Peak M&A Is A Classic Late Cycle Indicator | $DD $DOW

Takeaway: We've been highlighting the late cycle nature of M&A for a while now.

Peak M&A Is A Classic Late Cycle Indicator | $DD $DOW - late cycle

Need more evidence that the U.S. is in a late cycle slowdown?


Look no further than the proposed merger of Dow Chemical (DOW) and DuPont (DD). If the deal goes through, it would create a massive $130 billion behemoth. Management would ultimately divvy it up into three separate businesses.


Why does that matter? Here's our analysis from a note sent to subscribers this morning: 


"... A multi-quarter acceleration into peak capital markets activity has historically been a harbinger of an economic downturn. Yesterday, multiple reports claimed DD and DOW are in advanced talks to merge, with the combination to then split into three separate companies; both stocks finished ~12% higher on the day.


The WSJ recently noted that worldwide M&A, excluding buyouts, has totaled $3.7T this year, beating the previous record set in 2007. This is exactly the kind of frothy, head-scratching headline you’d expect to see to confirm the forward outlook that global economic growth is as bad as we think it is. 


M&A usually peaks when company insiders agree to sell and that’s exactly what you’re seeing in insider transaction reports. At $7.6B, November 2015 was the fourth-highest month of insider selling on record.


This comes amid record share buyback activity, which has averaged $3.9B/day since the beginning of earnings season in October. Data firm Trim Tabs observes that this is the highest pace since the bull market began in March 2009.


Companies are doing everything they can to arrest the gravity weighing on peak margins. It has become increasingly difficult to protect earnings amid #GlobalDeflation which has perpetuated the ongoing global industrial recession – including right here in the U.S. All told, there is a ton of risk to forward estimates for GDP and EPS growth if we’re right on the economic cycle."


We've been talking about the late cycle nature of M&A for a while now. This is a slide from our 73-page Q4 Macro Themes presentation released in October:


Peak M&A Is A Classic Late Cycle Indicator | $DD $DOW - macro themes manda 


Say it with us now, the U.S. economy is "Super Late Cycle."


Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

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