“Computers are useless; they can only give you answers.”
Amen to that, Pablo. It’s amazing how much time and effort we all spent at school and currently spend at work learning strategies and techniques for finding the right answers compared to how little time we spend learning to ask the right questions.
Implicit in any commitment to discovering the truth is a commitment to systematically asking ourselves tough questions – the answers to which may not be derivable from reported data that is inherently backward-looking in nature.
Furthermore, such questions extend well beyond the typical, “Where can I be wrong?”, instead opting to traverse the realm of, “Where am I not even looking?”
With respect to the latter question, we are in a unique position to help. In meetings with clients, it’s clear that our commitment to remaining truly independent (no banking, trading or asset management) helps us foster a level of trust with our clients that does not appear to be abundant in this industry. Having a senior roster loaded with meaningful buyside experience doesn’t hurt either.
Getting right into it, Keith, Ryan Fodor and I spent much of this past week up-and-down the west coast visiting with clients and prospective clients from various strategies and disciplines.
As usual, the topics of discussion ranged far and wide, but if there was one central theme throughout all of the meetings it would’ve been the general lack of conviction and/or answers with respect to the three most important factors in macro risk management. Below we introduce the relevant debates and where we currently stand, recognizing that we need to and will do more work on certain topics:
We’ll obviously be focused on answering these questions in greater detail in our research notes and presentations in the coming weeks and months; please feel free reach out to us in the interim if you’d like to discuss anything in real-time.
Going back to our opening discussion, there’s really only two ways we can add value with a business model like ours:
Hopefully today we did our job with respect to the latter category.
On an unrelated note, if any of you plan to be in New Haven this Saturday for The Game, shoot us a quick email and we can meet up for a beer at the tailgate.
Our immediate-term Risk Ranges are now as follows:
UST 10yr Yield 2.63-2.83%
Keep your head on a swivel,
Associate: Macro Team
This note was originally published at 8am on November 08, 2013 for Hedgeye subscribers.
“I’m getting sick and tired of doing anything half-way.”
Forget about these unaccountable bureaucrats that bombard your #OldMedia channels every day and take some real advice from one of America’s real legends. Got growth and progress? Rockne gave American football the forward pass. God bless his soul.
I’m not sure what I am going to write about this morning. So I guess I’ll just keep writing and see what happens. As you know, I’m sick and tired of these half-baked econ PhDs trying to centrally plan our lives.
The ECB cutting rates and devaluing The People’s currency as European growth is accelerating (not a typo) took my level of disgust up another notch yesterday. I didn’t think that was possible. I guess I thought wrong.
Back to the Global Macro Grind…
Like the Fed, the European central planners thought that cutting rates was going to “stimulate growth”, or something like that. Meanwhile, the market’s reaction to yesterday’s European rate cut “news” was global #GrowthSlowing.
Yes. Much like the “growth” style factor being for sale in US Equities ever since the Fed’s unaccountable decision not to taper (Financials down, Staples/Telcos straight up), that’s precisely how Mr. Market voted, worldwide, after the ECB rate cut:
Actually, since the Fed’s slow-growth-no-taper decision and ECB rate cut, from their recent highs:
But don’t tell any of these academic wonks of the Keynesian empire that. They fundamentally believe that Deflating The Inflation (from the world record inflation they perpetuated via currency devaluation in 2011-2012) is now the world’s greatest threat.
No. To be clear, their most recent policy moves are the new threat. Deflating The Inflation is not “DEFLATION!” The 2-stroke engine of 1. #StrongCurrency and 2. #RatesRising stimulates consumption growth via a consumption TAX CUT.
How else do you want to explain the recent Q313 rip in US #GrowthAccelerating from 0.14% in Q412 to +2.84%? Up until Bernanke decided to interrupt the 2-stroke engine (also known as economic gravity) with a no-taper, Down Dollar, Down Rates move, the US economy had its best sequential (3 quarter, 9 month) move in half a decade!
