Nimble and Changing

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

“Small, nimble, fast changing.”

-Julia Lovell

 

That’s how Julia Lovell described early 19th century England (relative to China) in The Opium War. “While China’s slavish people had been homogenized into speaking one language … and sympathizing in the same manners.” (pg 79)

 

As a company or a country, you do not want to become 17-19th century China. You don’t want to be what Europe morphed into during the 20th century either. As a Canadian capitalist who came to this country in the 1990s, I often wonder what America’s 21st century will look like. It’s not what it used to be.

 

Sadly, the path of least resistance is one of a slower-growth bureaucracy. That’s not my opinion. That’s the history of countries who age. So don’t do that. Do what you can to put two-feet on the floor every morning and earn your keep; fight the tyranny of government groupthink; be nimble and changing.

 

Nimble and Changing - nimble

 

Back to the Global Macro Grind

 

If only because I finally took a vacation, watching the US equity market melt-up to lower-highs on no volume was interesting to watch, intermittently. But one week does not an intermediate-term TREND make. As a friendly reminder, it’s late April and most major US stock market indices are down year-to-date.

 

Inclusive of the Dow (which we are short in Real-Time Alerts via the DIA) and US Consumer Discretionary stocks (XLY) rising +2.4-2.5% last week, they are both still -1.0% and -4.6% for 2014. If you are long America thinking this is the 1990s #StrongDollar growth cycle again, that is not good.

 

Two of our most outside of consensus Global Macro Themes are:

  1. US #InflationAccelerating
  2. US #ConsumerSlowing

Both have continued to play out in April. While they are bearish from a cyclical and secular US consumption growth perspective (see our Q2 Global Macro Themes deck for details), there are obvious ways to play this from the LONG side:

  1. Long Inflation, explicitly, via Commodities (DBA, UNG, CAFE, etc.)
  2. Long Inflation, protection, via Treasury Inflation (stagflation) Protection (TIPs)
  3. Long #GrowthSlowing via Bonds (TLT) and any slow-growth Equity (XLU) that looks like a bond

Those speaking the Fed’s language (“there is no inflation”) and/or #OldWall consensus (“Wall Street Bond Dealers Whipsawed on Bearish Treasury Bets” –Bloomberg this morning) don’t get this, yet. But markets do.

 

Speaking of YTD market scores, how about those commodity markets!

  1. CRB Food Index up another +2.7% last week to +21.6% YTD
  2. Coffee and Soybean prices up again last week to +77% and +19% YTD, respectively
  3. Natural Gas +2.6% last week to +15.8% YTD

I know, I know. As long as you don’t eat and/or plan on running the air conditioning in your house this summer, those food and utility bills (according to those speaking one language in Washington) are “non-core” to what you really need to be spending on – a $600-700 iPhone 6 upgrade!

 

Nimble and Changing - Chart of the Day

 

While I was in the pool with my kids Thursday, our long Natural Gas (UNG) and Coffee (CAFE) buy-signals in Real-Time Alerts ripped. But don’t tell the Fed that. They’re still saying what US consumers had to pay (front-month) to heat their homes this winter was “transient.”

 

Sure, almost every “fundamental” analyst in the Federal League can tell you that there is an “over-supply of Natural Gas” in America. But most of them won’t tell you there is an over-supply of people who were long the Dow and social media stocks on January 1st.

 

The YTD score doesn’t lie though; those saying there is no inflation do.

 

Into the belly of US “earnings season” (and away from the aforementioned asset allocations to commodities and bonds), how does all of this look from a Hedgeye Style Factoring perspective (in US Equities) in the last month?

  1. Top 25% Sales Growth Companies (Top Quartile of SP500 Companies) are -2.2% (vs. the bottom 25% being +2.2%)
  2. Top 25% EPS Growth Companies are -1.3% versus the bottom quartile being +2.6%
  3. High Beta Equities are -0.2% versus Low Beta +1.8%

Since it’s also NHL Playoff season, as Herb Brooks said in Miracle, “Again!”

 

Again, and again, and again… for centuries, big, fat, centrally planned countries who have devalued the purchasing power of their people in exchange for political safety have lost this war. It ends with inflation. And inflation slows both growth, and the multiples markets pay for them.

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1833-1880

Nasdaq 3961-4149  

USD 79.11-80.03

Brent Oil 108.21-110.62

Natural Gas 4.46-4.78

Gold 1285-1330

Corn 4.94-5.11

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more