Painless Starts

This note was originally published at 8am on April 22, 2015 for Hedgeye subscribers.

“The marvelous thing is that it’s painless.”

-Ernest Hemingway

 

In one of my favorite Hemingway short stories on mortality (The Snows of Kilimanjaro), that’s how a dying man explained the beginning of the end to his wife.

 

“That’s how you know when it starts”, he said. “It’s painless.”

 

To be clear, I don’t mean to bug you out this morning. I just wanted to remind you that while it’s been painless to be long of Chinese, Japanese, European (and now, on the margin, American) “easing” (in bond/stock market terms), this won’t end well.

Painless Starts - bubble cartoon 09.09.2014

 

Back to the Global Macro Grind

 

‘How could you write such a thing? Et tu, brute? How can you be bullish for the last leg of this ramp and, at the same time, remind me how it all ends? I knew it Mucker… you are a perma bear! You bastard.’

 

Enough of my literary attempts to entertain you, eh. Let’s just stick with the data (and some hilarious headlines for this stage of what’s been nothing short of an epic inflation of global stock and bond market prices):

 

  1. Chinese “investors” open a record number of stock brokerage accounts week-over-week (Sina.com)
  2. Mystery Traders armed with algorithms rewrites Flash Crash story (Bloomberg.com)
  3. Greek Contagion risks may be higher than you think (cnbc.com)

 

Ok. Maybe it’s not hilarious. I was just looking for some alliteration. But it is extremely amusing (which is the definition of hilarious).

 

As you know, mainstream media (especially Financial media), chases its own tail in its perpetual quest to prove to its advertisers that yesterday’s news matters today. #RatingsAtAllTimeLows

 

The way that these headlines work is that they are pro-cyclical to price action (i.e. they chase stories/price):

 

  1. Chinese stocks (Shanghai Composite) ramped another +2.4% overnight to +36.1% YTD
  2. Storytellers have been trying to become famous writing about the Flash Crash for years
  3. Oh, and if you didn’t think Greek stock market risks were real, you’re losing money long that

 

Since I haven’t had one real Institutional Investor ping me on the latest trader to sport the orange jump-suit risk for flash crashing the party (for a day), I give you a few more fun facts about Chinese and Greek stocks, instead:

 

  1. CHINA: since growth and inflation really started slowing in OCT, the Chinese stock market is +92%
  2. GREECE: since mainstream media started trumpeting “Greece Fixed” in DEC, Greek stock market -32%

 

In Hedgeye-speak, that makes China a bullish intermediate-term TREND and Greece a bearish one. If intermediate-term (3 months or more = TREND duration) is too short-term for you, look at both of these country stock markets year-over-year:

 

  1. CHINA: Shanghai Composite Index = up +112%
  2. GREECE: Athens General Share Index = down -44%

 

“So”, what I’d really need to get bullish on Greek stocks is:

 

  1. The Greeks telling the world the half truth (like China did) about slowing growth and #Deflation
  2. The Germans confirming that they get the truth, but have no intention of letting Greece “exit”
  3. And the mother of all Greek bailouts right when CNBC/Bloomberg are as bearish as they were on China last year

 

The death of the lies is where the painless progression starts, no?

 

It worked in Ireland and Iceland (sort of). And while I completely disagree with the policy to bailout losers, my political view on that front would have rendered my research opinions useless for the last 5-6 years too.

 

Can you imagine being the “smartest” man on earth right now (per yourself) and short Chinese stocks from last year’s lows? There is nothing painless about hubris. And I’ll define that in market terms for you too – not respecting Mr. Macro Market’s message.

 

I’ve lived and learned through this entire central planning circus alongside you, writing and ranting about it, almost every day for 7 long years…

 

I’ve always thought this won’t end well. But “ends” are processes, not points. And I’ve tried to time the beginning of the end as painlessly as possible. Because realizing perpetual P&L pain is no way to live.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:

 

UST 10yr Yield 1.85-1.95% (bearish)
SPX 2082-2112 (bullish)
RUT 1250-1275 (bullish)
DAX 11683-12195 (bullish)

VIX 12.37-15.27 (bullish)
USD 97.04-98.76 (bullish)
EUR/USD 1.05-1.08 (bearish)
YEN 118.99-121.14 (bearish)

Oil (WTI) 49.35-57.69 (bearish)
Natural Gas 2.44-2.65 (bearish)
Gold 1182-1209 (neutral)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Painless Starts - 04.22.15 chart


GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more