Transporting Narratives

This note was originally published at 8am on June 09, 2015 for Hedgeye subscribers.

“Great is exactly what it isn’t.”

-Wallace Stegner

 

For some reason Willie Nelson is ringing in my head this morning. I’m on the road again.

 

And going West is where that quote from Stegner comes from. My Angle of Repose for the next 3 days will be across the sunny State of California, where I’m looking forward to debating Institutional Investors on what is really going on out there.

 

US and Global #GrowthAccelerating is exactly what isn’t right now. A #LateCycle US Labor report only reiterates that.

Transporting Narratives - It s different cartoon 06.08.2015

 

Back to the Global Macro Grind

 

For we strategist types, Transporting Narratives is fun. Meeting to meeting, that is what we do. So let’s start this morning’s narrative with the Transportation stocks.

 

In macro strategy there are some leading indicators that even the most creative storyteller can’t convince you that “it’s different this time.” When we went bullish on US #GrowthAccelerating in 2013, the Dow Transports (IYT) index was breaking out to the upside.

 

Now, after 73 months of a US economic expansion, it’s breaking down:

 

  1. Transports (IYT) led losers yesterday, down -2.1% vs. SPY -0.65%
  2. Transports (IYT) have been leading losers for the last month, -4.9%
  3. Transports (IYT) are now -8.7% for 2015 YTD

 

So what say you Mr. Global Growth Is Back man?

 

For those of us who have been on both the buy and sell side of the game, what we say with our #Timestamped positions speaks louder than our slide decks. On last week’s bounce, we signaled short the Transports (IYT) in Real-Time Alerts.

 

Here are my Top 3 ways to get out of the way on both US and Global #GrowthSlowing:

 

  1. Short Industrials (XLI) which continue to suck wind -2% YTD
  2. Short Financials (XLF) which failed (again) yesterday and remain in the red -0.4% YTD
  3. Short Transports (IYT) -8.7% YTD

 

Did I mention the Transports?

 

Actually there is a 4th way to express the Fed being more dovish (again) at the June 17th meeting, which is to take weakness in the US Dollar as a correlated tax on a #LateCycle and slowing US consumer (XRT).

 

Don’t forget that the US Retail Sales Growth cycle peaked in Q4 of 2014 at +4.5-4.7% year-over-year growth and has since slowed in its most recent reading (April) to +0.9% due to the sunny East coast weather. Did it rain enough in May?

 

Nah, let’s not talk about that data point or a 46.2 Chicago PMI reading for the month of May, when we can actually go back to a Durable Goods reading of -2.3% year-over-year in April and hope that the Fed didn’t see that one either.

 

Instead, let’s look away from the US data and see what Global Equities have been signaling for the last month:

 

  1. Russia -12%
  2. Portugal -9%
  3. Greece -8%
  4. Brazil -7%
  5. Turkey -7%
  6. Germany -7%
  7. Indonesia -6%
  8. Taiwan -5%

 

To be fair, I guess the Dow Transports are “outperforming” Taiwanese Stocks by 30 basis points in the last month. That must be the all-systems go on global growth signal, eh?

 

Oh, then there’s the narrative that “bond yields are rising because growth and inflation are back.”

 

On that data front this morning:

 

  1. Swiss consumer prices (CPI) deflated -1.2% year-over-year in May
  2. Chinese producer prices (PPI) deflated -4.6% year-over-year in May
  3. Chinese CPI slowed from +1.5% y/y in April to +1.2% in May

 

There’s definitely a narrative out there (perpetuated by Mario Draghi which I think was a huge mistake) that both the European and US economies are accelerating. We hear it in investor meetings every day (I think our competition is on the road too).

 

Unfortunately for the bullish growth narrative, both the economic data and market moves discounting future growth expectations are reminding you that #accelerating is exactly what it isn’t.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.03-2.41%

SPX 2067-2104
VIX 13.75-15.90
USD 94.64-96.41
EUR/USD 1.08-1.13
Oil (WTI) 56.99-61.50

Gold 1170-1200

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Transporting Narratives - Z 06.09.15 chart


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more