Exhilarating Start To 2014

This note was originally published at 8am on January 21, 2014 for Hedgeye subscribers.

“Conquering of fear produces exhilaration.”

-J.T. MacCurdy


I don’t know about yours, but in my life the aforementioned statement definitely holds true. My fellow Canuck, Malcolm Gladwell, cited MacCurdy’s psychological work in David and Goliath (pg 148) to explain the resilience of the British during the London Blitz.


Do you need a psychiatrist? How many days after 2008 did it take you to conquer your fear about growth? The earlier in 2009 (or 2013) the better, obviously. But some of the savants sipping on Champagne in Davos this week are just starting to get bullish now. #Exhilarating


While Gladwell’s latest book is a little too thick on sociology for me, I loved a few of his stories simply because they spoke to me personally. Unfortunately, Mr. Macro Market couldn’t care less about me as a person. Whatever speaks to me this morning has very little place in my risk management process. The easiest way for me to conquer my market fears is to grind through the process and get on with my day.


Back to the Global Macro Grind


With a day off here in the US, it’s a good time to take a step back and review what the score is for 2014. From a performance divergence perspective, it’s been an exhilarating start to the year!


In the land of Global Equities, here are the world’s Top 3:

  1. Greece +9.2%
  2. Argentina +8.7%
  3. Portugal +8.5%

In other words, the markets that some of the fear-based advertising blogs talked most about for the last 3 years are your portfolio’s top money-makers. After all, who in Davos didn’t tell you to buy Greece?


And here are the world’s 3 dogs (YTD):

  1. China -5.3%
  2. Brazil -4.5%
  3. Japan -3.4%

Yep, remember the ole “BRICs” long-term investment theme from Davos before they had Davos? #Mint, that was. Brazil in particular has been just sad to watch – and who isn’t long Japan, after it being one of the world’s best performers in 2013 btw?


To summarize what we think will be a glaringly different year for asset allocation in 2014, we called one of our Top 3 Global Macro Themes for Q114 #GrowthDivergences. This theme should not only make for winners and losers in what we call Country Picking, but sector and stock picking within those countries too.


Speaking of #GrowthDivergences, check out the Sector Divergences in the US Equity market for both last week and 2014 YTD:

  1. Consumer Discretionary (XLY) -1.9% w/w to -2.60% YTD
  2. Healthcare (XLV) +0.5% w/w to +2.85% YTD

Yep, that’s a +545 basis point performance spread between two of the most widely held US stock market sectors. So much for Sector Variance (see our Q413 Macro Themes deck and Chart of The Day) hitting all-time lows. Mean reversion is #exhilarating, indeed.


And what’s driving that? In our GIP (Growth, Inflation Policy) model, the traverse from:


A)     Quadrant #1 in our GIP Model (Growth Accelerating as Inflation Decelerates), to

B)      Quadrant #2 in the same model (Inflation Accelerating alongside Growth Accelerating),


… shows you that Consumer Sectors are two of the worst sectors you can be in (makes sense because, on the margin, #InflationAccelerating (another Q114 Macro Theme),  slows real consumption growth), while Healthcare and Tech are two of the best.


Technology (XLK) and the Nasdaq (QQQ) are up +0.03% and +0.5%, respectively, for 2014 YTD (versus the Dow and SP500 -0.7% and -0.5%, respectively).


Looking beyond US Equities, you can see the same performance divergence taking hold in Global Equities that you are already seeing in the world’s top and bottom 3:

  1. EuroStoxx600 = +1.8% last week to +2.3% YTD
  2. MSCI Latin American Index = -1.5% last week to -4.6% YTD

So, maybe this year at Davos they put Captain Pie-Chart on “global emerging market equity diversification” in one of the breakout rooms. He’ll have plenty of time and space to hear himself talk. Maybe his government will pay for his psychiatrist and post meeting masseuse too.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.79-2.89%

SPX 1825-1854

DAX 9599-9851

VIX 11.84-13.44

USD 80.76-81.45

EUR/USD 1.35-1.37


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Exhilarating Start To 2014 - Chart of the Day


Exhilarating Start To 2014 - Virtual Portfolio

Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more