This note was originally published at 8am on May 15, 2014 for Hedgeye subscribers.
“A squirrel is just a rat with a cuter outfit.”
-Sarah Jessica Parker
“So”, Obama and I were in NYC yesterday talking about inequality (at separate events, using separate explanations on the why – a 1500 sq/ft apt in midtown going for $3.47M has nothing to do with his Policy To Inflate – eat your ripping rents, and like it)…
And I came across an exhibition of sorts from some of de Blasio’s new city tenants. These dudes had few teeth and stunk to high-heaven, but still appeared to have the American Capitalist spirit. They’d spray painted a shopping cart full of rats and were selling pics to tourists.
I thought the pink ones with the fluorescent blue were cute. And evidently the high school girl who was posing for her Mom (with two live ones on her shoulders), thought so too. Everyone smiles until someone gets bit.
Back to the Global Macro Grind…
With the Russell 2000 down another -1.6% yesterday, US Growth Style Factors got bit again yesterday. Bond yields crashed to fresh YTD lows too. It was a great day for risk management. The CNBC “we’re at all-time highs” thing is cute and all, but still reeks like a rat.
As Detroit’s very own Lily Tomlin once said, “the problem with the rat race is that you’re still a rat.” And having been called more than a few names of this nature on the ice, I can sympathize with those who are forced to chase Wall Street’s performance bogeys.
But that doesn’t mean we have to be brain dead about it…
To review a very basic if, if, then statement in the Hedgeye Macro Playbook:
- If inflation is accelerating (you buy inflation)
- If growth is slowing (you buy bonds and anything slow-growth-yield-chasing that looks like a bond)
- Then, you will win the relative performance rat race of 2014
So easy a Mucker can do it, eh?
Congrats to the Montreal Canadians for keeping all the Canadian rink rat hopes alive by knocking the Boston Bruins out of the Stanley Cup Playoffs last night. Canadian Olympic Gold medal winning goaltender Carey Price proved that the best offense is a great defense.
I’m not sure why some people I talk to get so defensive about being long the defensive slow-growth playbook. Maybe it’s because they are losing. Maybe because it just doesn’t make sense. But maybe it does, and consensus is simply not positioned for it.
When people ask me where the proof is of inflation slowing US consumption growth, at this point I simply refer to the data. Don’t forget that US GDP growth was 0.1% in Q1, Retail Sales for April (Q2) missed this week, and US inflation (PPI yesterday) “surprised” to the upside.
Looking ahead at the calendar:
- Post the+2.1% y/y Producer Price (PPI) report for April (versus +1.4% y/y in March)
- Today you’ll get another “surprise” to the upside in CPI (Consumer Prices)
- Then on Friday, you’ll get more data on US #HousingSlowdown
It wasn’t just the Russell Growth Index that got crushed yesterday. US Housing stocks (ITB) got sold to YTD lows too. For 2014 YTD:
- US Housing Stocks (ITB) are now -6.7% YTD
- US Consumer Discretionary stocks (XLY) are now -4.6% YTD
- Slow-growth #YieldChasing Utilities (XLU) was UP +0.5% yesterday to +11.1% YTD
But you already know that. And you know that I know that almost everyone I talk to says “well, I get it, but I can’t buy Utilities up here after this move.” Why not? I’m not trying to be a Kenny Linesman rat about this. I’m just trying to make and/or save you money by calling out Sector and Style Factors for what they are – huge competitive advantages in a performance chasing rat race that eventually forces everyone to buy what’s working.
We all make mistakes. But the biggest ones I have ever made in this game were doubling and tripling down on losers that kept going down. The Russell 2000 and Bond Yields are going down because consensus US growth expectations are – not because it’s different this time.
Don’t let your daughters pose with live pink rats and a toothless guy in NYC. That’s not different this time either.
UST 10yr Yield 2.54-2.61%
Brent Oil 108.41-110.36
Best of luck out there today,