To review what we have been calling the Bernanke Bubbles for the last year:
MLPs are master limited partnerships. If you don’t know what those are, don’t worry about it. We’ll boil it down for you – they are the sub-asset class of equities that look most like a bond that slow-growth Yield Chasinginvestors have found tax refuge in.
All 3 of these bubbles have 3 things in common:
- They had almost bullet proof storytelling narratives that lasted on the order of 1-3 decades
- Their asset prices confirmed the storytelling (making higher-highs) until they all topped in 2011-2012
- They’re now all making a series of lower-highs as interest rates make a series of higher-lows
Now, as you all know, all-time is a long time. So this concept of US 10yr Treasury Bond Yields making an all-time low when US Growth expectations were bottoming in November 2012 can make for some exciting causal relationships.
The relationship between interest rates and 0%-rates-forever-bubbles isn’t weird at all. It makes perfect sense. That’s why the upside down of repressed growth expectations (US Growth Stocks) have bubbled up to bring the US stock market to all-time highs:
From a US stock market “Style Factor” perspective, check out the score:
- LOW YIELD (i.e. GROWTH) stocks = +40.4% YTD
- Top 25% EPS GROWERS (by SP500 quartile) = +37.2% YTD
- HIGH BETA stocks = +35.8% YTD
As my boy Jesse Pinkman would say, that growth stuff is “awesome!”
At the same time, the slow-growth-end-of-the-world-fear trade score for 2013 YTD is:
- US Equity Volatility Fear Index (VIX) = crashing -32.4% YTD
- Gold = crashing -23.6% YTD
- UST 10yr Bonds Yields = +54% YTD
In other words, there was this Weird Bubble in fear-mongering that consensus got sucked into last year that popped as everyone trying to call the top in a said “US stock market bubble” ended up being a bubble themselves.
US stock market bears hate that. Another way to measure their “hate” is how well short-interest has performed in 2013. As a “Style Factor,” High Short Interest stocks in the SP500 are currently +31.8% YTD, outperforming the SP500 by +570 basis points.
And that’s why I’ve been so quick to cover “growth” shorts throughout October. Holding the bag on a bubble of fear isn’t exactly how I roll. Neither is holding onto the long side of bubbles (like Gold and Bonds) that are still very much in crash mode.
(Editor's note: This is a complimentary excerpt from today's "Morning Newsletter" written by Hedgeye CEO Keith McCullough. To learn how you can start your market day ahead of the pack and subscribe click here.)