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“A horse never runs so fast as when he has other horses to catch up and outpace.”
There are many great metaphors in life and business. However, tomorrow we have the opportunity to witness a world-class achievement - the Triple Crown of Thoroughbred Racing - when California Chrome runs in the 146th Belmont Stakes. If successful, California Chrome will become only the 12th winner of the Triple Crown.
The Triple Crown is a test of speed, strength, and stamina. Winning the Triple Crown takes a special combination of horse, trainer, jockey, owner and veterinarian. It is incredibly difficult to win the Triple Crown – win the Kentucky Derby at 1 ¼ miles, followed by winning the Preakness Stakes at 1 3/16 mile a mere two weeks later and then a massive 1 ½ miles (a distance not often run in horse racing) three weeks later at the Belmont. The Belmont Stake will feature a field of 11 thoroughbreds with 10 challengers seeking to unseat the contender California Chrome.
If you were jockey Victor Espinosa what would be your game plan – break away early and lead from the front, play it slow and keep something in the tank for the grueling one and one-half mile race, or simply let the race unfold as it happens, be flexible and nimble, taking advantage of number 2 post position near the rail, while keeping an open mind to anything that can and will happen – knowing all the while the other 10 jockeys are looking to run you down and spoil the party?
I am old enough to vaguely remember Secretariat win the Triple Crown in 1973. However, I more clearly remember Triple Crown winners Seattle Slew in 1977 and Affirmed in 1978. My paternal grandmother loved to bet the ponies and she love to gamble as well. Maybe that’s why I became an analyst covering the gaming industry. My first horseracing experience occurred in the mid-1970s when I joined my parents and my grandmother for a day at the races on the Club Level Terrace at Arlington Park, now called Arlington International Racecourse. Ever since then, I love to watch horseracing!
Back to the Global Macro Grind...
A similar metaphor and strategy can be applied to managing money, and trust me I know, I’ve held the title “Portfolio Manager.” The one thing I learned as an equity analyst and I’ve carried through to my career as a PM is how to filter out the noise while also reading as much topical, salient and actionable literature, data, and related content. More important than reading, I also spent as much time thinking about what I read – as such I remained flexible and adaptable to new information, new data and changed my outlook, strategy and holdings accordingly. I did this while running as hard and fast as possible… Similar to Keith McCullough, Hedgeye’s CEO, and most of us on the Hedgeye team, I also hate to lose!
So here we are almost half-way through the race, mid-year 2014, Mr. PM what do you do? Read more? Think more? Are you open to new insights and a new strategy?
The Hedgeye Macro and Industrials team will host a thought leader call today with foreign policy expert, Charles Hill. Charles Hill is a diplomat in residence and lecturer in International Studies at Yale University. He is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz.
I am sure Victor Espinoza has a strategy in mind for running California Chrome in Saturday’s Belmont Stakes. However, I am also sure he remains open to changing and adapting his strategy as the race unfolds. Likewise, most PMs are suffering under the heavy hand of Mr. Market this year with the S&P 500 +5%, the NASDAQ +2.9% and the Dow Jones Industrials +1.6% – by comparison nearly any asset class with above average yield are outperforming, namely: REITs (IYR or VNQ) +15.6% (during my PM years I ran a REIT and Real Estate Fund), Utilities (XLU) +13.8% and Energy (XLE) +8.5%.
Did you know California Chrome’s dam is Love the Chase – a fitting name for our business! Personally, I remain bullish on REITs and I also like California Chrome to win the Belmont Stakes and thus become the 12th Triple Crown Winner because the colt has already outrun six ponies he faces on Saturday and others appear to simply be spoilers.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr yield 2.41-2.61%
Have a great weekend!
Director - Gaming, Lodging & Leisure
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TODAY’S S&P 500 SET-UP – June 6, 2014
As we look at today's setup for the S&P 500, the range is 45 points or 2.19% downside to 1898 and 0.13% upside to 1943.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
Takeaway: 82% said NO; 18% said YES.
Economists are expecting tomorrow’s employment report to show 210,000 jobs were added to the U.S. economy in May.
Today’s poll question was: Do you trust the government’s employment numbers?
At the time of this post, 82% said NO; 18% said YES.
Here’s what those who voted NO had to say:
Conversely, this YES voter disagreed, saying that "while it's easy to poke holes and you are maybe right to be skeptical being correct on economic data only gets you so far. You must understand how the market will react to said economic data which gets increasingly complicated if you do not believe headline numbers the market is reacting to."
Likewise, another YES voter said, "It has been wrong all along, but as long as it's been consistently wrong. Why not?"
The Hedgeye Macro Team, led by CEO Keith McCullough, will be hosting an expert call featuring Professor Charles Hill tomorrow, June 6th at 10:30am EDT. Professor Hill is a diplomat in residence at Yale University where he teaches Grand Strategies.
To gain a better understanding of the key foreign policy risks on the horizon that may have an impact on global markets.
Professor Hill is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz. He also served as a special advisor to U.N. Secretary General Boutros-Boutros Ghali.
KEY TOPICS WILL INCLUDE:
What does the election of Bashar Hafez al-Assad in Syria mean for the West?
ABOUT PROFESSOR CHARLES HILL
Charles Hill is a diplomat in residence and lecturer in International Studies at Yale University. He is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz. Dr. Hill has been a fellow at the Harvard University East Asia Research Center, a Clark fellow at Cornell University, and is currently a research fellow at the Hoover Institution.
He served as special consultant on policy to the secretary-general of the United Nations from 1992 to 1996. Dr. Hill has collaborated with former U.N. Secretary General Boutros Boutros-Ghali on Egypt's Road to Jerusalem, a memoir of the Middle East peace negotiations, and Unvanquished, about U.S. relations with the U.N. in the post-cold war period. He is also the editor of the three-volume Papers of U.N. Secretary-General Boutros-Ghali, published by Yale University Press.
His book "Grand Strategies: Literature, Statecraft and World Order" is published by Yale University Press. His "Trial of a Thousand Years: Islamism and World Order" is published by the Hoover Press, Stanford University. He received an A.B. degree from Brown University in 1957, a J.D. degree from the University of Pennsylvania in 1960, and an M.A. degree in American studies from the University of Pennsylvania in 1961.
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.