This note was originally published at 8am on November 18, 2013 for Hedgeye subscribers.
“If we’re in a bubble, it’s the weirdest bubble I have ever seen, where everybody hates everything.”
From both a US economic growth and stock market perspective (not one and the same thing), there was a lot of truth in Andreesen’s general statement – if he said it precisely a year ago (he said it on May 1, 2012 with the SP500 at 1406).
A full year ago today, the US economy was tracking 0.14% in the 4th quarter of 2012, US Treasury Yields were a full 100 basis points lower (10yr = 1.70%, all-time lows), and the SP500 was at 1360. So if you bought what everyone hated (growth), and shorted what everyone was clinging too (Gold and Bonds), you crushed it.
Does that make today a bubble? Or was there a bubble back then in fear? Up +32.2% from November 16th, 2012 is the SP500 a bubble? Barrons says “Yes” (in a few names), but “No” (in most names)” and our new central planning diva, Janet Yellen, says “No” (anywhere)… So I’ll agree with Andreesen - there are plenty of weird bubbles; some of the weirdest markets have ever seen.
Back to the Global Macro Grind…
Most pundits and politicians who have never forewarned you of a bubble live in their own conflicted and compromised bubble. Most “market-equilibrium” people think bubbles are measured by “valuation.” And most market-practitioners call bubbles things that start to make lower-highs versus their all-time highs in price.
Well, maybe not most market-practitioners. But that’s how this one thinks. And yes, I’m perfectly happy to be in my own little bubble as a write about bubbles from my hotel room on the Santa Monica, California coastline this morning!
At the end of the day, calling something that’s up a “bubble” is about as useful as having another leg in a one-legged butt kicking contest. If you are going to run around trying to make news calling things bubbles, you better be short them, publicly, with timestamps.
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 Chasing investors have found tax refuge in.
All 3 of these bubbles have 3 things in common:
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:
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:
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.
My holding period on Gold was 72 hours. And I’m not going to apologize for that. I had my catalyst (Yellen being who she is) and I booked that small gain on the event day. I cut my “crazy eights” exposure to both US stocks and bonds in half on that too.
Bubble or no bubble. Weird or not weird. Mr. Macro Market couldn’t care less what we think about markets. He is designed to punish the largest amount of people (consensus) at the most inopportune time. So #GetActive out there, and keep moving.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.66-2.81%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – December 2, 2013
As we look at today's setup for the S&P 500, the range is 18 points or 0.49% downside to 1797 and 0.51% upside to 1815.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
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Takeaway: Current Investing Ideas: BNNY, CCL, FDX, FXB, GHL, HCA, MD, NKE, RH, SBUX, TROW and WWW
In light of the holiday shortened trading week, we have chosen to highlight three timely, topical and potentially profitable investment ideas below that we sent out recently to our institutional clients. We will resume our usual stock updates next week.
We would like to take a moment to thank you for making all that we have set out to achieve here at Hedgeye possible. We’re going on 6 years since the founding of our firm. You have helped us create 50 jobs in America. More to come. For that we are grateful.
Enjoy your holiday weekend.
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Right now may be a bit early, but gold is shaping up to be a compelling long idea heading into 2014 according to Hedgeye's Macro Team. Since the start of November, Keith has been trading gold with a bullish bias in our Real-Time Alerts signaling product. This is a marked shift from having traded gold with a largely bearish bias since late 2011. All told, we think a waning threat of tapering, at the margins, is likely to serve as a positive catalyst for the price of gold.
We continue to express great excitement in the growth prospects for the e-cigs, despite its current diminutive size (~ 1% of the $800B global tobacco market). We expect consumer interest in and investment behind e-cigs to grow, especially following “Big Tobacco’s” entrance into the category. We think e-cigs demonstrate truly disruptive and compelling innovation and are bullish on the U.S. and global runways for the category.
Our Financials Sector Team led by Josh Steiner and Jonathan Casteleyn present their latest thinking about rate sensitivity across the Financials sector. Rates will be your best friend or worst enemy. Steiner and Casteleyn look across the FIG sector for the names with the most quantified exposure, + or -, to rates.
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Takeaway: USD and EUR currencies wars suggest the Pound is the relative winner.
This note was originally published November 14, 2013 at 13:58 in Macro
Long GBP/USD (via the etf FXB)
Our bullish call on the British Pound remains, an anchor of our Q4 2013 Macro theme of #EuroBulls presented on 10/11/13. (Click here for our previous note “Get Long the Pound”)
We’re buyers of the cross above our TREND support line of $1.58 and long term TAIL support line of $1.56. We could see the cross heading to the $1.65 - $1.70 range over the intermediate term.
In short, we expect currency wars to devalue the USD and EUR, and expect the British Pound to be the relative winner across both crosses. Here are some updated developments since the ECB unexpectedly decided last Thursday (11/7) to cut the main interest rate by 25bps to 0.25% that we think will boost our #PoundBullish call:
In contrast, we expect sober hawkish policy from the BOE. The UK was the first to issue austerity, which we think will continue to boost its growth profile above most of its European peers. Improving economic data (more below) continues to confirm this position. On policy, we expect interest rates to be on hold over the medium term, with expectation for a hike over the longer term, and the asset purchase program target (QE) to remain unchanged. Both positions should strengthen the GBP/USD and GBP/EUR.
Improving UK Data This Week:
BOE’s Inflation Report-
High Frequency Data-
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