We held our Q4 2012 Macro Themes call today for clients and subscribers. Hedgeye CEO Keith McCullough and Director of Research Daryl Jones covered three major themes: Earnings Slowing, Bubbles and The Keynesian Cliff.
Below are highlights from the call, including some images from our 45-page slide deck included on the call. For those who are interested in gaining access to future calls, which include a Q&A session with our team, please email sales@hedgeye.com or click here.
Theme 1: Earnings Slowing
-You’re now seeing negative sell-side estimates on a YoY basis. Companies are lowering forward guidance. Look at FedEx, Caterpillar and Staples for examples of this.
-The Fed is running out of bullets; their balance sheet is going down and doesn’t have any juice left on a YoY basis and will be hard to continue as long as we keep printing into infinity and beyond.
-The S&P 500 is up, but durable goods are down on a YoY basis. The divergence between the two won’t hold. Either the S&P 500 will head down or durable goods will head higher.
Theme 2: Bubbles
-Bubbles will continue. We saw the Tech Bubble in the 200s, then the Housing Bubble in 2007 and now we have the Commodities Bubble coming in 2012/2013. Check out 10-year charts of copper, oil, gold and the CRB Commodities Index.
-China’s growth over the past 10 years really helped fuel the commodity bubble. Keep in mind that China’s demand for commodities is decreasing. Chinese rebar demand has fallen off a cliff in the past six months.
-Everyone loves investing at the peak of a bubble; speculators are betting on things like gold and that they’ll go higher. Eventually that bubble will pop, leaving many investors with frowns on their faces.
Theme 3: The Keynesian Cliff
-The implications of the cliff are slowing short term growth. Republicans and the Tea Party want to get tough on fiscal reform. The cliff could reasonable equate to a 1-2% drag on growth in 2013, relative to consensus expectations.
-QE3 has been a positive for both stocks and President Obama’s reelection chances (according to the Hedgeye Election Indicator).
-Three scenarios could occur: Obama is reelected and Congress remains split: Weak Dollar / Obama is reelected and Democrats take back both houses: Weak Dollar / Romney wins and the Republicans take control of Congress: Stronger dollar?