Boom, Crush!

“Boom, crush. Night, losers. Winning, duh.”

-Charlie Sheen

 

I was in Vegas playing cards with Sheen last night and that’s what he told me about his short Facebook (FB) position. Social Media Bubble, yep. Crushing it.

 

I’m here to give the keynote rant today (11AM Las Vegas time) at the Government Investment Officers Association (GIOA) conference. Kidding on the Sheen part; not on the government.

 

USA going on the fritz (Federal Reserve Induced Trauma Zone) won’t be the subject of my speech. I’m going to give these guys the Hedgeye wood - #InflationAccelerating slows real US growth.

 

Back to the Global Macro Grind

 

I know no one wants to call it a bubble. There’s career risk in calling something what it is. But seriously mo bros, with Facebook (FB) -17% since March 10th (coincided with the all-time-bubble-high in US stocks) and Twitter (TWTR) -30% YTD, what’s the fuss?

 

BREAKING: Candy Crush (KING) -15.6% on IPO day

 

Boom, Crush! - social bubble

 

Boom! Crush. This stuff gets real in a hurry doesn’t it? But does the whole free world care? While 2AM PST isn’t my favorite wakeup call on The Strip, I did smile to see that almost all of Asian and European Equity markets didn’t care about USA’s baggage.

 

Baggage?

 

Yes, after creating the 1st internet bubble (1999), then the US real estate bubble (2005-2006), then the commodity bubble (2011-2012)… then the bond bubble (2011-2012), then the 2nd half-baked internet bubble (2013), this is a uniquely American experience.

 

Maybe that’s why (in spite of the social media stock time-spanking into the close yesterday):

  1. South Korean Stocks (KOSPI) built on yesterday’s gains, closing +0.7%
  2. Indian Stocks (BSE Sensex) closed up another +0.3% to +4.7% YTD
  3. Italian Stocks (MIB Index) are trading up small this morning at +11.5% YTD

I know. The Italians have a lot of crony socialism issues, but one of them is not trying to talk their entire country into calling $2B for a headset (Ocular) another brilliant Zuckerberg idea. WhatsApp was a cool Bud Light commercial for a few weeks too don’t forget.

 

Back to the real world and our GIP model (Growth, Inflation, Policy):

  1. US continues to see #InflationAccelerating (CRB Commodities Index up again yesterday to +7.6% YTD)
  2. And the slope (rate of change) in real US Growth continues to slow (not just the weather)

But don’t take my word for it, ask the bond market:

  1. US 10yr Treasury Yields down again this week to 2.70%
  2. Yield Spread (10yr minus 2yr) continues to compress (-7bps this wk)

This is precisely what happened in 2011. As the Yield Spread compressed (leading indicator for growth slowing) the Financials (XLF) started to underperform slow-growth-yield-chasing (Utilities) and the US stock market saw multiple compression.

 

In other words, if you weren’t levered long YELP yesterday, but had:

  1. Commodities long
  2. Bonds long
  3. Anything that looks like a bond (Utilities, REITS, etc.) long

You crushed it.

 

Yeah, I know. We have you long Gold, and that’s not working this week. At -0.7% this morning, it’s still +7.7% YTD though. Beats Twitter. And it sure beats being long who gets crushed by inflation (US Consumers):

  1. US Consumer Discretionary Stocks (XLY) -4.1% YTD
  2. Utilities (XLU) +7.0% YTD

These performance divergences are called variance. And finally we have ourselves an Angry Bird like game here folks – where stuff actually goes down (hard), while other things stay up.

 

Coming off generational lows in US sector variance (i.e. you could have bought any sector and been up last yr), across longer-term investing cycles, this is as mean reverting as any portfolio risk in macro. Yep, sector and stock picking is cool again.

 

So, from here, do you buy the Candy Crusher or the new banking fees boy king at FB? Or do you do neither and go back to buying the Bernanke Bubbles (Commodities, Gold, Bonds) that blew up last year? We’ll do the latter. Mean reversion bubble trading works, duh.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.63-2.75%

SPX 1

VIX 13.03-17.14

USD 79.18-80.40

Pound 1.65-1.67

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Boom, Crush! - Chart of the Day

 

Boom, Crush! - 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