This note was originally published at 8am on August 06, 2013 for Hedgeye subscribers.
“The notion that I was travelling down a clear track would be wrong.”
Today in 1945, the US dropped the bomb on Hiroshima. At least 130,000 were killed and 90% of the city was eviscerated. To say that this weighed heavily on the conscience of the “father” of the atomic bomb would be the understatement of my writing career.
The aforementioned quote comes from Chapter 2 (“His Separate Prison”, page 29) of a book I have long waited to crack open: American Prometheus - The Triumph and Tragedy of Robert Oppenheimer.
When it comes to both markets and my life, the notion that I know where things are going isn’t the truth. The reality is that people and circumstances change inasmuch as markets do. Sometimes it happens fast; sometimes it’s slow. Yes, there are patterns of behavior that provide probabilities of direction. But there is no clear path. I’m learning to embrace that uncertainty.
Back to the Global Macro Grind…
Einstein said that “the only reason for time is so that everything doesn’t happen at once.” And I like that. For the past 8 months we’ve seen a very simple US market pattern develop:
- US economic #GrowthAccelerates
- US interest #RatesRising challenge the Fed to taper
- Gold Bonds fall, Growth Stocks rise
Now that 1st bullet is the one that provokes the most bitterness from bears. I still don’t think they can believe that A) it’s August and B) both the employment and economic data (NSA rolling jobless claims hit another YTD low last wk) continue to improve.
On top of last Thursday’s #GrowthAccelerating July ISM print of 55.4 (vs 51.9 in June), here’s what the bitterness of it all looked like in the only economic data point that mattered yesterday:
- ISM non-Manufacturing (i.e. the highest % of the US economy) = 56.0 in JUL vs 52.2 in JUN
- New Orders (within the ISM report) = 57.7 JUL vs 50.8 JUN
- “Business Activity” (within the same report) = 60.4! JUL vs 51.7 JUN
Sorry #GrowthSlowing fans, that wasn’t what you were looking for.
It wasn’t what I was looking for either! I thought there was a developing probability that the higher-frequency (weekly and monthly) US economic data points could slow sequentially here in Q313 vs Q213. Evidently, I thought wrong.
It’s ok to say you are wrong. It’s ok to say you made a mistake. Heck, it’s even ok to say you are sorry once in a while too (this morning’s marriage tips are brought to you by your Broda).
The bottom line is that in literally every “Style Factor” we score, #GrowthAccelerating is winning, big time, YTD:
- Top25% EPS Growth Stocks (in the SP500) = +7.3% m/m and +26.8% YTD
- Low Dividend Yield (growth) Stocks = +6.7% m/m and +28.8% YTD
- High Short Interest Stocks (high multiple, high beta too) = +6.9% m/m and +25.4% YTD
Yes, despite the Russell 2000 (another US growth investor proxy) pinning yet another closing all-time high yesterday at 1063 (+25.2% YTD), all 3 of those Style Factors are still beating the Russell!
But what is awesome? “inspiring an overwhelming feeling of” (Dictionary.com):
- Or Fear?
It’s a great word because, whether we want to admit it or not, we are all human and there are a lot of feelings that start to overwhelm us during phase changes in both markets and our lives.
From a macro market perspective, fear itself is now re-testing its YTD low (Gold and VIX are down -23% and -35%). Growth investors admire that. But they shouldn’t straight-line this as the new normal. Nothing is normal. Everything is always changing.
Our immediate-term Risk Ranges are now as follows:
UST 10yr 2.56-2.72%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer