“We shall not cease from exploration, and the end of all our exploring will be to arrive where we started and know the place for the first time.”
-T.S. Eliot, The Journey
In building Hedgeye over the past 8 years, we’ve struggled with many questions as a leadership team. Some questions we’ve gotten to the right answers quickly. While others, we’ve made the wrong decision and then had to re-chart our course years after going down the wrong path. Perhaps the most ongoing critical question for us, and all companies and teams, is how best to motivate our players.
The most obvious answer to many in the finance industry is that money is the key motivator for people. Certainly, the hedge fund industry with its 2% and 20% compensation structure underscores this point. And on some level, money provides security and opportunity, but does money motivate and drive outperformance?
Behavioral economist Dan Ariely has looked at this topic exhaustively and based on a number of studies has concluded that there are at least three motivators beyond money that drive satisfaction at work, these are:
- Meaningfulness of work - When the work has some greater meaning or impact, it is much more meaningful and motivational to the employee. To the outside, the idea that a company is trying to "change the world" may seem a bit silly. However to those on the inside doing the work, it is anything but, as it’s important for them to see that their work leads to positive outcomes.
- Acknowledgement by others - This is an obvious, albeit sometimes forgotten point, but employees and teammates want to be acknowledged for their efforts. At Hedgeye we do this in a few different ways, including, no surprise, awarding three people with the annual Hedgeye puck award.
- The amount of effort put in - In essence, the harder a job is and the more time and energy required for a successful outcome, the more rewarding people find the job. In essence, there is great motivation in accomplishing the really big and complicated tasks.
So, while compensation certainly has its role, especially in acknowledging a meritocracy in the workplace, there are other motivators that are just as important. Personally, I find the last one the most motivating, which is the joy of The Journey.
Back to the Global Macro Grind ...
Speaking of journeys, I had an epic one over the last couple of days as I brought my 18 month old daughter home to Canada. Though I'm not sure my solo journey with a toddler across the country was nearly as epic as the political journey that currently engulfs various regions across the world.
In Canada, this journey is probably most evident. It started in the oil and natural gas laden province of Alberta when on May 5th of this year, the National Democratic Party (NDP) won the provincial election. Prior to this election, the Conservatives had won every election since 1971, or had held power for almost 50 straight years.
On the national level in Canada, the big sea change was with the election of the former drama teacher Justin Trudeau as Prime Minister as his liberal party swept to power on a Keynesian and populist platform. Both this national election and the Alberta election were reactions to a weak economy and governments that had been in power for a long time and were seemingly doing nothing for the "common man."
Unfortunately for many Canadians, the Chart of the Day shows the real driver of the Canadian economy. In this chart, we look at the relationship between the Loonie and Oil. As shown, historically the relationship between the two is very tight, but this relationship has only tightened and now has a correlation of about 0.94. So as oil goes, so too goes the Canadian economy, despite what politicians might tell you.
In the U.S, the political journey can be summarized by one somewhat astonishing word: Trump. Despite the view of many pundits over the course of the year, Trump's stardom has not faded but rather gotten stronger over the course of his campaign. Currently on a national level, Trump is polling at about 36% in poll aggregates versus the field.
Not only is Trump polling near his personal highs, but he also leads the candidate in second place, which is currently Senator Ted Cruz, by a spread of almost 17 points, which is his highest margin over second place. Most pundits and Republican insiders point to State level polls to emphasize Trump's weakness and on some level this is true, as the race appears much tighter in early nominating state polls. In certain states, such as Iowa, Trump is also trailing by a reasonable margin.
But make no mistake about it, Trump is only getting stronger and is emblematic of a sea change occurring in both American and really global politics, which is the search for an option that does not represent the politics of old. This point is probably most evidenced by the approval of Congress polls, which currently show, based on poll aggregates, that roughly 14% of respondents approve of Congress and 75% disapprove. That is just sad.
In Europe, the direction is less clear and more volatile. The recent election in Spain was inconclusive at best. Acting Prime Minister Rajoy is slated to meet with Socialist leader Sanchez, but many followers of Sanchez have already indicated they would absolutely not support a Rajoy led government.
Meanwhile in Portugal, the leftist alliance is showing its first cracks as the Communist Party (yes, Communism is alive and well!), said it would not support a budget that had bank bailout monies. Finally, the Italians are in the midst of passing a tax cutting budget that appears to put them on war path with the EU over violating EU fiscal targets.
So as stock market operators, what does all this mean for us? Well, simply put, as governments change quicker with more frequent elections and adopt more extremes policies backed by more non-traditional candidates, it will become increasingly important in years ahead to have a handle on the direction of government policy. On this front, we will have some very exciting news for you in early 2016 as it relates to a meaningful product expansion at Hedgeye. Stay tuned.
Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND signals in brackets):
UST 10yr Yield 2.12-2.32%
Oil (WTI) 35.04-37.07
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research