This note was originally published at 8am on October 15, 2013 for Hedgeye subscribers.
“The most dangerous leadership myth is that leaders are born - that there is a genetic factor to leadership. That’s nonsense; in fact, the opposite is true. Leaders are made rather than born.”
We’ve started our work for our October 31st IPO Blackbook on Twitter and digging into a company that was founded in 2006 and already has 215 million monthly users. Talking about going viral in a hurry!
Similar to Facebook, Twitter has that little problem of how to make money. That attribute aside, the companies are very different, even if much of the conventional media puts them in the same category. Facebook is a true social network and, as such, is largely closed and limited in terms of how large a network it can become. On the other hand, Twitter is open, transparent, real-time and has scale.
Twitter is actually a true network in that it creates the network effect. As an example, when President Obama announce his victory in the 2012 election on Twitter, that Tweet was re-tweeted more than 25 million times. The most I’ve ever had a tweet re-tweeted was a couple of hundred times, but even there you get the point. Twitter amplifies your communication.
Analyzing Twitter has also made me consider the importance of leadership in corporate America. This weekend The New York Times Magazine had an article written by Nick Bilton that was titled, “All Is Fair in Love and Twitter.” It is one version of the power and leadership struggles that have occurred within Twitter.
Twitter is also a little bit about the American dream. Take this excerpt from the article for example:
“In 2005, Jack Dorsey was a 29-year-old New York University dropout who sometimes wore a T-shirt with his phone number on the front and a nose ring. After a three-month stint writing code for an Alcatraz boat-tour outfit, he was living in a tiny San Francisco apartment. He had recently been turned down for a job at Camper, the shoe store.”
Dorsey and his co-founders have been largely pushed out of Twitter, though many of them will obviously profit handsomely on the IPO. Time will tell whether current CEO Dick Costolo is the right man to monetize the Twitter network, but his experience at Andersen Consulting, founding and running Feed Burner (among other start-ups), and working at Google have allowed him to acquire learned leadership assets, to Bennis’ point, that will be critical for Twitter’s future.
Now, from Silicon Valley back to the global macro grind . . .
Front and center this morning is once again the U.S. debt ceiling. Thankfully, Bloomberg is no longer alluding to a Nazi Germany like default this morning and the reality is, as we’ve been predicting, that a deal gets done is becoming increasingly accepted. If the deal that is purportedly on the table gets done, then the government will get funded through January 15th and the debt ceiling will get pushed to early February.
Setting aside an actual default, which was of course always highly unlikely, a short term deal is actually one of the worse scenarios. As we show in the Chart of the Day today, economic confidence, according to the Gallup Daily tracking poll has fallen off a cliff in the last month due to the government shutdown and looming debt ceiling. Delaying an outcome by three or four months is unlikely to be much of a catalyst to improve confidence in the short run.
We are certainly seeing these trends reflected in the real economy. One example is the casual dining sector where weakness has been pervasive. While certainly there are some sector specific trends at play, with the majority of the stocks missing estimates and comparable same-store-sales declining -1.9% in September according to Black Box, the decline in consumer confidence is having its impact.
All is not bad for the consumer, though, and one positive to highlight is the price of gasoline. Even as oil remains stubbornly above the $100 bound for WTI and $110 for Brent, the price of gasoline in the U.S. is actually down. According to the Energy Information Administration, a government agency that is still open, the price of gas in the U.S. is $3.37 per gallon, which is down $0.48 from a year ago and down $0.06 from last week. Maybe consumers are spending more time on Twitter and less time driving?
Speaking of Twitter, for those of you that answered no to the question in the title, one great reason to join Twitter is the intellectual exchange that comes from meeting new people in your expanded network. One example of a person that I’ve met on Twitter is a gentleman named Doug Kass, who is a financial blogger for the Street.com and works out of his basement in Florida.
Even if not always correct, Kass certainly makes us think. One example was that last night he went old school on us and sent an email indicating that based on his analysis over the long run of twenty years, the U.S. dollar has no identifiable correlation to U.S. equities. While an interesting point, we would certainly caution any of you to invest on 20-year historical correlations. But if you want to, we also have a bridge in Brooklyn for sale . . .
The fact is correlations influence our intermediate term view of markets. Correlations aren’t perpetual, and correlation strength builds and decays. At times and price levels they matter and at others they do not. We get that. But over the last three years the correlation between the U.S. dollar and SP500 has been 0.60. But as Maynard Keynes said, when the facts change, we will.
Our immediate-term Risk Ranges are now:
UST 10yr yield 2.66-2.73%
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research