“Genius knows no class, no condition…”
-Dayton Daily News, 1909
First and foremost, I wanted to wish you and your loved ones a happy holiday season. I was blessed with a great surprise for Christmas – a visit to CT by my Mom & Dad. That made my wife, four children, and I, as grateful as we can be.
I’m super grateful for the year we had @Hedgeye too. So many of the things we worked so tirelessly on as a team came together in 2015. And I wanted to personally thank all of my teammates for believing in the vision. Without their efforts, this doesn’t happen.
While there are many other shapes and forms, we are blessed to be living one version of The American Dream. The genius in that inspiration is that it’s pillars aren’t part of an “upper or lower class”, or any pre-condition.
Over 100 years ago, an editorial from the Dayton Daily News nailed that about The Wright Brothers. The aforementioned quote comes from a fantastic passage that typifies free-market history in America:
“It is a wonderful lesson – this celebration. It comes at an auspicious time. The old world was getting tired, it seemed, and needed help to whip it into action. There was beginning a great deal of talk about man’s no longer having the opportunities he once had of achieving greatness… some were wondering whether a poor boy might work for himself a place in commerce or industry or science.
This celebration throws all such idle talk to the winds. It crowns anew the efforts of mankind. It points out to the ambitious young man that he labors not in vain; that genius knows no class, no condition… above all there is a sermon in the Wright Brothers life of endeavor which cannot be preached too often.” (The Wright Brothers, pg 231)
Back to the Global Macro Grind…
Last week’s no-volume (one of the lowest of the year) “rally” was led by everything that’s crashed in 2015. With the US Dollar having a counter-TREND down week of -0.8%, “reflation” led the bounce to lower-highs in FX and Commodities:
- US Dollar Index -0.8% on the week to +8.5% YTD
- Euro (vs. USD) +0.9% on the week to -9.4% YTD
- Canadian Dollar +0.9% on the week to -16.0% YTD
- CRB Commodities Index +2.3% on the week to -23.4% YTD
- Oil (WTI) +5.7% on the week to -37.0% YTD
- Copper +0.5% on the week to -25.0% YTD
And, this morning:
- USD stops going down and remains bullish TREND @Hedgeye
- Oil (WTI) resumes its epic #Deflation, -1.7%
- Dr. Copper remains deathly ill, straight back down, -1.9%
In case you were looking for Style Factors that crushed it last week – the Top 3 gainers were the Top 3 #Deflations of 2015!
- High Beta Stocks were +3.5% last week to -12.0% YTD
- High Debt (to EV) Stocks were +2.9% last week to -10.9% YTD
- Small Cap Stocks were +3.2% last week to -12.4% YTD
*Mean performance of Top Quartile vs. Bottom Quartile (SP500 Companies)
In other words, the no-volume squeeze had the smaller cap Russell 2000 outperform the large cap Dow at +3.0% week-over-week vs. 2.5%. Heading into the final week of the year, the Dow and Russell are down -1.5% and -4.1%, respectively.
It’s amazing what genius you’ll find in simply listening to Mr. Macro Market’s signals amidst all of the Establishment’s noise. As long as you’re thorough and humble enough to accept that the market may not want what you need, you’re starting with a good #process.
In a slower-for-longer secular growth world, you should pay more for the organic growth that you can find. But, more importantly, you should realize that “cheap” has the illusion of “cheap” because the US economic cycle is slowing alongside the secular.
That’s why I’d call Energy (XLE) and MLP (Alerian ETF) stocks leading last week’s counter-TREND bounce (+4.7% and +14.4% to -22.2% and -31.8% YTD, respectively) nothing more than what it was – counter to the TREND that’s been your friend all year long.
The combination of #Deflation and #GrowthSlowing knows no “valuation” bottom, until we price in a full economic and credit cycle.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.15-2.30%
Oil (WTI) 34.97-38.33
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer