“A calorie is a calorie is a calorie”
My grad school Bionutrition professors peddled that perceived wisdom about caloric intake and its flow through to body composition every semester.
I think they truly believed it.
The math behind the conventional thinking ran like this: 1 lb of fat = 395g (~87% lipids) … 395g X 9 calories per gram = ~3500 calories.
So, create a caloric deficit of 3500 and the muffin-top melts to memory.
Intuitively compelling, expositionally convenient …. and (mostly) empirically false.
You don’t need an advanced degree to poke common sense holes in that orthodoxy.
At the time, my simple pushback was something like this: “If I eat 2K calories of butter, 2K calories of chicken, or 2K calories of lettuce everyday, do you think I’ll look and perform the same after 3-months?”
Empirically, physiology and physique transformation are nonlinear processes and simple calorie reduction works … until it doesn’t.
The further someone progresses beyond the “honeymoon” dieting period, the more progress gets choppy and less predictable.
Most people have experienced a form of diet nonlinearity. Diet, Diet, Diet and nothing happens for days/weeks then wake up one morning and you lost 5 lbs overnight and look noticeably different.
Having trained hundreds of high-level, competitive athletes and bodybuilders, you learn what works with live ammo. It’s called Bro-Science.
Bro-Science has had a sneaking tendency to become ivory tower doctrine … on a lag.
Relatedly, this week I put on a pair of spandex and looked in the mirror. It’s called #TruthSerum.
Click here to join Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale on today's The Macro Show.
Back to the Global Macro Grind ….
On Wednesday, we strapped the research spandex on Housing and delivered our outlook for 2016. The conclusion, in rate-of-change bro-science empiricist terms is: Less Good is Bad (ping if you’re interested in reviewing the 150-pg deck detailing our view)
Without giving away the full institutional research alpha thunder, here’s a select summary of some of the issues facing the industry:
- WALL OF WORRY OR SLOPE OF HOPE? The long-term bull case for Housing is still alive, but the short and intermediate term outlooks are dominated by negatives. At the macro level, the manufacturing-industrial data is conspicuously contractionary, income and consumption growth are both past peak, birth trends are rolling over and recession risk is rising. Housing related equities (Builders, Building Products, Home Improvement, Title Insurers, etc) underperform in both recessionary and rising rate periods. Rather than climbing the wall of worry, we think the first 6-9 months of 2016 will be spent riding the slope of hope lower.
- FUNDAMENTAL DECELERATION | VOLUME & PRICE: Rate of change in both volume and price are set to decelerate in 2016. The short-term will be pressured by a late-4Q15 pull forward of demand ahead of the Fed’s rate hike. Beyond this, however, tough comps through 3Q16 will push Y/Y growth down sharply and home price trends will begin to play catch up (i.e. decelerate) to 2015’s back half volume slowdown. Decelerating fundamentals are rarely a catalyst.
- HOUSTON, WE HAVE A PROBLEM: While Houston is small relative to the country as a whole, it’s not small for builders. The Houston Metro population is the fifth largest in the US with ~6.5 million residents and was the fastest growing metro from 2010-2014. Builders ramped exposure to Houston and benefited over the last half-decade+ as demand and construction accelerated but conditions have reversed and activity is now spiraling south. Job growth in the region slowed from +4.4% last year to just +0.8% in November, existing home inventory is up +28% YoY, demand is down -11% YoY, new orders at LEN were down -20.4% in 4Q and home prices and permitting activity have just begun to roll over. Further, oil hedges for major E&P employers in the region will decline by -23% in 1H16 and further headcount “adjustments” will follow. In short, don’t try to catch the falling knife in Houston – it’s going to get worse.
- LABOR SUPPLY: Builders have complained about the dearth in specialty trade contractors in recent quarters as the peri-crisis retreat in immigration, a lack of hiring of younger workers, and residual post-crisis industry level labor issues have reduced the supply of skilled workers to the industry. A tight resi labor market is indicative of rising demand (i.e. a high quality problem from a longer-term perspective) but the associated cost and margin pressure will not resolve in 1H16 as the pace of new construction activity continues to outpace the growth in industry employment.
- HIGH END: Growth in New Home Purchases at the high end (>$500K) has slowed to -10% YoY in 4Q and demand is unlikely to materially re-accelerate over the shorter-term. As can be seen in the Chart above, High ticket discretionary consumption is (unsurprisingly) sensitive to asset market volatility and with the VIX in Bullish Formation and global equities in hard-hat mode, the high end probably won’t carry the consumption curve higher here in early 2016.
- PLAYING DEFENSE: Within the housing related equity complex, REITs provide the best relative returns during recession and rate risk environments. As can be seen in the Chart of the Day below, REIT’s are essentially the Utilities of the Housing industry. While the r-square isn’t exceedingly high, the relative return distribution plots as you would expect and want in a growth slowing environment.
With the future’s red this morning, today’s domestic macro data is unlikely to fuel an appetite for holding risk over the long weekend.
The PPI data will remain deflationary, Industrial Production growth should remain negative for 2nd month (and – outside of a prospective cold weather bounce in utilities production in January – it’s unlikely to reverse in the coming months with both backlogs and new orders holding <50 across the ISM/PMI surveys) and with savings rates elevated and durable goods orders and consumer credit growth flagging in recent months, Retail Sales are unlikely to surprise to the upside.
God was in a good mood the day he created the intelligent bro-scientist gene.
At some point we’ll be very publically wrong, but in the meantime …
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.03-2.16%
To the bro’s continuing to front-run the (macro) flows,
Christian B. Drake
U.S. Macro Analyst