Fresh Stimulus!

“Defeat should never be a source of discouragement but rather a fresh stimulus.”

-Robert South

 

Preach, brother! If wrong on both growth and inflation all year long, never, ever, give up. There’s always a sticker for everyone to win at the end of the QE rainbow. Cowbells and puppy dogs. Ring it, preacher!

 

Robert South was an English churchman in the 17th century who would probably do as well as the speaker of the centrally-planned market house today as he did under King Charles II and then William & Mary.

 

Discouraged short seller? Hopefully not. The Long Bond continued higher yesterday too. If you’re only a US stock picker type, there’s a plethora of longs and shorts for you to pick from post yesterday’s “fresh stimulus” too.

 

Back to the Global Macro Grind

 

Yep. That’s what your un-elected-central-planning-overlord Draghi called it yesterday. Nah, he didn’t have to actually do anything. He just had to call it a “fresh stimulus.” If only the people who have been bullish all year long were bullish for that reason.

Fresh Stimulus! - Draghi cartoon 10.22.2015

Bullish on either top-down GDP growth or “reflation”, that is…

 

If you were bullish on some of the most expensive big cap stocks in human history (like, say Amazon – AMZN) with the fundamental call that growth there would accelerate throughout a #LateCycle US (and Global) slowdown, that was dead right.

 

Whereas if you were bearish on some of the most expensive mid cap stocks in human history (i.e. the ones that don’t make money like, say Pandora – P) alongside Hedgeye’s Internet & Media Analyst, Hesham Shaaban, you nailed that too.

 

That’s why I’m refreshed and fired up this morning. How could you not be? AMZN is +10% pre-open and Pandora (P) is crashing another -23%.

 

Stock Pickers and Macro Minds, Unite!

 

As opposed to focusing on the macro data this morning (Germany’s PMI slowed again to 51.6 in OCT vs 52.3 last month), I’d be remiss (and un-objective) to not give a big Earnings Season shout-out to the likes of AMZN, GOOGL, and MSFT last night.

 

This is what those 3 stocks did to the Q3 Sales/EPS Scorecard vs. what I highlighted 2-days ago:

 

  1. SP500 Sales “growth” of -3.6% got back to down -2.4%
  2. SP500 Earnings “growth” of -7.9%  clawed back to down -5.4%

 

In other words, after consensus called for +8-10% Earnings Growth in 2015, the new bull case is that after AMZN, GOOGL, MSFT, we’re back to earnings season being better than horrendous.

 

Just to break the Sector Styles of Earnings Season down for you again, here are the numbers post 161/500 companies reporting:

 

  1. Energy – Sales -31%, EPS -55%
  2. Materials – Sales -18%, EPS -36%
  3. Industrials – Sales -6%, EPS -2%
  4. Financials – Sales -3%, EPS -8%
  5. Information Technology – Sales -3%, EPS -13%
  6. Consumer Staples – Sales -4%, EPS -2%
  7. Consumer Discretionary – Sales +4%, EPS +19%
  8. Healthcare – Sales +10%, EPS +4%

 

Yeah. Healthcare Sales and Earnings have been relatively awesome (as they tend to be alongside consumer spending at the end of an economic cycle), so Healthcare stocks (XLV) were down -0.6% on the day yesterday.

 

Remember, when QE Cowbell is your catalyst, bad news is good and good news is bad, baby! Unless the news (like American Express, AXP, Earnings) is really bad or really good (McDonald’s, MCD), that is.

 

That’s why I love where this market and all of its risks/opportunities are right now. For far too long the variance of macro, sector, and stock picking returns was generationally low. Everything either went up, or down. Now some things go up, and others straight down.

 

Back to Draghi’s “fresh stimulus” comment and what we think about that (see Darius Dale’s video presentation from last night):

 

  1. Down Euro --> Up Dollar, Down Rates is not a GDP growth accelerating signal – it’s a slowing one
  2. What’s bearish for the Euro (until the Fed gets more dovish data next week) is bearish for Commodity inflation expectations
  3. What’s bearish for growth and inflation expectations is bullish for The Long Bond (TLT) and Municipal Bonds (MUB)

 

Ultimately (and perversely) Down Euro Devaluation is a global TIGHTENING event because the world’s biggest asset price #deflation risk is that the world’s inflation expectations (commodities, debt, etc.) are DENOMINATED IN DOLLARS.

 

Yep. I’m going all CAPS on you at the top of this freshly squeezed and stimulated risk management morning! Let’s get after it.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.98-2.09%

SPX 1
USD 94.89-96.75
EUR/USD 1.10-1.12
Oil (WTI) 44.80-47.63

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fresh Stimulus! - 10.23.15 EL chart


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