer and capex spending born out of that.
Let’s start with some basic levels of Macro Awareness:
A) On this day in 2020, the US Unemployment Rate hit a post Great Depression record of 14.9%
B) In Q2 of 2020, the Real US GDP Growth Rate was –8.35%
C) In Q2 of 2020, the headline US Inflation (CPI) Rate was +0.36%
Everyone in #HedgeyeNation knows that if you don’t know the ROC (rate of change) #history, the time-series of component data, etc., then you don’t know what the “Base Effects” are … and you are definitively Macro Unaware.
From those ABC points (i.e. the BOTTOM of The Cycle):
A) US Unemployment Rate has #slowed to The Cycle LOW of 3.4%
B) The Growth Cycle (Real US GDP) #peaked in Q2 of 2021 at +12.46%
C) The Inflation Cycle (headline CPI) #peaked in Q2 of 2022 at +8.63%
From those Full Investing Cycle troughs and peaks many Old Wall and Silicon Valley (banker) Storytellers were born. Some have already seen their “Growth Equity Valuation” die. Many others have yet to meet their Maker.
Or should I call them markers? Yes, even the almighty Andreessen’s will have to take their marks. Then what?
A: I don’t know. But do they?
As of last night, 75% of the NASDAQ’s companies have reported Q1 of 2023 “Earnings.” On its way down from +12.46% US GDP Growth to +1%, those 75 companies have reported an aggregate year-over-year Earnings decline of -10.2%.
Was that “better than expected”? Better than from WHEN? Fully loaded with AAPL’s move on Friday, the NASDAQ’s Full Investing Cycle Crash is still at -23.4%. And those are the Public Equity marks. Where are the Private Equity marks going to crash to?
Maybe that’s why panic-stricken hedge funds are chasing Profitless Tech stocks for the past 2 days of the latest bear market squeeze? The Goldman Profitless Tech Basket just got squeezed for a +7.7% 2-day move! Lol
Is the Public Equity basket a “hedge” for the “valuation arbitrage” opportunity in the Private Equity one? A: unlikely.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 3.30-3.59% (bearish)
UST 2yr Yield 3.75-4.20% (bullish)
High Yield (HYG) 74.14-75.04 (bearish)
SPX 4030-4153 (bearish)
NASDAQ 11,768-12,354 (bearish)
RUT 1 (bearish)
Tech (XLK) 144-153 (bearish)
Gold Miners (GDX) 32.61-36.25 (bullish)
Utilities (XLU) 67.75-69.90 (bullish)
Nikkei 28,335-29,307 (bullish)
VIX 15.97-21.13 (bullish)
USD 100.74-101.98 (neutral)
EUR/USD 1.094-1.106 (neutral)
Oil (WTI) 67.11-75.35 (bearish)
Gold 1 (bullish)
Copper 3.80-3.96 (bearish)
Silver 24.63-26.40 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
