"You win by effort, by commitment, by ambition, by quality, by expressing yourself individually but in the team context."
-Jose Mourinho
In the world of football (soccer) there is a man known as the “Special One.” He is a man equally hated and loved by many around the world.
Some of you, particularly those who do not follow the game closely, have likely jumped to the conclusion that I am likely referring to Cristiano Ronaldo or Lionel Messi (side note: the order of these two names was intentional and I will leave it at). Then there is the casual fan who might know some historical figures within the sport and assume Diego Maradona or maybe Edson Arantes do Nascimento, better known as Pele, but you would be incorrect.
The “Special One”, a nickname given to himself, is a man known as Jose Mourinho. He is one of the most successful football coaches of our generation and of all time. For my non-soccer fans, he is essentially the European version of Bill Belichick or Nick Saban. For reference:
- He is the youngest manager to coach 100 Champions League games. For context the UEFA Champions League is one of the most prestigious tournaments in all of sports and is the largest competition in European club soccer. Every year over 700 teams across Europe’s top-flight leagues vie for roughly 80 spots to compete and be crowned the best club in Europe.
- Mourinho holds the record for the longest unbeaten streak at home, which lasted for 9 years. More impressive is the fact that he coached at four different clubs over this period.
- Holds the record for most home games unbeaten in the Premier League (77).
- The first manager to reach and win all European Cup finals (Champions League, Europa League, and Conference League) in history.
From a qualitative standpoint, Mourinho is a tactical genius who favors the defensive side of the game. His games are sometimes called boring or ugly and are predominately low scoring matches, but the end result is all that matters. There is no better example of a defensive masterclass on display than his win 3-1 over Barcelona in the Champions League semi-final back in 2010. He would go on to win the final against Bayern Munich to bring Inter Milan their first Champions League trophy since 1965.
He leads his team on and off the pitch and expects the absolute best out of his players. It has been said that he spends close to 16 hours a day coaching, player management, scouting and preparing reports on his team’s next opponent.
Mourinho’s coaching style is rooted in the field of psychology. In a 2011 interview he went on to say, “A coach must be everything: a tactician, motivator, leader, methodologist, psychologist.” The foundation of his methodology is what he calls “The Individual”, or the tailoring of communication to every individual on his team. He sets an exceptionally high standard for his players, but also for himself. During his tenure at Chelsea, he famously told his players, “from here each practice, each game, each minute of your social life must center on the aim of being a champion.”
Records aside, Jose Mourinho’s pragmatic approach to coaching and tactics is why he is revered as one of the greats. As investors, we too should understand and appreciate the importance of a methodical process, teamwork and winning.
Back to the Global Macro Grind…
Unlike Jose Mourinho, the mainstream media headlines are anything but pragmatic. One may even find humor in the volatility in which narratives and emotions change. For example, one of the large media outlets released a piece yesterday titled, “Tech Stocks, Meme Stocks, Crypto: Investors Are Feeling Bold Again.”
Today, there is a front-page headline saying, “Selloffs, Inequality, China Tension: Here Are the Next Big Risks.”
So which one is it? Is the market moving higher or selling off? Are investors bullish or bearish? Rather than being sucked into the never-ending 24-hour news cycle, focus on your process and what you can control.
Instead of headlines we can turn our attention to the numbers. This week, Industrial Production officially crossed into negative territory, falling -0.5% sequentially against negative revised May estimates and contracting -0.43% Y/Y in June. As my teammate Christian Drake eloquently wrote earlier this week, “Zero growth should, of course, be a surprise to zero people as the deceleration/contraction across manufacturing related series has been ubiquitous as the global/local industrial recession has intensified.”
Credit tightening remains timely and topical, and the latest Fed H.8 data demonstrates this ongoing tightening with all major line items on the left side of the balance sheet continuing to shrink. For the first time ever, data from the NY Fed showed that the auto loan rejection rate has surpassed the application rate.
On the financials front, earnings have kicked off and our best idea shorts are providing live snapshots of the credit cycle playing out right in front of us. Below are a few highlights from our notes released this week.
- SYF: Synchrony historically has fared worst among peers during periods of slowing growth. The slowdown in consumption will weaken the momentum of Synchrony's general purpose card portfolio while private label struggles are amplified.
- CFG: Slowing loan growth, both due to planned run-off and weaker demand in retail and commercial banking resulting from historic credit tightening; rising deposit costs; new regulatory concerns around capital requirements; and normalizing credit accelerated by the dual vacancy and refinancing risk associated with general office exposure are plaguing the broader regional banking space.
- ALLY: We view ALLY's Q2 results as validation that credit trends continue to deteriorate while earnings and NIM face pressure from slowing originations, higher deposit costs, elevated provisions, elevated non-interest operating expenses, and suppressed buybacks. We continue to see outsized risk and asymmetric downside within auto lending, particularly among liability-sensitive sensitive names like ALLY.
Everyone is entitled to their own opinion, but you should view the data through an unbiased lens. Narratives cloud our judgement, so be pragmatic and disciplined and I think you will find that things will fall in line.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.82-4.09% (bullish)
UST 10yr Yield 3.70-4.10% (bullish)
UST 2yr Yield 4.60-5.05% (bullish)
High Yield (HYG) 73.65-75.85 (bearish)
SPX 4 (bearish)
NASDAQ 13,500-14,399 (bullish)
RUT 1 (bearish)
Shanghai Comp 3150-3236 (bearish)
Nikkei 31,840-33,252 (bullish)
VIX 13.12-16.96 (neutral)
USD 99.15-102.46 (bearish)
EUR/USD 1.089-1.125 (neutral)
USD/YEN 137.30-142.24 (bullish)
Oil (WTI) 72.06-77.39 (bullish)
Gold 1 (bullish)
Bitcoin 29,317-31,205 (bearish)
Stay safe out there,
Taylor Burnette
Macro & Financials