And now guess what the market thinks might happen next?
Do you need another exclamation mark? Are you sick and tired of reading this yet? Or are you Fed Up with waking up in the morning to these politicians trying to fear-monger you about “default risk” and “deflation”?
Now I know what I am writing about.
I’m writing about what real people in the real world are talking about – not this Keynesian/Marxist central-planning-anti-dog-eat-dog-gravity-smoothing crap.
As Ben Stiller recently said, “there’s always an element of fear that you need to work until people get sick and tired of you … or that you finally figure out that you are a fraud after all.”
Are these un-elected people at the Fed and ECB frauds? Or are they just completely bought and paid for by the Bond Bull Lobby and currency debauchery camps?
I don’t know. But I do know that Draghi worked at Goldman. And I also noticed that Goldman just had the worst FICC (Fixed Income, Currency, Commodity) quarter in the Federal League…
Was Goldman’s prop and/or FICC team choking on too much illiquid bond and currency bubble paper that they finally had to start taking some marks?
Why is Goldman’s Hatzius such a raging dove? Why is he trying to scare the hell out of the Fed on #RatesRising when his own desk is saying the opposite? Why is he all of a sudden lobbying for the Fed to change the goal posts on a lower “unemployment” target?
Who can really get out of any of these bubbles (MBS, REITS, etc.) that Bernanke backstopped? How will it end? Or are they trying to convince you, like they did in late 2007, that nothing could possibly go wrong?
I’ll stop writing and end with a message sponsored by both Republicans and Democrats who have empowered the Fed (and encouraged the BOJ and ECB) to devalue your hard earned currency:
“If you’re sick and tired of the politics of cynicism… come and join this campaign.”
-George W. Bush
Our immediate-term Macro Risk Ranges are now as follows (12 Big Macro Ranges are in our Daily Trading Range product):
UST 10yr Yield 2.49-2.70%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
The Hedgeye Financial Sector team’s detailed and constructive view on the improving fundamentals in the mergers and acquisition market (M&A) with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. That is clear.
From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. These are positive trends for companies in the M&A space.
Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL going forward. So would a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years.
GHL stands out as a leading beneficiary of these developments.
INTERMEDIATE TERM (TREND) (the next 3 months or more)
This idea will best be played out by the middle of 2014. We will know then whether our research and investment thesis has been accurate. To be sure, there have been multiple “fits and starts” on a short term basis in M&A activity. But by the middle of next year, investors will have a better idea if our bullish call here has actually held water.
LONG-TERM (TAIL) (the next 3 years or less)
The tail for an M&A shop like Greenhill is not overly exciting unless there is a massive upsweep to new highs in M&A activity (which we are not forecasting). These M&A stocks are hyper-cyclical and need to be “rented.” Why? Because every time they execute a deal, that decreases forward demand for incremental activity. In addition, M&A is also a “relationship business” and management changes can change advisory pipelines.
Moreover, these companies are not overly shareholder friendly with no “book value” build per se. The companies award a lot of RSUs for employees, but don’t really build NAV for shareholders so hence these are trading vehicles or “rented” stocks.
"I often wonder how far I'd go for love. I guess it all depends on the price of gas."
We will be hosting an Expert Call featuring Tancred Lidderdale from the Energy Information Administration (EIA) for an in-depth discussion on the outlook of oil and natural gas.
The call titled "Oil & Natural Gas: Supply, Demand, Prices and Trends" will be held on Tuesday, November 26th at 11:00am EST.
Tancred Lidderdale is the supervisor of the team that produces the Short-Term Energy Outlook for the Energy Information Administration (EIA). Before joining the EIA in 1991, he worked for 12 years with Atlantic Richfield Company in their petrochemical and refinery operations, and foreign crude oil trading. He received his B.S. degree in Chemical Engineering from Georgia Tech, his MBA from the University of Houston, and his Ph.D. in Economics from George Mason University.
For more information please email .
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.