This note was originally published at 8am on October 03, 2014 for Hedgeye subscribers.
“I move onward, the only direction – can’t be scared to fail in search of perfection.”
If that isn’t a great thought for someone running their own business, fund, or money, I don’t know what is. You are going to make mistakes out there. The way to win in business, over time, is to not let your big mistakes ride. Moving on matters.
I’ve been writing a lot more about demographics and generations this year. And I think I’m onto something #behavioral with that. Many of the problems you see in the political economy today are being perpetuated by the policies of one generation (Baby Boomers) trying to maintain its indebtedness to another (GI generation). If we don’t learn from these mistakes, we’ll fail.
Shawn Carter (Jay-Z) isn’t a boomer. He’s a 44 year old GenX guy who built himself up from nothing and absolutely crushed it. That’s why another successful GenX guy, Ben Horowitz, cites Jay-Z in The Hard Thing About Hard Things (pg 39). That’s how a lot of guys my age think. For the first 15-25 years of our adult lives, we’ve seen a lot of mainstream thinking fail.
Back to the Global Macro Grind…
Thinking from another generation’s perspective is not easy. That’s why I read so many #history books. It helps me at least try to walk in other people’s shoes, and learn from their collective experience.
Writing about markets and economies is relatively easy when I compare it to my day job (running a company). That’s where I have to constantly remind myself to not react emotionally to other people’s perspectives. Empathizing with them matters.
“Looking at the world through such different prisms helped me separate facts from perception… I learned to look at alternative narratives and explanations coming from radically different perspectives to inform my outlook.” –Ben Horowitz
Hopefully our Q4 Macro Themes call yesterday helped inform your outlook too.
Since we’d been working on the content side of the slide deck for the last few weeks (which is really just a cumulative update on what we’ve been writing about every day), the investor feedback to yesterday’s call is what mattered most to me.
The most contested points of the presentation were:
- US Dollar – if the Dollar is strong and commodities are deflating, why not buy consumer stocks?
- #Quad4 - how can you say the setup is like Q3 of 2008? that was a once in a lifetime event.
- #Bubbles – a series of questions that basically implied it’s different this time.
(We will have video of the Q&A portion of the call available later today.)
My answers graze the surface on what I am thinking right here and now. Obviously with time and price, my answers should and will change. But, in summary, the main takeaways are as follows:
- Dollar Up, Rates Down = #Quad4, and that’s deflationary for both Energy (XLE) and Consumer Discretionary (XLY) stocks
- #Quad4 happens. In rate of change terms, that is. Because it’s 1 of 4 places you eventually traverse during a cycle.
- And on #Bubbles, I don’t think it’s different this time.
In other news, Yodlee (a financial apps company) is going to raise $75M in an IPO today. Love #apps. But seriously.
Back to the real world, both the market reaction and economic news has apparently “frustrated” another one of these un-elected men (Draghi) that God put on earth to centrally plan the business cycle.
Put another way, Mario Draghi’s Drugs proved to be impotent in yesterday’s real-time market voting session. Germany’s DAX closed down -2% on the day. That puts every major European Equity market index in bearish TREND signal mode @Hedgeye.
Not surprisingly, our #EuropeSlowing Theme was not contested. That’s the thing about markets. Sometimes they move downward, fast. And when they do, the search for research perfection in explaining the alternative narrative gets a lot easier.
Our immediate-term Global Macro Risk Ranges are now (my Top 12 daily risk range callouts (with intermediate-term TREND overlay) are in my Daily Trading Range product – just math – ask sales@Hedgeye.com to trial it):
UST 10yr Yield 2.39-2.51%
France (CAC) 4232-4377
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer