This note was originally published at 8am on July 14, 2014 for Hedgeye subscribers.
“Football is a simple game; 22 men chase a ball for 90 minutes and at the end, the Germans always win.”
I’m flying to London this morning, so I figure that if North Americans reading this don’t know who Gary Lineker is, the investors I am meeting with in the UK tonight will! Lineker still holds the English record for goals at the World Cup with ten.
The OT winner yesterday was only Mario Gotze’s 2nd career goal at the World Cup, but that’s because he is only 22 years old. He and his sniper teammate Andre Schurrle were the only two players on the team who were born after Germany’s unification.
As times change, people and countries do. The spirit of selfless teamwork displayed by the German side was something all of Germany should be proud of this morning. Alongside a passionate veteran effort, Germany empowered its youngest players to lead. There’s a lot to learn from that.
Back to the Global Macro Grind…
Who are your best up and coming people? Do you foster a meritocracy where they can thrive? Or are you more or less set with a traditional hierarchy? How about your investment process? How often does it evolve? Does it embrace change?
If the boomer generation’s US political establishment was a soccer team, here’s how some of its media represents it:
"Ever since Cantor lost his primary, a lot of people are scouring the map, saying: Which House incumbent will be next to fall? Well, don't hold your breath. I was checking in with sources in both parties this week and Democrats say they don't think any of their incumbents will lose primaries.” –John King, CNN
It’s a good thing that politicians in both the Republican and Democrat party who have lost the trust of The People have it all figured out. But what if Hedgeye’s forecast for #Q3Slowing takes hold, both the US Dollar and Bond Yields fall, and domestic growth expectations fall alongside them?
Do you think 2015 will look any different from a political perspective? Or do you think America’s younger people (my generation and Millenials) will let un-elected bureaucrats at places like the Fed (and the IRS) continue with these tired, old, slow-growth Policies To Inflate?
Right when everyone didn’t think it could happen, that’s precisely what happened last week:
- US Dollar Index was down for the 3rd out of the last 4 weeks and remains below our TAIL risk line of $81.19
- US 10 Year Treasury Yields fell another 12 basis points to 2.52% (that’s -51 basis points for the YTD)
- US Domestic Growth Stocks (Russell 2000) got tagged for a -4% loss, putting it back in the red for the YTD
I know. When it’s mid-July and the Russell 2000 is down YTD, that means everything growth is ripping. Right. Got it. And Brazil looked mint against Germany too.
Back to reality… On the other side of domestic growth expectations being marked down last week:
- Slow-growth Utilities (XLU) had another up-week in a down equity market, closing +0.8% to +12.8% YTD
- #YieldChasing REITS jammed Americans with new all-time highs in rents, +1% on the week to +16.3% YTD
- Gold and Silver were up another +1.4-1.7% to +11.2% and +10.4% YTD, respectively
Yep, we’re talking big time bull market now – in growth slowing expectations!
At the same time, US Equity Volatility (VIX) ripped off its most asymmetric long-term TAIL line of support (VIX 10) closing the week +17.5%. But no worries… Janet Yellen is going to say everything is just dandy at her semi-annual-central-planning testimony to Congress this week.
Or will she?
I don’t think Yellen will be as bullish about the US economy as Old Wall Street’s estimates are for “year-end” bond yields and US GDP growth to accelerate. Don’t forget that at the last Fed meeting she took down her US growth estimates. Since then, real US consumption data has deteriorated.
Yellen isn’t a young baby boomer. She was actually born on the front-end of the boomer cycle (1946). She and I probably think about economics, markets, and risk as differently as Gotze does about Germany, post the Berlin Wall coming down.
I’m not saying that older generations are all wrong. In fact, many of the most thoughtful investors I meet with are boomers (born 1946-1964) and are more adamant about changing monetary policy than I am! If Americans want to start winning again, they need to change the players they have on the field.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.49-2.59%
WTIC Oil 100.03-104.13
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer